Continuously expanding the boundaries of capabilities, the photovoltaic+magnetic+lithium battery business is “tripartite”. The company was founded in 1980 and is the largest manufacturer of magnetic materials in China. In 2009, the solar energy division was established to enter the photovoltaic industry, and in 2016, the new energy battery division was established to enter the lithium battery industry. In 2022, the company's photovoltaic products business accounted for 64.74%, magnetic materials business accounted for 21.61%, and new energy batteries accounted for 8.03%. In 23Q3, the company achieved operating income of 5,512 billion yuan, a year-on-year increase of 15.9%, and net profit to mother of 438 million yuan, an increase of 6.63% over the previous year.

Photovoltaic products: maintain high-quality development and continue to dig deeper into differentiated needs in the future. According to the 23 semi-annual report, the company's photovoltaic products mainly include batteries and modules. On the basis of maintaining high growth in European market shipments, Japan, South Korea and domestic markets have more than doubled, and market expansion in Australia, India, Latin America and other regions is beginning to show results. In 19-22, the compound growth rate of the company's photovoltaic product business reached 73%. According to “Hengdian East Magnetic Research Activity Information 20231027,” it is expected to have a production capacity of 16 GW batteries and 15 GW modules (domestic 13 GW+ 2 GW abroad) in 2024. The goal is to release full production as soon as possible, and shipments will increase rapidly.

The company plans to first lay out battery production capacity in Southeast Asia, and then consider building factories in the US, the Middle East, or even Europe.

Magnetic materials: Stable leading position, extending the industrial chain layout to open up room for growth. In 19-22, the revenue growth rate of magnetic materials was 2.8%, 5.68%, 26.39%, and 1.76%, respectively. Magnetic materials and devices are widely used in many fields, including home appliances, automobiles, new photovoltaic energy, consumer electronics, communications, big data centers, and charging piles. According to “Hengdian East Magnetic Research Activity Information 20231027”, the company has achieved a leading position in the ferrite materials market. On the basis of consolidating its leading position, it horizontally expands material systems such as composite permanent magnets, composite soft magnets, metal magnetic powder cores, nanocrystals, etc., lays out downstream magnetic devices vertically, and develops the device industry through advantages on the material side. It hopes to maintain about double-digit growth in the next few years.

New energy batteries: The operating rate is high, and new production capacity is climbing to increase profits. According to the 23 semi-annual report, the company's lithium battery products mainly include ternary cylinders, small power PACK systems and energy storage products, which are mainly used in electric motorcycles, portable energy storage, power tools, and smart small household appliances. According to “Hengdian East Magnetic Research Activity Information 20230817”, the operating rate of the lithium battery business remained above 70%, which is at a high level in the industry. 23Q3 lithium battery phase III production capacity climbed smoothly, and revenue, shipments, and profits increased rapidly in a single quarter. The primary goal of 24 is to ensure the high utilization rate of existing mass production projects.

Profit forecast and valuation: We expect the company's net profit to be 17.39 billion yuan, 17.86 billion yuan, and 2,283 billion yuan respectively for 23-25, up 4.2%, 2.7%, and 27.8% year-on-year. Referring to the 24-year valuation level of comparable companies, we gave the company a 24-year PE valuation of 13-15 times, with a corresponding reasonable value range of 14.27-16.47 yuan, giving it a “superior to the market” rating.

Risk warning: competition intensifies; industry demand declines; production expansion falls short of expectations; technological progress falls short of expectations.