Incidents:
The company released its 2023 annual report. In 2023, it achieved revenue of 15.405 billion yuan, or -30.97% year-on-year, and net profit to mother of 1,891 billion yuan, or -66.92% year-on-year. 23Q4 achieved revenue of 3.281 billion yuan, -44.29% year-on-year, -20.71% month-on-month, and net profit to mother of 139 million yuan, -89.74% year-on-year and -70.02% month-on-month.
Inventory impairment combined with falling gross profit affects net profit
The production capacity of the company's cathode material precursor iron phosphate products climbed slowly in '23, and profitability fell short of expectations.
With the sharp drop in the price of lithium carbonate in '23, the company recorded inventory impairment losses of 171 million yuan for the full year of '23, accounting for 9% of net profit returned to mother for the full year of '23, affecting the company's net profit. 23Q4 has taken the initiative to hedge lithium carbonate futures to cope with fluctuations in raw material prices. In addition, the company's gross profit margin for lithium battery materials for the full year of '23 was 25.26%, -13.29pct year on year, leading to a decline in the company's profit.
Production capacity continues to increase, and new products are launched at an accelerated pace
The company's 300,000 ton iron phosphate project has been put into trial production. After completion, the company will form a production capacity of 330,000 tons of iron phosphate, which is expected to further reduce cathode production costs. At present, the company's new lithium battery material project with an annual output of 152,000 tons is under trial production, further strengthening the company's electrolyte cost advantage. The self-supply ratio of the company's core raw materials lithium hexafluorophosphate and LiFSi reached more than 93% in '23. The company accelerated the development of LiFSI electrolyte formula products. The LIFSI addition ratio in the third quarter of '23 was over 2%, which is expected to increase to around 3% in '24, and the accelerated implementation of new products is expected to lead to continuous improvement in performance.
Overseas layout continues to be implemented, which is expected to contribute to new growth points in performance
The company accelerated its overseas production layout, and the German OEM factory began mass production and supply, and currently has an annual production capacity of 13,000 tons of electrolyte. In addition, the company is actively planning to build production bases in North America and Morocco. The 23-year plan is mainly to build electrolyte production capacity in North America, with an estimated construction period of 2 years; in addition to electrolytes, the Morocco project also plans to lay out lithium hexafluorophosphate supporting materials and cathode materials. We expect the overseas market to become the second growth point for the company's performance through a decline in production capacity.
Profit Forecasts, Valuations, and Ratings
We expect the company's 24-26 revenue to be 149.93/189.20/23.102 billion yuan, respectively, with year-on-year growth rates of -2.67%/26.19%/22.10%; net profit to mother of 15.13/17.72/2,445 billion yuan, respectively, corresponding growth rates of -19.95%/17.06%/38.01%, and a three-year CAGR of 8.94%; corresponding PE is 26/22/16 times, and EPS is 0.79/0.92/1.27 yuan/share, respectively. Referring to comparable company valuations, we gave the company 31 times PE in 24 years, with a target price of 24.49 yuan, maintaining a “buy” rating.
Risk warning: Industry competition increases risk; demand for electrolytes falls short of expectations; risk of large fluctuations in raw material prices.