Incident: The company released its semi-annual report for 2023 on the evening of August 30. In the first half of 2023, it achieved revenue of 8.13 billion yuan, an increase of 2% over the previous year; net profit for the first half of 2023 was 4.1 billion yuan, a year-on-year decrease of 172%.
Comment:
Prices of pre-baked anodes and petroleum coke continue to fall, dragging down performance. The company's 2023H1 sold 1.42 million tons of pre-baked anodes, +12% year-on-year; the 2022Q2-2023Q2 quarterly net profit was 4.1/4.0/-0.6/-2.7/-140 million yuan; the weakening performance stemmed from the continuous decline in the prices of the product pre-baked anode and raw petroleum coke. The average price of 2022Q2-2023Q2 pre-baked anodes was 7863/7915/7918/6881/5486 yuan/ton, respectively. The average price of Fushun Petrochemical 1 #A petroleum coke during the same period was 8609/8005/7246/ 5655/3981 yuan/ton. Considering the impact of the stocking cycle, the cost of raw materials carried forward for the current period is high. The company's profitability declined markedly from 2022Q4. The 2022Q1-2023Q2 gross margin was 11.2%/19.7%/14.8%/7.4%/1.6%/-1.0%, respectively.
The total impairment of 2023H1 assets was $370 million, and the overall 2023Q2 rate declined. 2023Q1/2023Q2 asset impairment losses were -2.9/-80 million yuan respectively, mainly calculated inventory price depreciation losses. The 2023Q2 sales expense rate is 0.4%, the management fee rate is 1.4%, and the financial expense rate is 0.1%. The change from 2023Q1 is +0.1 pct, +0.5 pct, +0.4 pct, -1.5 pct. The increase in management expenses rate and R&D expense ratio is mainly due to the acquisition of Foshan Xinyuan.
Pre-baked anode: Production capacity at home and abroad has expanded, and raw material channels have continued to grow. The Shandong Innovation Phase II project, the Longxi Suotong 300,000 ton aluminum carbon material project, and the Hubei Zhijiang 1 million ton calcined coke project have been officially launched; on June 2, 2023, the company and UAE Global Aluminum signed an investment memorandum of understanding to expand the pre-baked anode project overseas; at the same time, it has reached a logistics terminal and petroleum coke storage business cooperation with IMT in North America, deepening cooperation between the company and overseas petroleum coke manufacturers, which will further reduce raw material procurement and logistics costs.
Anode: The acquisition of Xinyuan shares was completed, and the integrated anode materials project continues to advance. In the first half of the year, the company sold 0.94 million tons of lithium battery anode products; in the first half of 2023, Xinyuan, Inner Mongolia, built a new 40,000-ton graphitization project and the first phase of the Shengyuan anode project were put into operation with 25,000 tons of graphitization capacity. The 770MW photovoltaic power generation project has been mainly completed and is expected to be electrified in the second half of 2023. The company expects to develop a production capacity of 80,000 tons of anode materials by the end of 2023. Production capacity will be gradually released in 2024, and the anode sector will form a new profit growth point.
Profit forecast, valuation and rating: Considering the impact of factors such as falling raw material prices and inventory impairment, we lowered our profit forecast for the company. We expected 2023/2024/2025 net profit to be 2.5/84/1.06 billion yuan (down 75%/38%/41% from the previous forecast). The current stock price corresponding to PE is 35/10/8X, respectively. Considering that the decline in previous stock prices already reflects expectations of declining performance, we maintain the rating for the company's “increase in holdings”.
Risk warning: Production capacity investment falls short of expectations; risk of large fluctuations in raw material prices; risk of inert anode replacement.