Core views
Electrolytes are a lithium battery material link that is expected to quickly reverse in the supply and demand relationship. The main reason is that the sales price of electrolyte and hexafluoride has declined rapidly since 2023, and leading companies have shown marginal profit; as an industry leader, Tianci guarantees bottom profit through integrated cost advantages. At the same time, the company actively controls costs, lays out overseas blueprints, consolidates its position, and is optimistic that the company's competitiveness and profitability will improve after subsequent price stabilization in the industry. The company has a valuation premium at the bottom of the performance.
Incidents:
The company released its 2023 annual report: in 2023, the company achieved revenue of 15.405 billion yuan, -31.0% year on year; net profit to mother of 1,891 billion yuan, -66.9% year on year; after deduction, 1,824 billion yuan, -67.1% year on year;
Among them, 2023Q4 achieved revenue of 3.281 billion yuan, or -44.3% YoY, -20.7%; net profit to mother of 139 million yuan, -89.7% YoY, -70.0% YoY; and after deduction of 114 million yuan, -91.1% YoY and -73.9% YoY.
Comment:
1. By product, the lithium-ion battery materials business increased in shipments 1) Lithium-ion battery materials business: In terms of revenue, revenue in 2023 was 14.104 billion yuan, -32.3% year over year, accounting for 91.6% of revenue, -1.7 pct; gross profit margin of 25.3%, year-on-year - 13.3 pct, mainly due to declining prices of electrolytes, iron phosphate and other products.
In terms of shipment volume, lithium battery materials were shipped 610,000 tons per year, +41% year-on-year, mainly due to the high growth rate of iron phosphate, glue and other additives; electrolyte shipments were 396,000 tons per year, +24% year-on-year.
Electrolyte: The company enhances its competitiveness through integration. In 2023, the company's 6F and LIFSI self-supply ratio exceeded 93%. Through price adjustments, some core lithium iron phosphate battery customers have introduced and used it in batches. It is expected that in the future, with 4C fast charging and 4680 large cylindrical batteries, the addition ratio and usage of LiFSI will increase steadily and rapidly.
Iron phosphate: Iron phosphate Q4 is expected to continue to lose money, mainly due to falling industry prices and sharp depreciation of inventory products. In response to fierce competition in the industry, the company actively optimizes and adjusts iron phosphate process technology, focusing on the stable performance of second-generation lithium iron phosphate products and iterating third-generation product development, continuously improving product performance and reducing product costs, and continuously strengthening product competitiveness.
2) Daily chemical materials and specialty chemicals business: 2023 revenue of 1,017 billion yuan, -10.4% year on year, accounting for 6.6% of revenue, +1.5pct compared to '22; gross profit margin of daily chemical products was 35.8%, +6.0 pct year on year, mainly due to the continuous increase in performance driven by the release of new products and horizontal channel expansion.
2. Looking at the subregions, the overseas layout blueprint opens: domestic revenue in 2023 was 14.943 billion yuan, 31.0% year on year, gross profit margin 26.3%, year-on-year -12.4 pct; foreign revenue 461 million yuan, -29.1% year on year, gross profit margin 15.1%, and -1.6 pct year on year. The company's overseas layout blueprint has been launched. The German OEM factory has begun batch supply. The Moroccan and North American electrolyte projects continue to advance, and matters such as project site selection and land purchase have been implemented one after another. At the same time, the company has set up a sample room in South Korea to accurately support Korean customers such as LG and SDI to further improve the efficiency and service quality of the new project.
3. In terms of profitability, declining sales prices are putting pressure on profits, but the company reduced costs and increased efficiency to effectively control expenses 1) The company's gross profit margin in 2023 was 25.9%, -12.0pct year on year; after deducting the non-net interest rate of 11.8%, -13.0pct year on year. On a quarterly basis, in 2023Q3/Q4, the company's gross profit margin was 24.3%/17.0%, -11.8/-13.9pct, and -6.0/-7.4pct; deducted non-net interest rate 10.6%/3.5%, -12.0/-18.3pct, and -5.3/-7.1pct month-on-month. The decline in profitability was mainly due to a sharp adjustment in the price of electrolyte products compared to 2022. The decrease in unit profit was compounded by sharp depreciation of lithium carbonate and iron phosphate in Q4.
2) The company reduced costs and increased efficiency, and revenue decreased but expenses were effectively controlled: the company's total expenses for the 2023 period were 1,536 million yuan, the year-on-year expense ratio was 10.0%, +2.9pct year on year, mainly due to reduced revenue rate increase; R&D expenses of 646 million yuan, -248 million yuan year on year, corresponding expense ratio 4.2%, mainly due to the cancellation of restricted stocks and options to reduce R&D expenses and R&D material costs; financial expenses of 149 million yuan, compared with +128 million yuan year-on-year, mainly due to convertible bonds calculated in 2023 interest.
Investment advice: The company is expected to achieve net profit of 11.4/21.8/2.92 billion yuan in 24/25/26, and the PE corresponding to the current stock price is 39.2/20.5/15.3. Given that the company's current electrolyte profit is at a historically low level, the company's leading position is stable, giving it an additional rating.