Affected by the decline in processing fees for copper foil products, the company's performance fell sharply in the first half of 2023. However, with the dual-core business model of "PCB copper foil + lithium battery copper foil", the company maintained growth in copper foil production in the first half of the year and continued to optimize its product structure. We judge that with the lithium copper foil industry returning to growth and the continued volume of high-end PCB copper foil products, the company's performance is expected to return to growth. We estimate that the company's homing net profit for 2023-25 is estimated to be 1.19, 247 and 385 million yuan. Give the company a valuation of 2.0x PB in 2023, corresponding to the target price of 14 yuan, and adjust the company's rating to "overweight".

Affected by the decline in processing fees for copper foil products, the company's profits fell sharply in the first half of the year. In the first half of 2023, the company achieved revenue of 1.753 billion yuan, down 11.45% from the same period last year, and realized a net profit of 28 million yuan, down 85.35% from the same period last year. In the second quarter of 2023, the net cash flow of the company's operating activities was-672 million yuan, significantly lower than the same period last year; as of the end of the second quarter, the company's asset-liability ratio was 13.34%, still at a low level. In the first half of 2023, the company's performance declined significantly due to weaker demand for PCB copper foil and lithium copper foil and lower processing fees.

In the first half of the year, the company's copper foil output increased against the trend, and its market position was stable. In the first half of 2023, the company produced 21953 tons of copper foil, an increase of 4.2% over the same period last year. Under the background of the low demand in the PCB copper foil market and the intensified competition in the lithium copper foil market, the company's copper foil production has maintained growth, showing that the company's "PCB copper foil + lithium battery copper foil"

The advantages of dual-core-driven development model in dealing with industry fluctuations.

The product structure has been continuously optimized, and the proportion of high-end copper foil shipments has increased. In the first half of 2023, the company's production of lithium copper foil of 6 μ m and below increased rapidly, accounting for 92% of the total output of lithium copper foil, an increase of 15pct over the same period last year. At the same time, the company successfully developed 3.5 μ m lithium battery copper foil, and the shipments of high tensile copper foil products continued to grow. PCB copper foil products, the company promotes high-frequency high-speed copper foil mass production process, HVLP3 copper foil through the downstream customer full-process certification test, high-end PCB copper foil continues to improve.

The steady progress of capacity expansion will help the company's performance to return to growth. The company's existing electronic copper foil production capacity of 55,000 tons / year, under construction capacity of 25,000 tons / year. According to the information announced by the company, in the construction capacity, 10, 000 tons of Tongling base is in the state of equipment installation, and Chizhou 15000-ton project starts construction. If the above projects are completed and fully produced, the company's copper foil shipments will reach 80,000 tons, nearly double that of 2022. Considering that the copper foil industry is currently facing fierce competition, the increase in shipments will help to promote the company's performance growth.

Lithium copper foil market may return to normal, high-end PCB copper foil market will become a bright spot of profit. Affected by multiple factors such as weakening demand, destocking in the industrial chain and intensified competition, processing fees for copper foil products have fallen sharply since 2023, and corporate profits are under pressure. With the lithium industry chain inventory returning to the normal level, we expect the lithium copper foil market will return to the growth trend. In addition, with the development of digital economy, artificial intelligence, 6G and other industries, the high-end PCB copper foil market is expected to maintain a high growth rate, and the import substitution space of high-end PCB copper foil is broad, and enterprises with technology and customer advantages are expected to achieve thickening performance by virtue of PCB copper foil products.

Risk factors: the risk of declining product profits caused by intensified competition in the copper foil industry; the risk of the loss of customer orders; the less-than-expected progress of capacity expansion; the risk of changing the technological route of lithium copper foil.

Earnings forecast, valuation and rating: affected by the decline in processing fees for copper foil products, the company's performance fell sharply in the first half of 2023. However, with the dual-core business model of "PCB copper foil + lithium battery copper foil", the company maintained growth in copper foil production in the first half of the year and continued to optimize its product structure. We judge that with the lithium copper foil industry returning to growth and the continued volume of high-end PCB copper foil products, the company's performance is expected to return to growth. In view of the higher-than-expected decline in processing fees for copper foil products, we have lowered the company's home net profit forecast of 1.19 / 247 million yuan in 2024 (the original forecast is 632 million yuan), and the new forecast value for 2025 is 385 million yuan, corresponding to the 2023-25 EPS forecast of 0.14 million 0.30 yuan 0.46 yuan. Select Nord shares and Shengyi Technology as comparable companies, the current comparable company in 2023 Wind unanimously expected the average PB valuation of 2.0 times, give the company 2023 PB valuation of 2.0 times, corresponding to the target price of 14 yuan, adjust the company rating to "overweight" (the original rating is "buy").