3Q23 performance is in line with our expectations

The company announced 3Q23 results: 1-3Q23 income / return net profit / deduction non-net profit 103.11 Universe 401Compact RMB384 million, year-on-year + 7.7% Universe 30.9% Universe 18.9%; of which 3Q23 income / homing net profit / deduction non-net profit 37.81 million apperance 140 million yuan, year-on-year + 9.3% Universe 25.0% Universe 74.6%, month-on-month + 16.8% Universe 3.3% debit 15.7%, the performance is in line with our expectations.

Trend of development

The income of lead acid business is growing steadily and the profit is rising steadily. We estimate that the company's 1-3Q23 lead-acid business revenue is about 7.7 billion yuan, of which 3Q23 revenue is about 2.7 billion yuan; 1-3Q23 shipments are about 24-25GWh, an increase of about 10% year-on-year, of which 3Q23 shipments are about 8.6GWh, an increase of 7% month-on-month, mainly due to 1) strong demand in the afterloading market, we estimate that 1-3Q23 shipments are up about 15% year-on-year, and 2) the sea business is booming, and we estimate that 1-3Q23 shipments are about 10% higher than the same period last year. On the profit side, we expect 3Q23 gross profit margin to rise steadily from the first half of the year and remain at 20% +. Looking back, we believe that 4Q23 is the traditional peak season of the car market, which is expected to improve the front loading market, the rear loading market may continue to expand market share and drive growth by virtue of brand advantages, and overseas business continues to benefit from factory volume in Malaysia. We expect lead and acid business shipments to gradually improve and profitability to maintain a steady increase.

Low-voltage lithium power is expected to start in 24 years, supporting medium-and long-term profit growth. The company's low-voltage lithium power business is still in the pre-investment stage, the scale is small, we expect 1-3Q23 to maintain a loss. Looking back, the company has obtained many fixed points, such as Geely and FAW, and we expect the company's low-voltage lithium business to gradually expand from 2024 to support the company's medium-and long-term growth.

Energy storage business expansion accelerated, lead recovery loss or narrowing. In terms of energy storage, we estimate that the three Gorges project is expected to achieve revenue recognition in 3Q23; with the stabilization of lithium carbonate prices at the end of raw materials and the warming of domestic 3Q23 energy storage bidding, we believe that the expansion of the company's large storage and industrial and commercial energy storage projects is also expected to accelerate. In terms of lead recovery, we estimate that the 1-3Q23 loss is expected to be narrower than that of 1H23, or mainly due to the company's cost reduction and efficiency.

Gross profit margin is higher than the previous month, and investment income is a drag on earnings. The company's 3Q23 gross profit margin is 14.6%, year-on-year + 2.2ppt, month-on-month + 0.6ppt, which we think mainly benefits from the economies of scale brought about by the increase in lead-acid shipments. In addition, the 3Q23 investment income of the company is-32 million yuan, which is a drag on the overall profit, of which the investment income on joint ventures and joint ventures is-13 million yuan, which we think may be mainly affected by stock market fluctuations.

Profit forecast and valuation

Taking into account weak car consumption, lithium losses and investment income drag on profits, we lowered the company's 24% profit forecast for 2023max by 24% to 607pm 890 million yuan. We are optimistic that the recovery of the auto market will lead to a rebound in sector valuations, maintain target prices and maintain outperforming industry ratings. The current stock price and target price correspond to 15.6x/10.6x price E and 20.5x/14.0x price E in 2023max 24, respectively. There is 31.5% upstream space.

Risk

China's automobile production and sales are not as expected, domestic energy storage demand is not as expected, and the macro-economy is declining.