Incidents: On October 27, 2023, the company released its three-quarter report. In the first three quarters, it achieved operating income of 8.365 billion yuan, or -34.11%; realized net profit of 72 million yuan, -93.51%; and realized net profit deducted of 24 million yuan, -97.75% year-on-year. The third quarter alone achieved operating income of 3.475 billion yuan, -31.34% year-on-year; net profit of 0.08 billion yuan, -97.83%; net profit deducted from non-profit of -0.06 billion yuan, -101.75% year-on-year.
Raw material prices affect profits, and core competitiveness remains strong. In the third quarter, the company grasped the needs of downstream customers and continued to work hard in terms of products and supply support. Cathode material shipments are expected to be 20,000 tons, an increase of 33% over the previous month, showing a positive trend. However, due to the further decline in lithium carbonate prices in the third quarter, the company's profit was weak due to some inventory impairment. As the price of lithium carbonate stabilizes, the impact of impairment of raw materials on performance will gradually weaken. Overall, the company relies on Minmetals Group, the majority shareholder, to give full play to its product, customer, and capital advantages. The company has extensive cathode material technology. Its products cover high-nickel and monocrystalline high-voltage series, and its customers include first-tier power battery manufacturers such as Ningde Era and BYD, and has long-term competitive strength. Jinchi Materials, a wholly-owned subsidiary, has core technology and production capacity in the field of ternary precursors, thus helping the company achieve an integrated layout of ternary precursors and cathodes. On the one hand, it is conducive to the formation of stable and reliable product quality, and on the other hand, it can enhance its voice in the industry chain and fully enjoy value chain distribution.
New products are rich in response to customer needs. 1) High nickel, ultra-high nickel: The stability of the second-generation high-power high-nickel NCA has been improved, and the ultra-high nickel ternary material has been recognized by customers for its excellent performance, and has passed the review of the large cylindrical power battery project. The ultra-high nickel monocrystalline cathode materials and high-nickel cathode materials have all been shipped at the level of 100 tons; the development of iterative products of high-voltage fast-charging medium and high nickel ternary materials can further reduce costs. Production line batch stability samples have passed customer evaluation. 2) Lithium iron phosphate: Complete batch stability verification and small-batch trial production. 3) Sodium-electric layered materials: There are research and development stations in the layered oxide, Prussian blue, and polyanion routes, and production lines are continuously modified and optimized based on the specific needs of customers, so that sodium cathode materials can be shipped in small batches.
The orderly construction of diversified production capacity. The company plans to invest 10 billion yuan to build a comprehensive industrial base for high-performance lithium battery materials in Fuqing City, mainly to build ternary cathode materials (supporting ternary precursor production line) and lithium iron phosphate cathode materials. The simultaneous development of diversified production capacity is conducive to meeting customer needs. Overseas market space is vast. In March, the company and Axens signed a memorandum of cooperation on ternary cathode materials and ternary precursors in France, laying a good foundation for subsequent overseas trips.
Investment suggestions: We expect the company to achieve revenue of 129.08/156.08/18.158 billion yuan in 2023-2025, -28.2%/+20.9%/+16.3% year-on-year; net profit of 1.66/504/763 million yuan, respectively, -88.9%/+204.3%/+51.4% year-on-year. The closing price corresponding to PE on October 27 is 100x/33x/22x. Given the company's strong ability to withstand risks based on state-owned assets, the increase in new products enhances competitiveness and maintains the “recommended” rating.
Risk warning: Sales of new energy vehicles fell short of expectations, industry competition intensified, fluctuations in raw materials exceeded expectations, and the pace of production capacity release fell short of expectations.