1H23's performance met our expectations

The company announced 1H23 results: revenue of 4,047 billion yuan, +68.6% year on year; net profit of 201 million yuan, +332.6% year on year. That is, 2Q23 revenue was 21.38 yuan, +93.9% year on year, and +12.1% month on month; net profit for return was 98 million yuan, +342.1% year on year, and -5.6% month on month. Haisida, a holding subsidiary of 1H23, achieved net profit of 66 million yuan, which is attributable to the parent company of about 53 million yuan. The company's performance is in line with our expectations.

Development trends

Prices of raw materials continued to fall, and the profit of modified plastics increased month-on-month. 2Q23 The average price of raw materials polypropylene/ABS/polyethylene/polycarbonate was -2.4%/-9.9%/-1.9%/-4.0%, respectively, and the gross margin of modified plastics increased month-on-month. At the same time, the company continues to strengthen market expansion, actively lay out modified materials for new energy vehicles, and has achieved in-depth cooperation with many new energy vehicle companies, and various materials have been approved and applied. Domestic new energy vehicle companies are highly receptive to domestic material suppliers, and we believe it is expected to drive the company's modified plastics revenue to continue to rise.

Focus on laying out the energy storage battery business and actively expand the scale of energy storage. According to the company announcement, as of 1H23, the company had a production capacity of 3 GWh for ternary cylindrical lithium-ion batteries and 1.19 GWh for lithium iron phosphate batteries. The company focuses on the energy storage business, with 7.3 Gwh square batteries under construction and 18 Gwh battery production capacity to be built (Liuyang Phase I 12 Gwh and Zhuhai Plant 6 Gwh); plans 18 Gwh battery production capacity (Liuyang Phase II 6 Gwh, Phase III 12 Gwh); of these, the sodium-lithium co-line is 1.3 Gwh and the Zhuhai plant's 6Gwh production capacity is scheduled to be put into operation on 2H23. We expect the company's energy storage business to be greatly expanded in 2024, which will help ease delivery pressure caused by insufficient energy storage capacity and full business orders. In the long run, the production capacity planning for the company's energy storage business is sufficient, which is expected to provide important support for the company's rapid growth in the next stage.

Deeply bind industrial resources and accelerate promotion and application in the field of energy storage. Since 2023, the company has actively promoted product development, promotion and application in the energy storage business. It has successively signed strategic cooperation agreements with companies such as China Kehaina, Daqin New Energy, China Construction Fifth Bureau Installation, Tianchen Energy, and Guangpu Co., Ltd., to share superior resources and jointly promote the industrial application of lithium-ion and sodium-ion batteries in industrial and commercial energy storage and household storage. Along with deep ties to industrial customers, the company's energy storage business is expected to expand at an accelerated pace.

Profit forecasting and valuation

Our net profit for 2023/2024 remained unchanged at 584 million yuan/964 million yuan. The current stock price corresponds to 23.7 times the 2023 net market ratio and 14.4 times the 2024 net market ratio. We maintain an outperforming industry rating, but due to declining market valuation levels, we lowered our target price by 17.9% to 15.6 yuan, corresponding to 29.7 times the 2023 price-earnings ratio and 18.0 times the 2024 price-earnings ratio, which has 25.3% upward space from the current stock price.

risks

The price of raw materials has risen, the amount of energy storage batteries has fallen short of expectations, and the amount of ICT materials has fallen short of expectations.