2023H1 performance is in line with our expectations
The company announced 2023H1 results: revenue of 16.61 billion yuan, -22.3% year-on-year; net profit of 670 million yuan, corresponding to profit per share of 0.41 yuan, or -28.5% year-on-year, in line with our expectations.
Among them, 2Q22's new chemical materials business (Ruitai New Materials subsidiary, including electrolytes, silane coupling agents, etc.) had revenue of 950 million yuan, -29.5% year-on-year, -15.7% month-on-month; net profit of 150 million yuan, -28.7% year-on-year, +15.1%. The company announced 1H23 electrolyte production volume was nearly 40,000 tons, and the profit performance was nearly 40,000 yuan/ton per ton. The profit performance was relatively good. We believe that mainly due to the company's good supply chain management, the average purchase price of hexafluoride in the first half of the year was 119,000 yuan/ton, compared to the 2022 average of -46.7%.
Development trends
Supply chain management capabilities are good, and they are optimistic about the long-term development potential of the electrolyte business. Although the company currently does not have industrial chain support for hexafluoride, the main raw material, the company's trading business background has brought about better supply chain management capabilities, and the profit situation per ton of electrolyte has maintained a relatively good trend. However, from the perspective of market share, according to EV Tank, 1H23 China's lithium-ion battery electrolyte shipments were 504,000 tons, and the company's market share declined slightly in the first half of the year. Looking ahead, we are optimistic that demand for electrolytes will rise in the future; at the same time, we believe that profits of some small companies have turned negative, and industry profits are expected to bottom out at 1H23. In terms of production capacity, the company has a production capacity of 106,000 tons/year for lithium battery materials in the first half of 2023, with a planned and ongoing production capacity of nearly 1.046 million tons/year.
After the project is fully completed, the increase in the amount of electrolyte liquid and the degree of integration will effectively increase (mainly production capacity supporting additives). We are optimistic about the long-term growth of the company's electrolyte business.
Implement the “world supply chain” strategy and improve stability. 2Q23 The company's trade business revenue was 7.53 billion yuan, -25.6% year on year, +7.3% month on month; net profit was 200 million yuan, -28.8% year on year, +11.9% month on month. We believe that fluctuations in the RMB exchange rate have also brought some exchange gains and losses to the company. According to the China Chamber of Commerce for Import and Export of Textiles, 1H23, the country's textile and garment exports totaled 142.68 billion US dollars, or -8.3% year-on-year, of which textile exports amounted to 67.7 billion US dollars, or -10.9% year-on-year. Despite facing adverse factors such as weak external demand and a complicated international trade environment, the company actively lays out supply bases at many key points of the “Belt and Road”, such as Myanmar and Vietnam, continues to push the company to shift from “China's supply chain integration” to “world supply chain integration”, and is optimistic about the long-term stability of the company's trade business.
Profit forecasting and valuation
We are keeping our 2023/24 profit forecast unchanged. The current stock price corresponds to a price-earnings ratio of 9.8/8.6x for 2023/2024, respectively. However, due to increased competition in the electrolyte industry, the valuation center of lithium battery materials declined, and maintained an outperforming industry rating. We lowered our target price by 15% to 8.5 yuan. The corresponding price-earnings ratio for 2023/2024 was 11.8/10.2x, respectively, with 19.6% upside compared to the current stock price.
risks
Downstream demand fell short of expectations, and industrial competition intensified.