Incident: The company released its semi-annual report for 2023. In the first half of 2023, the company achieved operating income of 21,558 billion yuan, +25.14%; net profit of 1,092 million yuan, +45.21%; net profit of 908 million yuan after deducting non-return net profit of 908 million yuan, +79.92% year-on-year. In a single second quarter, the company achieved operating income of 10.806 billion yuan, +24.09%; net profit of 475 million yuan, +51.12% year-on-year; net profit of 376 million yuan after deducting non-return net profit of 376 million yuan, +121.15% year-on-year.

Key points of investment:

The basic lead-acid market is stable, and cost control has been further improved. 2023H1, the company's lead-acid battery business achieved revenue of 20.046 billion yuan, +36.28% over the same period last year. 23H1's overall gross margin was 18.96%, +1.93pct, and the gross margin for the single second quarter was 18.76%, +1.77 pct, year-on-year, and -0.39 pct. 23H1's net interest rate was 4.83%, +0.58 cpt over the previous year. In the first half of the year, the company insisted on promoting smart factory projects, focusing on the core initiatives of “high automation, deep digitalization, local intelligence, and key business changes”. The lead-acid battery leader's excellent ability to control production costs was reflected, which is an important reason why the company's profit growth rate was greater than the revenue growth rate. In terms of cost rate, the company's 23h1 sales/management/R&D/financial expense ratio was -0.06/+0.18/-0.27/-0.58 pct, respectively. Other than the financial expense rate, the degree of change was small, and the overall cost rate declined during the period, so the growth rate of the company's non-attributable net profit was particularly high.

The lead coal business is growing rapidly, creating new growth points. 23H1, the company's lead-carbon battery business achieved revenue of 237 million yuan, +208.94% over the same period last year. Lead-carbon batteries have advantages such as low cost, good safety, and high recovery rate. Today, when energy storage safety requirements are increasing, they are expected to use their advantages to usher in greater development. In December 2022, the company and Taihu Energy Valley reached a “Strategic Procurement Cooperation Agreement for Energy Storage Projects”. In the energy storage projects implemented by Taihu Energy Valley in the next three years (including production bases under the company's subsidiaries), the total amount of lead-carbon batteries used by the company will not be less than 30 GWh. At present, the company and Taihu Energy Valley have cooperated on the 1 GWh “peaceful shared storage” project and the 48.66 MWh shared energy storage project in Meishan Town. In order to accelerate the expansion of the lead-carbon energy storage market, the company is continuously upgrading products, increasing the number of cycles, and at the same time speeding up the construction of a lead-coal energy storage production line in Ma'anshan.

Accelerate the expansion of lithium battery and energy storage production capacity, and further deploy new batteries. The company is actively developing new material batteries. Currently, it includes businesses such as lithium battery, hydrogen energy, sodium power, and energy storage. In terms of lithium batteries, 23H1 achieved revenue of 371 million yuan, successfully launched 100Ah-305Ah energy storage battery products and various energy storage boxes such as air cooled and liquid cooled. The company is increasing lithium battery capacity storage capacity and customer development, and is expected to become a vital force in domestic lithium battery energy storage. In terms of sodium electricity, the company officially released the new generation sodium-ion battery Tiansa T1, and successfully promoted sodium-ion battery products and sodium-ion battery application solutions to the Southeast Asian market.

Profit forecast: As a leading domestic lead-acid battery company, the company has a stable basic market. It has been laying out products such as lead, lithium, and sodium batteries for many years, and is expected to turn it into a new growth highlight. We maintain our profit forecast for the company. We predict that the company's net profit from 2023-2025 will be 24.67, 29.77, and 3.428 billion yuan, respectively. The corresponding PE will be 14, 12, and 10 times, respectively, and the target price is 45.68 yuan (18x in 2023), maintaining the “buy” rating.

Risk warning: the risk that lead-acid batteries will be replaced; the risk that production capacity will not be released as expected; the risk of large fluctuations in the price of raw materials for lithium batteries; there may be a risk that the public information used in the research report may be out of date or not updated in a timely manner.