Key points of investment

The company's revenue grew steadily year on year, and profitability declined: 2023H1 achieved revenue of 2.24 billion yuan, up 9.11%; net profit to mother was 86 million yuan, down 58%, after deducting non-net profit of -0.18 billion yuan, down 110%, and non-profit and loss of 100 million yuan was mainly government subsidies; of these, 23Q2 achieved revenue of 1,089 million yuan, a year-on-year increase of 16%, a decrease of 5% month-on-month, and net profit to mother of 0.36 million yuan, -53%/-29% year-on-month, minus -0.27 million yuan, and -13/ -409% year-on-month, The gross profit margin was 11%, -0.12pct/-3.2pct, the net profit margin to mother was 3.3%, and the year-on-month decrease was 4.8/1.1 pct.

Q2 Shipments were basically flat month-on-month, and declining processing costs put pressure on profits. In 2023, H1 copper foil shipments are about 20,000 tons, and Q2 shipments are about 10,000 tons, which is basically flat from month to month. Order volume gradually recovered in July-August, and is expected to increase by about 20% in Q3. Annual shipments are expected to increase by 50,000 tons+, an increase of about 20%. On the profit side, the copper clad plate business lost about 20 million yuan and Q2 lost 10 million. If added back, the H1 copper foil business basically had a break-even balance. Of these, the Q2 unit profit was about -0.17 million yuan/ton. The month-on-month decline led to a further decline in processing costs, and the 6 μm processing fee had reached less than 20,000 yuan. Considering that it will take time for production capacity to clear, it is expected that H2 processing costs will remain low and the balance between profit and loss will be balanced. As the proportion of 4.5/5 microns gradually increased in '24, the profit margin is expected to improve.

The company's production expansion is progressing steadily, and the optimization of the product structure is expected to increase profits. Currently, the company has a copper foil production capacity of 70,000 tons. With the gradual implementation of the first phase of Huangshi with the gradual implementation of 50,000 tons, production capacity is expected to reach 120,000 tons by the end of 23. Combined with 50,000 tons of Huangshi Phase II (20,000 tons are expected to be put into operation in early '24) and 100,000 tons in Jiangxi, the company plans to increase copper foil production capacity to 300,000 tons by 2027, expanding production in leading industries. Looking at the product structure, H1's overseas business is gradually expanding, and it is expected that H2's share of overseas business revenue will increase to 10%. At the same time, the company gradually increased its share of 4.5 and 5 micron copper foil shipments, accounting for about 20% of H1 shipments in '23, an increase of 10 pct over '22. It is expected to increase to nearly 30% in '24, and profits are expected to increase.

Increase the layout of composite fluid collectors to strengthen the company's competitiveness. The company plans to invest 2.5 billion yuan to build a composite fluid collection industrial park project. After delivery, it is expected to be able to produce 420 million square meters of composite copper foil and composite aluminum foil every year, with an annual output value of about 4 billion yuan. The construction will be carried out in two phases. The first phase will invest 250 million yuan to build 6 production lines, and plans to put at least one line into operation by June '24. The company's composite copper foil uses a dry process and is compatible with the composite aluminum foil production line; the composite aluminum foil is expected to be mass-produced in small batches by the end of 23, and there has been an effective order conversion.

Profit forecast and investment rating: Considering excess supply and demand in the copper foil industry, processing costs are under pressure, mainstream manufacturers are compounded by the release of new entrants, and it will take time for the industry to clear production capacity, we lowered the 2023-2025 net profit to mother to 1.48/1.96/257 million yuan (the original 23-24 forecast value was 654/882 million yuan), -58%/+32%/+31%. The corresponding PE is 71/54/41x, maintaining the “buy” rating.

Risk warning: demand falls short of expectations, fluctuating raw material prices, increased market competition, etc.