Key words: # Capacity expansion
Investment Thesis
As the leader in electrolyte additives, the company maintains the second position in the industry's shipment volume. Established in 1997, the company has been deeply involved in the electrolyte additive industry for 20 years and was listed on July 13, 2022. The company's revenue and net profit achieved a CAGR of +28.7% and +62.5% from 2018 to 2022. Starting from 2022, there has been an oversupply in the industry, and the prices of VC/FEC products have entered a downward cycle. In 2023Q1-Q3, the company achieved revenue/net profit of Rmb391/26mn, -44%/-88.64% yoy. In terms of industry landscape, the company maintained the second position in 2022, with market shares of 15% and 23% for VC and FEC, respectively, second only to Shandong Genyuan.
Continuous industry oversupply has driven additive prices to the bottom. In 2023, the industry's capacity continued to be oversupplied, and according to SMM data, the market prices for VC/FEC in November 2023 were Rmb64,500/58,500 per ton (excluding tax), a decrease of 56%/59% compared to the company's average sales price for 2022. We expect the effective capacity of the VC/FEC industry to be 64,000/30,000 tons in 2023, with effective demand of 37,000/16,000 tons, corresponding to capacity utilization rates of 58%/54%, a decrease of 14pct/13pct from 2022. In 2024, the capacity utilization rate of the VC/FEC industry is expected to further decline to 46%/41%, and we expect the oversupply to persist.
The company optimizes VC/FEC technology to reduce costs and increase efficiency, and actively develops new lithium salts and additives to open profit increments. The company strongly supports the R&D of VC/FEC detailed control technology, improving product purity and production efficiency through a series of new technologies, achieving cost reduction and green production, and actively introducing leading battery manufacturers at home and abroad to consolidate its leading position in traditional additives. The company established a joint venture with an investment of Rmb600mn to build a 3,000-ton LiFSI project. The first phase of 500 tons began trial production in 2023H2, and we expect gradual shipments to begin in 2024. In terms of new additives, the company is building a new 500-ton per year ODFB and 1,000-ton per year MMDS, further improving the layout of electrolyte additives, and we expect it to contribute to profit increments starting in 2024.
Earnings Forecast & Rating: We expect the net profit of the company in 2023-2025 to be Rmb29/60/113mn, -89%/+109%/+88% yoy, implying P/E at 145x/69x/37x. We initiate coverage with "Outperform" rating.
Risks: Sustainability of revenue growth, the risk that downstream customers may expand the industry chain upstream, changes in the downstream battery technology route.