performance

In the first half of 2023, the company achieved revenue of 1,265 million yuan, -28% year-on-year, net profit of -216 million yuan, -362% of the same period, net non-attributable profit of -220 million yuan, or -380% of the same period. Among them, Q23 achieved operating income of 611 million yuan, -39% year-on-year, realized net profit of 27.56 million yuan, -158% year-on-year, minus non-net profit of -28.26 million yuan, -163% year-on-year.

Both revenue and gross profit from the lithium battery materials business have declined. The bottom of performance is now showing. The second half of the year will usher in an improvement in the company's lithium battery materials business, which contributed 329 million yuan in revenue in the first half of 2023, -55% compared to the previous year. The gross margin was -10.52%, and -10 pcts from the previous year. Profitability declined sharply. The lithium battery materials business was affected by a sharp drop in lithium carbonate market prices over a short period of time, and operating losses were caused by an inversion in the cost of raw materials for products. At present, the company's inventory has fallen to a low level. As sales of new energy vehicles pick up in the second half of the year, the price of lithium carbonate is expected to stabilize, and the company's lithium battery materials business is expected to improve.

The company's lithium battery material production capacity is expanding in an orderly manner, recycling technology is leading, and improving competitiveness production capacity. In terms of establishing channel advantages and improving production capacity, the company invested 247 million yuan to build 36,000 tons of lithium manganese iron phosphate and iron phosphate cathode materials in the existing factory area. Currently, 26,000 tons are under construction; the company's 10,000 tons/year comprehensive recycling production line has been successfully put into operation. At the same time, the 40,000/year decommissioning and sorting production project for retired lithium batteries has officially been implemented. The company has vigorously developed the lithium battery recycling business, independently developed a detailed disassembly process, replaced the traditional crushing and sorting method, and invented an efficient and selective lithium extraction technology for lithium iron phosphate cathode waste. The comprehensive lithium recycling rate is expected to exceed 95%. The fragmentation of the battery recycling industry chain determines that enterprises with channel resources will gain more advantages. The company has in-depth cooperation with car companies. It has successively signed recycling strategic cooperation agreements with many car companies, including BAIC Penlong, Nanjing Jinlong, Guangxi Huaao, and Chery Wanda, to establish large-scale power battery recycling channels and move ahead of peers.

Traditional business is relatively stable, and the strategic layout of the 5G market

In the first half of the year, the company's traditional PCB chemicals business contributed 601 million yuan in revenue, -19.8%, gross margin of 12.84%, +0.52 pcts, and the chemical reagent business contributed 182 million yuan in revenue, -6.78%, gross margin of 23.46%, year-on-year -5.82 pcts. The gross profit level of traditional business was relatively stable.

The company strategically lays out the 5G market, strengthens technological innovation and new product development, and has now established R&D cooperation with many customers such as ZTE and Huawei.

Investment advice:

Considering the large fluctuation in the price of lithium carbonate in the company's lithium battery materials business, we downgraded the company's net profit for 2023/2024/2025 to -126/1.59/234 million yuan (original value: 2.43/4.34/5.89). The corresponding PE was -/38x/26x, maintaining the “buy” rating.

Risk warning:

The development of new energy vehicles has fallen short of expectations, competition in the battery recycling market has intensified, metal materials have declined sharply, and the release of production capacity has fallen short of expectations.