23Q2 Total net profit - $16 million, maintaining the “increase in holdings” rating
23H1 had revenue of 2,078 million yuan (yoy +7.42%), net profit of 21 million yuan (yoy -92.62%); 23Q2 had revenue of 1,094 million yuan (qoq +11.18%), net profit of 16 million yuan (qoq -142.32%).
Considering increased competition in the lithium battery copper foil processing industry, we lowered the lithium battery copper foil processing fee assumption. We expect the company's net profit to be 0.58/0.78/421 million yuan in 23-25 (previous value: 459/683/1,070 million yuan). Comparable company Wind unanimously expected PB (23E) 1.5X, giving the company 1.5 XPB in 23, corresponding to a target price of 24.81 yuan (previous value of 39.23 yuan), maintaining the increase in rating.
23H1 electrolytic copper foil processing fees have declined, or are close to the bottom area
Since 23 years, the company's performance has been under pressure mainly due to increased competition in the lithium battery and copper foil industry, and processing costs have dropped sharply. Among them, 23Q2, the company has already entered a state of loss, with net profit of 16 million yuan. According to SMM, processing fees for 23H1 electrolytic copper foil continued to drop. Processing fees for 6- and 8-micron specifications fell from 3.65 and 26,500 yuan/ton at the beginning of '23, respectively, to 2.35 and 22,000 yuan/ton in June '23; in July and August, processing fees for the two types of electrolytic copper foil continued to drop to 22,000 and 21,000 yuan/ton. According to the leading company Tongguan Copper Foil 23Q1 and Nord Co., Ltd. 23H1 after deducting non-net profit levels, profit is already close to break-even; the further decline in processing fees in August may trigger losses for leading companies in the industry. We expect processing fees to be close to the bottom. At the same time, the development of composite copper foil has also raised market concerns about the replacement of electrolytic copper foil.
The company has a rich product range and is beginning to explore new businesses
In response to increased market competition, the company is actively laying out high-end electronic copper foils on the basis of research and development of lithium battery copper foils, with a view to achieving breakthroughs in the field of import substitution. According to the July Investor Relations Record Form, for composite copper foil, the company has now completed the installation of pilot production equipment and is actively promoting the development and process optimization of composite copper foil. In addition, the company has established a holding subsidiary, Guangdong Jiayuan Liyuan Green Power Energy Storage Co., Ltd., to engage in new energy photovoltaics and energy storage business. Shenzhen Jiayuan New Material Technology Innovation Co., Ltd., a wholly-owned company, was also established to carry out R&D, design, production, and sales of new precious metal materials such as copper and gold and other new materials, such as new types of gold foil.
Risk warning: The macroeconomic economy falls short of expectations, and downstream demand falls short of expectations.