Event: The company publishes its 2023 annual report.
Key points of investment:
The company's performance is under pressure in the short term. In 2023, the company achieved revenue of 15.405 billion yuan, a year-on-year decrease of 30.79%; operating profit of 2,343 billion yuan, a year-on-year decrease of 65.90%; net profit of 1,891 billion yuan, a year-on-year decrease of 66.92%; net cash flow from operating activities of 2,274 billion yuan, a year-on-year decrease of 45.38%; basic earnings per share of 0.99 yuan, a weighted average return on net assets of 14.78%. The profit distribution plan was 3 yuan for every 10 shares ( tax included). Among them, the company achieved revenue of 3.281 billion yuan in the fourth quarter, down 20.71% from the previous quarter, and net profit of 139 million yuan, down 70.02% from the previous quarter. In 2023, the company's non-recurring profit and loss totaled 66.83 million yuan, including 87.26 million yuan in government subsidies. Currently, the company's main business is R&D, production and sales of new fine chemical materials. The main products include lithium-ion battery materials, daily chemical materials and specialty chemicals. Lithium-ion battery materials are the company's main source of revenue.
Sales of new energy vehicles and power battery production in China continue to grow, driving the demand for electrolytes to grow. Statistics from the China Automobile Association and the China Automobile Power Battery Industry Innovation Alliance show that in 2023, China sold a total of 9.4481 million new energy vehicles, up 37.48% year on year, accounting for 31.45%; of these, total exports of new energy vehicles were 1.203 million units, an increase of 77.6% year on year.
From January to January 2024, China sold 1.06 million new energy vehicles, an increase of 29.30% over the previous year, accounting for a total of 29.98%. Along with the increase in sales of new energy vehicles in China and the increase in power battery exports, China's production of power batteries and other batteries continues to grow. In 2023, China's total output of power batteries and other batteries was 778.10 GWh, an increase of 42.5% over the previous year; of these, 152.6 GW was exported. From January to January 2024, China's total output of power and other batteries was 108.8 GWh, with a cumulative year-on-year increase of 29.5%; of these, 16.6 GWh were exported. In December 2023, the Central Economic Work Conference made it clear that it is necessary to further promote the construction of ecological civilization and green and low-carbon development. The NEV vehicle purchase tax exemption policy was continued and optimized in 2024; the fall in the price of upstream raw materials for power batteries will help reduce the price of power batteries and improve the cost performance ratio of new energy vehicles. Overall, it is expected that in 2024, China's NEV sales will maintain double-digit growth, and demand for key materials such as upstream battery electrolytes will continue to grow. Gaogong lithium battery statistics show that in 2022, China shipped 844,000 tons of electrolyte, up 68.80% year on year; in 2023, 1.11 million tons were shipped, up 31.52% year on year. Looking ahead to 2024, under the trend of downstream vehicle price reduction and cost reduction, lithium battery companies should seek the ultimate cost performance ratio on the basis of continuously improving product performance. For this reason, cost reduction will continue to be the main theme in the industry; shipments in the electrolyte segment are expected to maintain double-digit growth.
The company's lithium battery materials business is under pressure in the short term, and the advantages of industrial integration are remarkable. The company's lithium battery materials mainly include lithium battery electrolytes and lithium iron phosphate cathode materials, and strategically lay out the lithium battery recycling business around key raw materials such as lithium hexafluorophosphate, novel electrolytes, additives, iron phosphate, lithium carbonate processing, and spodumene concentrate; at the same time, it officially entered the positive and negative electrode binder and lithium battery rubber products business in 2022 through independent research and acquisition. In 2016-2020, the company's lithium-ion battery material revenue remained stable at around 65% of the company's revenue; in 2021-2022, the company's lithium battery materials business continued to double, and the revenue share increased significantly, from 64.57% in 2020 to 93.30% in 2022. The main reason is that the company's lithium-ion battery material sales continued to grow. For example, in 2022, the company's total sales volume of lithium-ion battery materials increased 92.0% year on year, followed by a significant increase in industry prices in 2021. In 2023, the company's total sales volume of lithium-ion battery materials was 612,200 tons, with a year-on-year increase of 42.07%, and the capacity utilization rate was 39%-63%, with electrolyte sales volume of 39%-63%, with corresponding lithium-ion battery material revenue totaling 14.104 billion yuan, a year-on-year decrease of 32.26%, mainly due to a significant year-on-year decline in the price of products related to the lithium battery industry. For example, Baichuan Yingfu statistics showed that the average price of electrolyte in 2023 was 34,000 yuan/ton, a year-on-year decrease of 59.31%. Among them, the company's largest customer CATL achieved a year-on-year decrease of 59.31%. Sales amounted to RMB 8.118 billion, accounting for 52.70% of total annual sales.
In 2023, the self-supply ratio of the company's core raw materials for lithium-ion battery materials continued to increase. The self-supply ratio of liquid lithium hexafluorophosphate and LiFSi reached more than 93%, and the self-supply ratio of some core additives was over 80%. Third-party data showed that the company's domestic market share of electrolytes increased to 36.4%. In terms of production capacity layout, the domestic focus is on electrolyte production capacity in Sichuan, liquid lithium hexafluorophosphate production capacity in Chizhou, iron phosphate production capacity in Yichang, and lithium carbonate purification production capacity in Jiujiang; overseas, the German OEM factory was successfully put into operation, and the North American electrolyte project continued to advance. Land was purchased in June 2023; sample rooms have been set up in Korea to accurately support Korean customers such as LG and SDI. In terms of resource recycling business, the company's lithium carbonate purification production line was successfully put into operation, and research and development of the lithium carbonate hydrosmelting process began; in terms of other lithium battery materials, some adhesive products have successfully passed customer verification and mass sales, and battery rubber products have formed a certain market size.
Looking ahead to 2024, considering the global layout of the company's lithium-ion battery materials and the electrolyte industry chain has certain industry status and integration advantages. For example, the company's liquid lithium hexafluorophosphate unit production capacity investment and production costs are significantly lower than the industry average, and it is highly recognized by major international customers. It is expected that the company's lithium-ion battery material shipments will continue to grow, and the overall price of the lithium battery industry chain will remain at a relatively reasonable level, but the average price for the whole year is still under pressure compared to the average price in the 2023 industry.
The company's profitability declined and is expected to improve in 2024 compared to the fourth quarter. In 2023, the company's gross sales margin was 25.92%, a sharp drop of 12.05 percentage points from the previous year. Among them, gross margin for the fourth quarter was 16.96%, down 7.36 percentage points from the third quarter, a new low in recent years. The main reason was that prices in the segment fell significantly due to the continuous release of production capacity in the lithium battery industry chain, and increased competition in the industry. The company's gross margin by product in 2023 showed that lithium-ion battery materials were 25.26%, down 13.29 percentage points year on year; household chemicals and specialty chemicals were 35.84%, up 6.01 percentage points year on year. The company continues to focus on R&D investment. In 2023, the company invested 646 million yuan in R&D, accounting for 4.19% of revenue, an increase of 0.18 percentage points over 2022. By the end of 2023, the company had a total of 834 patent applications, of which 472 were authorized, including 280 invention patents.
The price of electrolyte showed a marked correction in the early stages and was generally stable recently. Combined with the company's industry position and industrial chain layout, the company's profitability is expected to improve in 2024 compared to the fourth quarter of 2023.
Follow the progress of the lithium carbonate project construction. In December 2023, the company announced an announcement on investing in the construction of a project with an annual output of 30,000 tons of lithium carbonate: the project will be invested by the subsidiary Tianci Resources Xinhua to build a “30,000 ton lithium carbonate project” with a total investment of no more than 1.07 billion yuan, and the project construction period is 14 months. The implementation of the project is based on the integrated layout of the company's lithium battery industry chain, which is of great significance for connecting the company's online mineral processing with downstream high-purity lithium carbonate and lithium fluoride. After the project is put into operation, it will help further enhance the strategic layout of the company's electrolyte core raw material supply chain, enhance the cost advantages of electrolyte and lithium iron phosphate products, enhance the company's profitability, and actively follow the progress of project construction.
For the first time, the company was given an “increase in wealth” investment rating. The company's earnings per diluted share for 2024-2025 are estimated to be 0.65 yuan and 1.07 yuan, respectively. Based on the closing price of 21.76 yuan on March 27, the corresponding PE is 33.23 times and 20.34 times, respectively. The current valuation is reasonable compared to the industry level. Combining the industry's development prospects and the company's status in the industry, the company was given an “increase in wealth” investment rating for the first time.
Risk warning: Competition in the industry has intensified; sales of new energy vehicles in China have fallen short of expectations; prices in the industrial chain have fluctuated greatly; and the exchange rate has fluctuated greatly.