Performance loss, waiting for recycling project production capacity to be released

The company's 23H1 achieved revenue of 1,265 million yuan, -28.32% year-on-year, and net profit of -216 million yuan, or -361.69% year-on-year, within the range of the company's previous performance forecast -225 to -215 million yuan. Considering the rise in raw material prices and the slowdown in industry demand, we expect the company's unit profit level to drop compared to previous expectations. We adjusted the company's EPS for 23-25 to -0.30/0.49/0.64 yuan, respectively (previous value was 0.64/0.93/1.18). Comparable, the company's average PE in 24 years is 27 times. Since lithium iron phosphate batteries are expected to enter a replacement cycle in the next few years, the company focuses on lithium iron phosphate battery recycling and recycling capacity continues to improve. As production capacity is completed and put into operation, it is expected to meet the needs of new customers in a timely manner and usher in rapid growth. Giving the company 32 times PE in 24 years, corresponding to a target price of 15.86 yuan (previous value was 23.68 yuan), maintaining the “increase in maintenance” rating.

Q2. Month-on-month restoration, promoting comprehensive recycling of lithium iron phosphate

In Q2 2023, the company achieved operating income of 611 million yuan, -39.22%/-6.68% of the same period; realized net profit of 28 million yuan, -158.35% /loss narrowed; achieved net profit of non-return net profit of -28 million yuan, and -163.24% /loss narrowed over the same period. By business, 23H1 PCB chemicals, chemical reagents, and lithium battery materials businesses achieved revenue of 601/1.82/329 million yuan respectively, with a year-on-year ratio of -19.80%/-6.78%/-54.49%. The gross margin was 12.84%/23.46%/-10.52%, respectively, and +0.52/-5.92/-31.02 pct. 23H1 achieved a comprehensive gross/net interest rate of 1.73%/-17.10%. The company's loss in performance was mainly due to a sharp drop in the price of lithium carbonate, which affected the company's inventory of raw materials and finished products for lithium batteries; at the same time, under the influence of weak market demand, the company's product sales volume declined.

To increase the dismantling of decommissioned LFP batteries and enhance the competitiveness of battery recycling, the company plans to raise no more than 1.25 billion yuan, of which 1.17 billion yuan will be used for high-performance lithium battery material projects. Specifically, it plans to use cathode powder and anode sheets obtained from the company's dismantling of decommissioned lithium iron phosphate batteries as main raw materials, and to build a comprehensive recycling production line with an annual output of 50,000 tons of iron phosphate and 11,500 tons of lithium carbonate. Through this project, the company will build a “battery cascade utilization - battery disassembly - battery recycling - raw material recycling - material recycling” full life cycle system for new energy materials, which is conducive to enhancing the company's core competitiveness in the field of comprehensive recycling of retired lithium batteries.

Production line construction is smooth, and customer cooperation is actively carried out

The company's annual processing line for 10,000 tons of waste lithium iron phosphate cathode powder has successfully reached production, achieving full recovery of lithium, iron and phosphorus. On the customer side, the end customers of the company's lithium battery materials business are mainly downstream lithium battery manufacturers and energy storage companies. On the basis of serving existing customers, the company is actively negotiating long-term cooperation with many domestic lithium battery material manufacturers in fields related to lithium battery materials, which is expected to increase the company's market share.

Risk warning: sales of new energy vehicles fell short of expectations, project progress fell short of expectations, and industry competition intensified.