Operations returned to normal in the third quarter, and revenue improved significantly from month to month. The company achieved revenue of 3,522 billion yuan in the first three quarters of 2023, a year-on-year decrease of 5.95%; realized net profit to mother of -56 million yuan, a year-on-year decrease of 113.20%. High stocks of raw materials continued to be digested, integrated projects were put into operation to increase the graphitization self-sufficiency rate, and the cost control effect was gradually reflected. From a quarterly perspective, the company achieved net profit of 69 million yuan in a single quarter in the third quarter, a sharp increase of 561.12% over the previous quarter, and the operating situation improved dramatically.

Profit levels have improved dramatically, and integrated production capacity continues to be released. The negative electrode business showed results in reducing costs and increasing efficiency. The company's Q3 gross profit margin was 16.74%, up 3.73 pcts month-on-month, net interest rate 4.40%, 4.87 pcts month-on-month, and profitability was gradually restored. The company continues to recommend the promotion of integrated new production capacity. The Guiyang project in Guizhou has been put into operation and gradually expanded, and the Qujing project in Yunnan is being actively promoted. It is expected that the graphitization self-sufficiency rate will continue to increase in the future. Furthermore, the company continues to consolidate cooperation with major domestic customers such as Ningde, Everweft Lithium Energy, and BYD, and has accelerated overseas expansion, and has achieved batch supply to customers such as LG and SK.

Fast charging will become a new battleground for anode materials, and Zhongke Electric is expected to overtake cars. With the development of long-term battery life of electric vehicles, battery life anxiety has gradually been resolved, but the convenience of charging has become a new “pain point” that users are concerned about. Fast battery charging technology has become a new battleground for power battery companies to compete. Fast charging anodes have always been one of Zhongke Electric's core R&D projects. Currently, the company's fast charging power battery anode products have passed small tests. The gram capacity is ≥355 mAh/g, the charging ratio is ≥ 3C, and the cycle life is greater than 4000 weeks. The performance is excellent. In the future, as the penetration rate of fast charging anodes increases, the company's high-end fast charging products are expected to contribute excess revenue.

Considering high raw material inventories and industry price reduction pressure, we predict that the company's earnings per share for 2023-2025 will be 0.04, 0.59, and 0.92 yuan, respectively (the previous 2023-2024 forecast values were 1.54 and 2.06 yuan, respectively). Referring to the 24-year valuation level of comparable companies, the company was given a price-earnings ratio of 20 times in 24 years, and the corresponding target price was 11.8 yuan, maintaining an increase in holdings rating.

Risk warning

Downstream demand falls short of expectations, leading to lower product prices and shipments; fluctuations in upstream raw material prices cannot be transmitted downward; production capacity investment falls short of expectations; changes in assumptions affect calculation results; risk of fluctuations in graphitization costs, etc.