Domestic wood activated carbon faucet, “carbon+silicon” industry two-wheel layout. Yuanli Co., Ltd. was founded in 1999, focusing on the field of activated carbon. The founder, Lu Yuanjian, was born into a chemical family. He was the first to break through the phosphoric acid process and entered a stage of rapid expansion, increasing its market share to 30% + in '22. The company's traditional business is activated carbon, sodium silicate and silicone products. In 20-22, it achieved operating income of 11.4/16.1/1.95 billion yuan, -11%/+37%/+21% year-on-year, and achieved net profit of 1.3/1.5/220 million yuan, +135%/+37%/+48% year-on-year, and achieved steady growth in performance.

Powdered carbon accounts for more than 30% of the market, and granular carbon has begun to grow rapidly. The company is a wood-based activated carbon leader with technical, brand and market advantages. Its main sales product is powdered carbon, which is used in the food and beverage sector. Downstream demand is scattered and stable, with domestic demand of about 300,000 tons in 23 years. The company has leading scale effects. It has shipped 110,000 tons in 23 years, and is located in northern Fujian. It has sufficient raw material resources, and has a long-term cost advantage. The gross margin has maintained 30%, far exceeding the profit level of its peers. In addition, coal-based carbon is used in environmental protection, and downstream demand is broader. Domestic demand was about 550,000 tons in '23. The company targeted bamboo granulated charcoal, which has environmentally friendly characteristics and is driven by the general trend of replacing coal-based carbon. It shipped 10,000 tons in '23, doubling year-on-year growth. The profit level is superior to that of powdered carbon, and is expected to maintain rapid growth in the next few years.

The silicon-carbon CVD method has achieved a breakthrough, and the demand space for porous carbon is broad. Silicon-based anodes can improve the energy density and ratio performance of batteries. Domestic shipments totaled 16,000 tons in '22, and industry demand is expected to grow rapidly in the future with fast charging, 4680, and semi-solid state emissions. At the end of '22, Group 14 used porous carbon as a framework and used the CVD method to store nanosilicon in the framework, greatly reducing the expansion problem of silicon and speeding up the mass production of silicon-carbon. However, porous carbon is the core of the process, and the technical barriers are relatively high. The company is deeply tied to the head battery factory, and has completed the construction of a 500-ton production line, achieved 100-ton shipments in 24, and kiloton-level shipments in 25. The unit price of the product is high, and the profit level is superior to the main business.

Technology costs continue to break through, waiting for large-scale release of sodium electricity. Polyanions have a cost advantage. We predict that the cost after mass production will be 0.30-0.35 yuan/wh, 24 years may reach an economic inflection point, 25 years or start small-scale release (10gwh+), 26 years or large-scale release (50gwh+). Hard carbon materials are mainly used for sodium battery anodes, corresponding to 1/3/100,000 tons in 24-26 years. The core of the hard carbon process is carbonization and purification, which is technically compatible with activated carbon. The company relies on technical and cost advantages to cooperate deeply with leading sodium power manufacturers to plan a production capacity of 50,000 tons, and is expected to ship 1,000 tons in 24 years.

Furthermore, the company has deployed supercapacitor carbon, with a current production capacity of 400 tons/year, leading domestic alternative production.

Profit forecast and investment rating: We expect the company's net profit to be 2.5/28/350 million yuan in 23-25, +10%/+15%/+23% over the same period. The corresponding PE is 21/18/15x, which is 28 times PE in 24 years. For the target price of 21.7 yuan, the initial coverage is given a “buy” rating.

Risk warning: Industry competition intensifies, new technology release falls short of expectations, downstream demand falls short of expectations.