Core views
1. In the first three quarters of 2023, the company achieved operating income of 5.525 billion yuan, +2.92% year-on-year; net profit of 89 million yuan, -22.59% year-on-year. 2023Q3 achieved net profit of 223 million yuan, -42.13% year-on-year and -41.56% month-on-month.
2. The sales volume of the company's copper strip/copper foil products increased by 2.31%/43.63% year-on-year respectively in the first three quarters, but the decline in unit gross profit put pressure on the company's performance.
3. Increased demand for copper used in transformers supports the company's copper strip business to maintain a high level of prosperity. After the Yongjie Copper project is put into operation, the company's high-precision copper strip production capacity will “go to the next level”.
4. The number of orders for pallet products is further full, and the market share is expected to increase.
occurrences
The company released its report for the third quarter of 2023
In the first three quarters of 2023, the company achieved operating income of 5.525 billion yuan, +2.92% year-on-year; net profit of 89 million yuan, -22.59% year-on-year. 2023Q3 achieved net profit of 223 million yuan, -42.13% year-on-year and -41.56% month-on-month.
Brief review
The decline in gross profit of copper strip and copper foil business units put pressure on the company's performance
In the first three quarters of 2023, the company's copper strip production/sales volume was 84,000 tons/84,000 tons, a year-on-year change of 3.21%/2.31%; copper foil production/sales volume was 2,817 tons/2,834 tons, a year-on-year change of 45.19%/43.63%; automobile battery tray production/sales volume was 394,000 units/112,600 pieces respectively (of sales volume, 691,000 sets were sold directly after overseas procurement). Sales of the company's main products, copper strip and copper foil, continued to grow in the first three quarters, but the decline in unit gross profit put pressure on the company's performance.
Increased demand for copper used in transformers supports the company's copper strip business to maintain a high level of prosperity. The company's copper strip products are widely used in transformers, power cables, communication cables, radiators, heat exchangers, electronic appliances and new energy fields. In recent years, along with the rapid development of China's power industry, the electricity consumption of the whole society has been growing steadily, and China's demand for transformers has been growing steadily. According to data from Huajing Industrial Research Institute, the market size of China's transformer industry is expected to grow from 4.9 billion yuan in 2022 to 7.5 billion yuan in 2025, with an average compound annual growth rate of 15%. The main raw materials related to transformers are oriented silicon steel, electromagnetic wire, insulating cardboard, etc., of which copper materials account for about 30% of the cost. We expect the transformer sector to account for about 1/3 of the company's copper strip business; the company's transformer copper products have sold well all over the country for many years and enjoy a high reputation in the Pearl River Delta, Yangtze River Delta, Huangbohai and southwest regions. Major customers include Nanrui Group, Xu Ji Group, Siemens, Hengtong Group, etc. Increased demand for copper for transformers supports the company's copper strip business to maintain a high level of prosperity.
After the Yongjie Copper project is put into operation, the company's high-precision copper strip production capacity will “go to the next level”. The company currently has an annual production capacity of 100,000 tons of copper strip and foil, which has now reached full production and sales; in March 2022, the subsidiary Yongjie Copper built a project with an annual output of 100,000 tons of high-precision copper alloy strips and 50,000 tons of copper strip blanks in Nanling County, Anhui Province. The first phase of implementation of the project is a production line project with an annual output of 50,000 tons of high-precision copper alloy sheets and 50,000 tons of copper billets, which is expected to be completed and put into operation in 2024; after the project is put into operation, the company's high-precision copper alloy strip production capacity will be effectively expanded, and the sales share of high-value-added products will be further expanded. Improvement, company competitiveness and market share It is expected to “go to the next level.”
Power battery metal structural parts business: The number of orders for pallet products is becoming more full, and the market share is expected to increase the company's current battery tray production capacity of 300,000 pieces. In July 2022, the company plans to expand the production capacity of metal structural parts for power batteries and expand the annual production capacity of battery pack trays for new energy vehicles and battery pack trays for energy storage to 500,000 pieces. As of June 2023, the company has an annual production capacity of 300,000 battery trays. Currently, production capacity is climbing and actively developing the market, and production capacity expansion for the remaining 200,000 pieces is progressing.
The number of orders for pallet products has been further fulfilled, and the market share is expected to increase due to the targeted project. The main customers of the company's pallet products include car companies such as Chery and Hezhong. On February 23, 2023, the company received a project target notification email. The subsidiary Zhongyuan New Energy became a supplier of housing assemblies and accessories for a model of new energy battery in Wuhu Qida Power Battery System Co., Ltd. In 2023, the company will be guided by market demand and customer demand, continue to expand production capacity while actively developing new customers. It is expected that as the company establishes long-term stable cooperative relationships with customers and the continuous improvement of product production efficiency and quality, the market share of the company's pallet products is expected to continue to increase.
Investment suggestions: The company's net profit from 2023 to 2025 is estimated to be 126 million yuan, 165 million yuan, and 205 million yuan respectively. The PE corresponding to the current stock price is 26.61, 20.32, and 16.33 times, respectively. Considering the company's position and growth in copper foil, battery trays, battery aluminum foil, anti-corrosion & insulation materials, and energy storage industries, the company is given a “buy” rating.
Risk analysis
1. Copper strip and foil processing costs have decreased. If the economic growth rate declines, processing costs for copper strip and foil may fall. We assume that the gross profit of the company's copper strip per ton is 0.25 million yuan in 2024. According to estimates, if the copper strip processing fee falls by 5%/10%, the company's net profit will drop by 3.7%/7.3% in 2024.
2. The sales volume of the battery tray business fell short of expectations. The sales amount of the company's battery tray business is directly related to factors such as the automobile production of downstream customers, etc., and there may be risks caused by customer business adjustments or major changes in the external macroeconomic environment, sudden accidents, and other force majeure factors.
3. Competition in the battery foil industry is intensifying. In recent years, since the scale and speed of expansion of battery aluminum foil production cannot match the scale and speed of expansion of power batteries, the overall supply and demand of the battery aluminum foil industry is tight, and prices have remained high. However, with the release of new battery aluminum foil production capacity, the industry is likely to experience overcapacity, and competition in the industry will further intensify at that time.
4. Sales of anti-corrosion & insulation materials fell short of expectations; orders for energy storage projects fell short of expectations; project progress fell short of expectations; raw material prices rose, etc.