Incident: The company released its 2023 annual report. In 23, the company achieved operating income of 15.405 billion yuan, a year-on-year decrease of 31.0%, and realized net profit of 1.89 billion yuan to mother, a decrease of 66.9% over the previous year. Among them, the company achieved revenue of 3.281 billion yuan in a single quarter, down 44.3% year on year, down 20.7% month on month, and realized net profit of 139 million yuan to mother, down 89.7% year on year and 70.0% month on month.

Due to the imbalance between supply and demand for lithium battery materials, prices fell, and the company's 23-year performance was under pressure. Sales of the company's core products continued to grow in '23. Among them, sales of electrolytes were 396,000 tons, up about 24% year on year. However, due to increased competition in the lithium battery materials industry, the price of lithium battery materials dropped sharply, and the company's performance declined year on year. The sales price of the company's lithium battery materials in '23 was 23,000 yuan/ton, down 52.3% year on year. In terms of gross margin, the company's gross margin in '23 was 25.9%, down 12.1 pct year on year. Among them, the gross margin of lithium battery materials was 25.3%, down 13.3 pcts year on year, and the gross margin of daily chemical materials and specialty chemicals was 35.8%, up 6.0 pct year on year.

Continue to promote the construction of lithium battery material production capacity and increase the self-supply ratio of core raw material production capacity. The company continues to promote the production capacity layout of lithium battery materials, and the self-supply ratio of core raw materials continues to increase. The company currently has a production capacity of 905,600 tons of lithium-ion battery materials. In '23, the company's self-supply ratio of liquid lithium hexafluorophosphate and LiFSi reached more than 93%, and the self-supply ratio of some core additives reached more than 80%. Currently, the company is building a 41,000t/a lithium-ion battery material project (phase I), a lithium battery basic material project with an annual output of 95,000 tons and 100,000 tons of dichloropropanol project, a lithium battery material project with an annual output of 200,000 tons, a project with an annual output of 300,000 tons of iron phosphate (phase II), a lithium battery electrolyte upgrade project with an annual output of 200,000 tons and a lithium iron battery recycling project with an annual output of 200,000 tons of lithium battery electrolyte and 100,000 tons of lithium iron batteries Recycling project, annual output 75500 A tonne lithium battery basic materials project, a lithium iron phosphate cathode material with an annual output of 25,000 tons, and a lithium battery additive material project with an annual output of 80,000 tons.

Lithium battery materials are speeding up the overseas production capacity layout, and daily chemical materials are deeply tied to major domestic and foreign customers. In terms of lithium battery materials, the company's German OEM factory was successfully put into operation in 23, construction of the US electrolyte project continues to advance, and the company plans to promote integrated overseas production capacity construction by setting up a subsidiary in Morocco. In 2024, the company will focus on exploring the needs of European, American, and Korean international customers, including Tesla and LGES, in lithium battery electrolytes and cathode materials, and accelerate overseas production capacity construction and development of supporting solutions. In terms of daily chemical materials, the company implemented a marketing strategy that was deeply tied to major domestic and foreign customers. Sodium taurine obtained a major breakthrough into the Estée Lauder supply chain system. At the same time, it cooperated with major customers to develop and supply its key raw materials, and continued to expand its market share in international MNCs such as L'Oréal, Procter & Gamble, and Unilever.

Profit forecast, valuation and rating: The further expansion of the company's lithium battery materials production is expected to further enhance performance, but since the price of lithium battery materials is still declining, we lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is 14.08 (down 68.8%) /21.23 (down 62.8%) /2.06 billion yuan, respectively. As a leading enterprise in the electrolyte industry, the company has significant advantages in capacity planning and industrial chain layout, and maintains the company's “buy” rating.

Risk warning: production capacity construction risk, downstream demand falling short of expectations, risk of product price fluctuations.