Key points of investment
The company has been deeply involved in batteries for more than ten years and has laid out two major tracks for power and energy storage. Guoxuan Hi-Tech was founded in May 2006 and is mainly engaged in power and energy storage battery products. The company's power/energy storage battery shipments ranked 8th and 6th in the world respectively. Looking back at the company's development history, it has completed the three-level jump of “single product - horizontal and vertical extension - global overseas”. Judging from the performance situation, in the past two years, with the highlight of the company's scale effect and the vertical layout of the industrial chain, the company's profits have gradually entered a harvest period. In the first three quarters of 2023, the company's net profit withheld from its mother ushered in a reversal of losses.
Standing at this point, and looking at the company's growth, we think there are three main highlights worth paying attention to:
(1) Volkswagen: Targeted work has been completed, which is expected to open a new chapter in mass production and the story of mass cooperation. It has been the company's label since 2020.
Over the past few years, the company has successively completed tasks such as equity settlement, management integration, and product verification.
In 2022 and 2023, it has successively obtained Volkswagen's designation for power batteries in China and overseas markets, which indicates that the company's products have passed public testing and officially obtained a license for mass production. We believe that the cooperation between the company and the public is about to enter a sweet period of harvest.
(2) Globalization: Overseas market development prospects are broad. The company's overseas progress is leading. Judging from the penetration rate, the penetration rate of new energy vehicles in China in 2023 has already exceeded 30%, while the penetration rate in Europe has only just exceeded 20%, and the penetration rate in the US and Thailand is around 10%. Overseas markets are in the early stages of industry growth and have great potential for development. Guoxuan Hi-Tech is one of the few domestic battery companies that have made progress in the US. It has planned production projects for lithium batteries and positive and negative electrode materials in Illinois and Michigan, respectively. In Göttingen, Germany, the company launched its first German battery product in 2023. In Southeast Asia, a production capacity of 2 Gwh is planned in the first phase in Thailand, and delivery is expected to begin in 2024Q1; the Vietnamese market is building a lithium iron phosphate battery factory in a joint venture with the local VinES company.
(3) New technology products: Driven by innovation, next-generation battery products create more possibilities. The company's R&D investment remained high over the years. In 2022, R&D expenditure was about 1.8 billion yuan, an increase of 178% over the previous year. Investment in R&D has been further strengthened, and technological innovation for new products has been vigorously carried out. The new products include: ternary semi-solid-state batteries, with an energy density of up to 360 Wh/kg and a battery life of 1000 km; the Qichen L600 LMFP battery can achieve a mass energy density of 240 Wh/kg, and supports 18 minutes of fast charging.
Profit forecasting and valuation
In 2023-2025, we expect the company to achieve operating income of 314.49/402.88/52,092 billion yuan, an increase of 36.43%/28.11%/29.30%; it is expected to achieve net profit of 10.16/18.23/2,764 billion yuan, an increase of 225.92%/79.48%/51.65%; corresponding PE valuations will be 32.34/18.02/11.88 times, respectively. The corresponding PE valuation is 32.34/18.02/11.88 times, respectively, and given an “increase” rating.
Risk warning:
Downstream demand falls short of expectations. Risk of fluctuations in raw material prices. Market competition increases risk.
The risk of domestic and foreign policy changes. The company's partnership with downstream customers falls short of anticipated risk.