The company released its 2023 three-quarter report. The company achieved a profit of 131 million yuan in the first three quarters, a year-on-year decline of 48.56%; the company's performance in the third quarter improved month-on-month, and the battery materials business is expected to contribute growth and maintain an increase in holdings rating.

Key points to support ratings

Profit for the first three quarters of 2023 fell 48.56% year on year: the company released its 2023 three-quarter report. The first three quarters achieved revenue of 3.717 billion yuan, a year-on-year decrease of 6.13%; realized net profit of 131 million yuan, a year-on-year decrease of 48.56%; realized net profit of 131 million yuan, a year-on-year decrease of 48.56%; and realized net profit of 165 million yuan, a year-on-year decrease of 41.71%. According to performance estimates, in the third quarter of 2023, the company achieved net profit of 65 million yuan, an increase of 225.53% over the previous year, an increase of 33.91% over the previous year; realized a net profit of 72 million yuan, an increase of 264.82% over the previous year and an increase of 25.62% over the previous year.

Performance picked up in the third quarter, and cost control during the period was relatively good: affected by price fluctuations in materials such as cobalt and copper, the company's performance was under pressure in stages. In the first three quarters, the company achieved an overall gross profit margin of 15.66%, a year-on-year decline of 3.66 percentage points, and a net profit margin of 3.72%, a year-on-year decrease of 2.68 percentage points. Among them, the third quarter of 2023 showed a recovery trend, achieving an overall gross profit margin of 15.68%, an increase of 0.16 percentage points over the previous month, and a net profit margin of 4.96%, an increase of 0.83 percentage points over the previous year. The company's fee rate control for the period was relatively good. The fee rate for the first three quarters was 5.54%, down 0.61 percentage points from the previous year. Among them, the fee rate for the 2023Q3 period was 4.66%, down 1.39 percentage points from the previous month.

The battery materials business is beginning to bear fruit and is expected to become a new performance growth point: the company actively extends the industrial chain and lays out the battery materials business. It has established a complete cobalt product industry chain including mineral development, acquisition, rough processing, smelting and purification, cobalt salt, cobalt powder, electrolytic cobalt, precursors and battery cathode materials production, and the level of integration continues to improve. According to the company's interim report, the battery materials business has achieved revenue of 28.17 million yuan in the first half of 2023, with a gross margin of 4.71%. It is expected that in the future, with the gradual implementation of battery material production capacity, the company's performance will grow rapidly.

valuations

Under the current share capital, combined with the company's 2023 three-quarter report and changes in commodity prices such as cobalt copper, etc., we adjusted the company's 2023-2025 forecast earnings per share to 0.63/1.07/1.12 yuan (originally predicted diluted earnings per share was 1.72/2.16/- yuan), corresponding to a price-earnings ratio of 48.4/28.5/27.3 times; maintaining an increase in holdings rating.

The main risks faced by ratings

Demand for new energy vehicles falls short of expectations; global cobalt mining investment exceeds expectations; price competition exceeds expectations; technology iteration risk; overseas operations and exchange rate risk.