1H23 results are in line with our expectations
The company announced 1H23 results: revenue of 41,471 billion yuan, up 33.7% year on year, down 4.8% month on month; net profit of 918 million yuan, corresponding to profit of 0.82 yuan per share, up 20.9% year on year and 11.4% month on month. The company's 1H23 performance was in line with our expectations.
Development trends
Revenue from lead-acid batteries grew at a high level, and gross margin remained at a high level. Benefiting from the booming domestic two-wheeled electric vehicle market and increasing downstream concentration, the company's 1H23 electric light vehicle lead-acid battery sales reached 195 million units (about 56-57 GWh), achieving revenue of 17.701 billion yuan, a year-on-year increase of 36.6%, continuing a high level of gross margin, an increase of 0.8ppt to 15.9% over the previous year; we expect the lead-acid business to contribute about 11.12 billion yuan in profit. Looking ahead to 2H23, downstream demand has entered the traditional peak season, and we are optimistic that the company's lead-acid battery shipments will increase quarter by quarter. Looking at medium-term growth, we believe that the penetration of electric two-wheelers in emerging markets such as Southeast Asia and India is expected to accelerate under the impetus of subsidies. The company is actively promoting international business. 1H23 has begun building a Vietnamese factory, with Vietnam as the center, radiating emerging markets, and is expected to form new growth points in the future.
The lithium battery and recycling business is under pressure in the short term. The company's lithium battery business achieved revenue of 369 million yuan in 1H23, a year-on-year decrease of 51.6%. We expect losses to increase compared to the same period. The main reasons are: 1) Affected by the price drop of lithium carbonate, delivery of energy storage projects has slowed down, and the capacity utilization rate of lithium batteries is low; 2) At the same time, due to the price drop of lithium carbonate, the company's 1H inventory depreciation rate is about 166-170 million yuan. In terms of recycling business, the company's lead recycling business achieved external revenue of 1,414 billion yuan in 1H, and profits were under pressure due to price increases for used batteries on the channel side; 1H of lithium battery recycling revenue reached 309 million yuan. Affected by falling prices of downstream metals such as lithium and cobalt, profits also declined.
Lead-carbon energy storage achieved a breakthrough of 0-1, and the company actively deployed sodium electricity. In terms of lead-carbon energy storage batteries, the company achieved revenue of 226 million yuan, an increase of 208.5% over the previous year. The “peaceful co-storage” power plant of the lead-carbon smart power plant jointly built by the company and China Power Investment Corporation was officially connected to the grid and operated in March of this year. The scale of the power plant reached 1.06 GWh. In terms of sodium electricity, the company announced the “Tien Sa T1,” a new generation sodium-ion battery suitable for electric light vehicles on 1H23.
The company's 1H23 gross margin was 7.3%, and overall cost control was good. The company's 1H23 gross margin was 7.3%, -0.4ppt year on year. The decline in gross margin was mainly hampered by the lithium battery and battery recycling business. 1H23's sales/management/financial expenses ratio was 1.6%/3.7%/0.6%, respectively, with a year-on-year change of +0.1 ppt/-0.4 ppt/+0.1 ppt.
Profit forecasting and valuation
The company's profit forecast for 2022/2023 remained unchanged at $23.56/$3,077 billion, and maintained a target price target price of HK$11.0 and outperformed the industry rating. The current stock price and target price correspond to 3.5x/ 2.6x P/E and 4.9x/3.7x P/E in 2023/2024, respectively, with 35.5% upside.
risks
Domestic sales of electric two-wheelers fell short of expectations, and the price increase of upstream raw materials exceeded expectations.