The magnetoelectric equipment business started, and the acquisition of Xingcheng Graphite entered the anode field. Hunan Zhongke Electric Co., Ltd. was changed from Yueyang Zhongke Electric Co., Ltd. in 2008 and listed on the Shenzhen Stock Exchange GEM in 2009. The company's traditional main business is the magnetoelectric equipment business. In 2017, it entered the lithium battery anode industry through the acquisition of Hunan Xingcheng Graphite.

Anodes accounted for over 75% of revenue in 2019, and further increased to over 90% in 2022. In 2022, the company successfully developed Korean battery customer LGES and entered the international market.

Global demand for lithium battery anodes is expected to continue to grow rapidly. We have calculated that the global demand for lithium batteries in 2023-2025 is 1253, 1613, and 2001 GWh respectively. According to Putailai's response to investors, the demand for anodes corresponding to a single GWh battery is about 1,200 tons. We expect the global lithium battery anode market size to be 150, 194, and 2.4 million tons respectively in 2023-2025.

The competitive landscape is concentrated, and Zhongke's shipping rankings are on the rise. According to EVtank data, in domestic lithium battery anode shipments in 2023, Zhongke Star City accounted for 8.8%, ranking fourth. The top four manufacturers in shipment volume had a total market share of 57%, and the market was concentrated. In 2018-2023, Zhongke Xingcheng showed an overall upward trend in the domestic ranking of lithium battery anode shipments, rising from 6th place to 4th place.

The company's profit margin and net profit to mother bottomed out in 2023Q1 and gradually improved after 2023Q2. Due to a combination of factors such as low sales season during the 2023 Spring Festival, downstream inventory removal, and negative price reduction, 2023Q1's gross margin fell to an all-time low of 7.9%. At the same time, due to the 2023Q1 company's careful and thorough calculation of stocking inventory, 2023Q1's net interest rate was -13.8%, which is also a historical low. Since 2023Q2, the company's gross margin and net margin have continued to improve, 2023Q2's net profit to mother turned a loss into profit, and 2023Q3 has continued to rise.

The company has a patented layout for silicon-based anodes and has already built a pilot line. According to the company's announcement, as of June 2023, the company has applied for 9 invention patents to design silicon-based anodes, mainly involving methods for preparing and treating silicon-based anodes. Of these, 2 have been authorized and 7 have been accepted. According to the company's disclosure, before May 2023, the company completed the construction of a pilot line for silicon-based anodes and sent samples to downstream customers for verification.

Profit forecast and investment rating: The company's revenue for 2023-2025 is estimated to be $46.9 billion, 4.58 billion yuan, and 5.10 billion yuan, respectively, and realized net profit to mother of 0.4, 4.0, and 590 million yuan, respectively. According to the closing price on March 8, 2024, the average PE of companies Putailai, Shangtai Technology, and Shanshan Co., Ltd. in 2024 was 9 times higher. It is estimated that Zhongke Electric's net profit in 2024 will be 40 million yuan, which is 16 times the corresponding PE valuation, which is higher than the industry average. Considering that the company has a high market share in the anode industry and there is an upward trend, the first coverage was given a “gain” rating.

Risk warning: Negative electrode prices falling beyond expectations, sales of new energy vehicles falling short of expectations, risk of deviation in industry size estimates, risk of untimely updates to research report usage information data.