Consumer battery profits continued to recover, and gross margin reached an all-time high
Zhuhai Guanyu released its 2023 three-quarter report. The company achieved revenue of 8.54 billion yuan in the first three quarters of 2023, +2.4%; net profit of 290 million yuan, +241% year-on-year, of which Q3 was net profit of 150 million yuan, +565%, gross profit margin of 28.8%, up 10.9pct year on year, and 3.4pct over month, mainly due to dividends from falling raw material prices and lagging product price adjustments. The company's share of high-end products increased, and Q4 shipments and gross margins are expected to continue to be stable, moderate and positive. Considering the increase in the share of the company's high-end customers, power storage is expected to continue to reduce losses. We raised the company's net profit forecast for 2023-2025 to 4.3, 10.6, and 1.60 billion yuan (previously 3.6, 10.2, 1.54 billion yuan), EPS for 2023-2025 to 0.38, 0.95, and 1.43 yuan. The current stock price PE is 53.9, 21.7, and 14.4 times, maintaining the “buy” rating.
The gross margin of consumer batteries continues to rise, and the prosperity is expected to continue to rise in 2024
We expect the company to ship 90,000-91 million consumer batteries in 2023Q3, a slight increase over the previous month; gross margin is close to 30%, close to the high gross margin level in 2020, mainly due to the company's laminated battery production capacity being put into production, and the share of high-end customer shipments has increased. At the same time, Q3 raw material prices have declined further, and the company's price adjustments have lagged to enjoy dividends. We expect Q4 shipments and gross margin to continue to be stable, moderate, and positive. Considering the switching cycle of about 4 years for notebook batteries, the 2024 boom will continue to rise, and the market share of mobile phone battery companies is expected to continue to rise in 2024, with reference to 2020.
The power battery business has begun to reduce losses, and starting and stopping batteries is expected to increase
Minority shareholders' profit and loss of 2023Q3 is -500 million yuan. We estimate that the power sector lost about 68 million yuan, Zhejiang Guanyu's net profit for the first half of 2023 - 249 million yuan, Q3 clearly reduced losses, and start/stop batteries received fixed points from many well-known domestic and foreign car manufacturers, and mass production and supply have begun one after another. We expect Q4 to further reduce losses as batch delivery of battery orders is expected to further reduce losses. Companies in the energy storage sector have entered the supply chain system of well-known domestic and foreign system integrators such as ZTE, Sonnen, South Net Technology, etc., and large quantities of standard batteries have entered the national standard. At the certification stage, it is expected that mass production will gradually begin in 2024.
Risk warning: Consumer battery prosperity falls short of expectations; mobile battery yield rises below expectations; downstream customer volume of starting and stopping batteries falls short of expectations; risk of patent litigation.