Core views

The company released its semi-annual report for 2023, and both revenue and profit grew steadily. Among them, the overseas e-cigarette business exceeded expectations, and the acceptance of the lithium battery equipment business fell slightly short of expectations.

Looking ahead to 2023, the company has a stable market position in the lithium battery equipment field, and since 2022, it has continued to expand its layout in the two high-growth markets of overseas and energy storage, and has received orders from leading customers one after another. The company is expected to continue this trend in 2023. Furthermore, 2023H1 is vigorously developing its own brand products in Europe in the field of e-cigarettes, and has achieved significant performance in 2023H1. It is expected that this trend will continue throughout 2023.

occurrences

The company released its semi-annual report for 2023. In the first half of the year, it achieved revenue of 4.801 billion yuan, +3.84% year-on-year, and net profit of 298 million yuan, +12.81% year-on-year. In the single quarter of 2023Q2, revenue was 3,063 billion yuan, -0.24% year on year, and net profit was 195 million yuan, or -2.34% year on year.

Brief review

The volume of the overseas e-cigarette business is driving performance growth, and the profitability has led to a significant increase in the volume of the overseas e-cigarette business. The acceptance of the lithium battery equipment business fell slightly short of expectations. 2023H1 achieved revenue of 4.801 billion yuan, +3.84% year-on-year. Among them, revenue from lithium battery equipment was 3,259 billion yuan, -26.10% year on year, and e-cigarette business revenue was 1,433 billion yuan, +1477.33% year on year.

2023H1, domestic sales of new energy vehicles are relatively weak, the overall operating rate of domestic power battery companies is low, and the bidding process and acceptance progress have been delayed. As a result, the confirmed revenue of the company's lithium battery equipment business fell slightly below expectations. 2023H1 achieved high growth in its e-cigarette business, mainly due to the expansion of its subsidiary Skoll's own brand business, and new products such as disposable e-cigarettes achieved breakthroughs in European markets such as the United Kingdom and Germany.

The e-cigarette business has led to an increase in the company's overall profit margin. The overall gross margin of the 2023H1 company was 26.65%, +7.28 pct. Of these, the gross margin of the lithium battery equipment business was 19.67%, the previous year +0.79 pct, and the e-cigarette business gross profit margin was 40.91%, +26.45 pct, a significant increase, which also led to a significant increase in the company's overall gross margin. 2023H1's net sales interest rate was 10.19%, +4.41pct year on year. Among them, Yinghe Technology's control subsidiary, Scholl (e-cigarette business), achieved a net interest rate of 29.11%, which is the main driving force behind the increase in the company's net sales interest rate. 2023H1

The lithium battery equipment sector has increased the layout of overseas and energy storage markets, the e-cigarette sector continues to expand the European market, continue to be deeply involved in the lithium battery equipment field, and increase the layout of new markets such as overseas and energy storage. As a leading enterprise in intelligent lithium battery production equipment, the company has strong R&D and innovation capabilities and high-quality delivery capabilities, leading product performance and quality in the industry, and has established a good market position and brand advantage. Currently, it has supplied a wide range of first-class domestic and foreign battery manufacturers such as Ningde Times, BYD, and LG New Energy. Furthermore, with the continuous rise in production capacity in the power lithium battery sector in China, overseas power lithium batteries and domestic energy storage lithium batteries have become new growth points in the lithium battery equipment industry. The company continues to increase its efforts to develop new customers in the overseas and energy storage markets. It has received orders from leading overseas battery manufacturers or automakers such as BMW, ACC, and German Volkswagen, and has also been recognized by new customers in the energy storage market.

Skoll's e-cigarette business is fully deployed in the European market and is expected to expand further in 2023. Skoll mainly produces and sells all kinds of e-cigarette products and peripheral accessories. The products are exported to Europe, America, Southeast Asia and other places. According to the company's 2022 annual report, starting from the first half of 2022, Scholl began focusing on foreign brand business, successfully expanded the British and European markets with product development and innovation advantages, further improved Skoll's global business layout, and continuously enhanced Skoll's core competitiveness. Since Skoll received TPD product certification from the UK and Europe in June 2022, its performance for the second half of the year continued to rise month by month. Against the backdrop that Scholl's performance in the first half of the year fell short of expectations, it achieved annual revenue of 546 million yuan and net profit of 85 million yuan. Entering 2023, Scholl further expanded its overseas presence, set up a subsidiary in Manchester, UK in March 2023, further expanded channels such as supermarkets, accelerated TPD certification for new European e-cigarette products, and quickly responded to customer pre-sales and after-sales service needs. At 2023H1, Scholl achieved operating income of 1,433 million yuan, net profit of 417 million yuan, and a high level of flexible release.

The controlling shareholder, Shanghai Electric, has achieved a full industrial chain layout. The company is expected to benefit from its resource advantages. In January 2020, Shanghai Electric officially became the controlling shareholder of the company, and the Shanghai State-owned Assets Supervision and Administration Commission became the actual controller of the company, marking a new stage in the company's development. Shanghai Electric is one of the largest comprehensive equipment manufacturing groups in China. It has an “intelligent manufacturing-software-integration-service” intelligent manufacturing industry chain layout, and has industry-leading capabilities to implement intelligent manufacturing system solutions in the fields of automobiles, aerospace, 3C electricity, and new energy. In the field of new energy vehicles, Shanghai Electric has also achieved a comprehensive layout of “new energy manufacturing equipment - batteries - complete vehicles”. After Shanghai Electric invested in shares, it gave the company important support in terms of capital, industry resources, brand, and credit. Relying on the controlling shareholder Shanghai Electric, the company's lithium battery equipment business orders have continued to break through in recent years, and the customer structure has continued to be optimized.

Profit forecasting and investment advice

Yinghe Technology is a leading domestic lithium battery equipment company. It has a leading market share in front-end equipment such as coating machines, and also has strong competitiveness in the middle and back stages. Relying on the resource advantages of Shanghai Electric, the controlling shareholder, the company's lithium battery equipment business orders have continued to break through in recent years, and the customer structure has continued to be optimized. Since 2022, the company has increased its layout in two high-growth markets, overseas and energy storage, and has continued to receive orders from leading customers. In 2023, the company is expected to continue this trend, while continuously promoting product structure improvements, cost reduction and efficiency. Furthermore, Scholl, the company's holding subsidiary, performed well in 2023H1, and is expected to continue this trend throughout 2023. It is estimated that in 2023-2025, the company will achieve operating income of 121.61, 143.41 and 16.848 billion yuan, respectively, +34.82%, +17.93%, and +17.48%, respectively; the company's realized net profit will be 10.15, 13.46, and 1,704 billion yuan, respectively, +108.26%, +32.63%, and +26.60%. The corresponding PE will be 18.48, 13.93, and 11.01 times, maintaining the “buy” rating.