3Q23 performance meets market expectations

The company announced 3Q23 results: 1-3Q23 achieved income of 2.473 billion yuan, year-on-year + 17.7%, net profit of 25 million yuan, year-on-year-91.8%; of which 3Q23 realized income of 915 million yuan, year-on-year + 31.9% / month-on-month + 12.8%, net profit loss of 8.9 million yuan, year-on-year-110.7% / month-on-month + 17.6%, basically in line with market expectations.

Trend of development

Shipments are steadily improving, and profitability is under pressure. 3Q23 achieved year-on-year sales growth of ~ 50% / month-on-month growth of ~ 9%. We estimate that the gross profit per ton is ~ 0.27 million yuan / ton, and the gross profit margin is 3.6% compared with the same period last year. This is mainly due to the pressure on unit profitability due to downward processing fees. According to CIAPS data, the average processing fee for 3Q23's domestic 6um battery-grade copper foil is 20,000 yuan / ton. Month-on-month is basically flat / down more than 50% from last year's annual average of 45,000 yuan / ton. We believe that the processing fees of the copper foil industry are expected to stabilize, the company's gross profit margin is expected to hit bottom and stabilize, and the performance is expected to return to steady growth with the continuous launch of new production capacity in the future.

Production capacity construction is progressing smoothly and the layout of new products continues to advance. In terms of production capacity, by the end of 1H23, the company has completed an electrolytic copper foil production capacity of 42500 tons, and the construction project of 13000 tons of high-performance electronic copper foil has begun trial production. In terms of new technology, the company newly established Wuhan Zhongyi New Materials Co., Ltd. specializes in the research of composite collector. We believe that the company, as a leading enterprise in mastering the core technology of electrolytic copper foil, has industrialization experience in equipment development and coordination of later processes, and is expected to benefit from the increasing trend of composite collector permeability.

Profit forecast and valuation

Taking into account the downward processing fees resulting in profit pressure, we lowered the 23-24 profit forecast of 92% to RMB 0.41 billion. We switched to a 24-year valuation, and the company is currently trading at 18x 24e price-to-earnings ratio, taking into account the adjustment of earnings forecasts and the gradual repair of profitability as a result of the thickening performance of the company's new technology layout and increased downstream demand. we cut our target price by 46% to 50 yuan, corresponding to the price-to-earnings ratio of 24x24e and 34% upside space, and maintain an outperform industry rating.

Risk

The risk that the sales of new energy vehicles fall short of expectations, the competition pattern of the industry aggravates the risk, and the price of raw materials fluctuates sharply.