Incidents:
The company released its 2023 performance report. It is expected to achieve annual revenue of 15.506 billion yuan, yoy -31%, and net profit to mother of 1,908 billion yuan, yoy -66.61%, which is in the middle of the performance forecast, in line with expectations. Among them, Q4 is expected to achieve revenue of 3.382 billion yuan, yoy -43%, qoq -18%, net profit to mother of 156 million yuan, yoy -88%, and qoq -66% in a single quarter.
Conclusions and recommendations:
In 2023, the production capacity of the lithium battery industry chain expanded rapidly, the price of superimposed raw materials was drastically reduced, and overall profitability declined. The amount and price of the company's main product electrolyte increased and decreased, and the cathode precursor iron phosphate was expected to lose money. Combined with asset impairment losses for raw materials and products, the company's annual profit declined significantly year-on-year. Electrolytes are currently at the bottom of profit and are expected to maintain a relaxed supply and demand pattern in 2024. As a leading enterprise in the industry, the company has a perfect layout of the entire industry chain, and its profit level is at a high level within the industry. We are waiting for the overall supply and demand pattern of the industry to be optimized. Currently, the company's valuation is reasonable and maintains a “range operation” rating.
The decline in product prices affected the company's profit performance: the price of the lithium battery industry chain dropped significantly in 2023. The price of the company's main product electrolyte fell from 56,000 yuan/ton in early 2023 to 22,500 yuan/ton at the end of the year, a decrease of 62%. The price of lithium hexafluorophosphate, the key electrolyte, fell from 242,000 yuan/ton to 64,000 yuan/ton, a decrease of 73%; the price drop of iron phosphate, a precursor of cathode materials, fell by 50%. In terms of sales, we expect the company's annual electrolyte shipments to be around 400,000 tons, yoy +25%, showing a steady overall growth rate.
In addition, due to falling prices of raw materials and products, the company's lithium carbonate and cathode material iron phosphate meter inventory preparation has increased, further lowering the company's profit level.
Profits bottomed out, and quarterly results were under pressure: the company's Q4 performance declined significantly from month to month, mainly due to falling electrolyte prices and accrued asset impairment losses. The average price of Q4 electrolyte in a single quarter was 22,800 yuan/ton, qoq -29%, and the average price of lithium hexafluorophosphate was 84,700 yuan/ton, qoq -34%. We expect Q4 to ship 110,000 tons of electrolyte, a slight decrease over the previous month. The quantity and price of Q4's main products, electrolytes, all showed a month-on-month decline. In the cathode precursor sector, 300,000 tons of iron phosphate production capacity is still being released. There is no cost advantage, and the price of iron phosphate has declined, and the section is expected to lose money. In addition, the company calculated asset impairment losses for lithium carbonate and cathode materials at the end of the year, reducing single-quarter results. At present, electrolyte profits are in the bottom range. Some production capacity in the industry is already at a loss, and there is little room for further profit decline.
The supply pattern is relaxed, waiting for the industry to pick up: In the past two years, electrolyte production capacity has grown rapidly. According to EVtank, in 2023, China's electrolyte shipments reached 1.38 million tons, yoy +27.7%, and the company's domestic market share reached 34.7%, down from 2022. A large amount of electrolyte production capacity is still planned to be built in 2024. Currently, electrolyte production capacity is already in excess, and it is difficult to change the oversupply situation in a short period of time. The company has no plans to increase production capacity in the next few years, and has overseas locations in North America, Morocco, and Europe. The company has a high self-supply ratio of hexafluorofluoride, and has laid out lithium bisfluorosulfonimide production capacity ahead of time. The proportion of high-margin products has increased. We are optimistic that the company will maintain its current cost advantage and wait for the industry to clear up its backward production capacity.
We expect electrolyte prices to remain in the bottom range in 2024, but considering that electrolyte prices were at a high level in the first half of 2023, which raised the average price for the whole year, it is expected that the average price of electrolyte in 2024 will be comparable to Q4 in 2023. At around 20,000 yuan, the company's overall gross profit level is expected to decline. In the cathode precursor sector, supply and demand in the iron phosphate industry are also relaxed, but after the company's production capacity climbs, the unit cost is expected to drop, and we expect the company's losses in this section to decrease.
Profit forecast: Considering the loose supply pattern in the lithium battery industry, we revised our profit forecast and added a profit forecast for 2025. We expect the company to achieve net profit of 19.1/13.3/1.6 billion yuan in 2023/2024/2025 (previous value of 29.2/4.46 billion yuan), yoy -67%/-31%/+21%, equivalent to EPS of 0.99/0.69/0.83 yuan. Currently, the PE corresponding to the A-share price is 20/29/24 times. The valuation is reasonable and maintains a “range operation” rating.
Risk warning: 1. The price of the company's products falls short of expectations; 2. The progress of the project under construction falls short of expectations