Event: The company announced the signing of a global strategic cooperation memorandum of understanding with LGES. LGES approved companies are suppliers of the highest quality in the market, and priority is given to purchasing company diaphragms in overseas markets. The memorandum of understanding stipulates that from 2024 to 2030, the two sides will jointly establish a global cooperation framework for the procurement volume of not less than 12 billion square meters of diaphragms.

It has received 12 billion square meters of procurement intentions, and the overseas share is expected to increase further. We expect the 12 billion square meter procurement framework to include dry diaphragms and wet separators. Among them, wet diaphragms are the main ones, corresponding to 800-900 GWh battery demand. The 7-year procurement framework corresponds to an average of nearly 2 billion square meters of diaphragms per year, corresponding to 150 GWh battery demand. LGES plans to have a production capacity of nearly 500 GWh by the end of the year 25. We expect LGES power battery production to be 130-150 GWh in '23. In the future, we expect the company's share of LGES diaphragm procurement to increase to about 30%. In August 2021, the company signed an order guarantee agreement of 4.3 billion yuan with LGES for a period of 4.5 years. We expect to ship an average of 3-4 billion square meters per year. We have signed another huge order this time, fully demonstrating LGES's recognition of the company. We expect the company to have a diaphragm production capacity of 4 billion square meters by the end of 23 and 8 billion square meters by the end of 25, of which Europe plans 1 billion square meters and Malaysia plans 2 billion square meters. The expansion of overseas customers and the share of shipments is expected to increase further in the future.

The efficiency of the new production line has been greatly improved, helping the company to smooth competition and increase its impact. The company shipped about 1.8 billion square meters in the first three quarters, an increase of 57%. After the release of new production capacity, the current monthly production capacity exceeds 300 million square meters. We expect Q4 shipments to maintain a 20-30% increase over the previous month. We expect the full year of 23 to be shipped to 2.8 billion square meters, an increase of 65%, and shipments in '24 are expected to reach 4 billion square meters +, maintaining a 40% increase. In terms of profit, the diaphragm link is facing an excess, and the price of 24H1 may be further reduced slightly, but the company's wet method fifth generation 8 meter (effective range is 6.2 meters) production line has already been put into operation in mid-year. The fifth generation production line has a master roll production capacity of 250 million square meters, leading the industry, significant cost reduction effects, and the steady increase in the share of overseas customer revenue and a certain degree of hedging. We expect that the net profit margin for 24 years will remain 0.3 yuan.

Profit forecast and investment rating: We maintain the 23-25 net profit forecast of 950/12.42/1,719 billion yuan, 32%/31%/38% of the same period last year. The corresponding PE is 22/16/12x. Considering the company's high long-term growth potential, we gave 22xPE in '24, with a target price of 21 yuan, maintaining a “buy” rating.

Risk warning: sales volume falls short of expectations, profit level falls short of expectations