Key points of investment
Event: On March 26, 2024, the company disclosed its 2023 annual report. For the full year of 2023, the company achieved operating income of 15.405 billion yuan, a year-on-year decrease of 30.97%, realized net profit of 1,891 billion yuan, a year-on-year decrease of 66.92%, and realized deduction of non-net profit of 1,824 billion yuan, a year-on-year decrease of 67.08%. In 2023Q4, the company achieved operating income of 3.281 billion yuan, a year-on-year decrease of 44.29%, net profit to mother of 139 million yuan, a year-on-year decrease of 89.74%, and realized deducted non-net profit of 114 million yuan, a year-on-year decrease of 91.10%.
The decline in electrolyte prices is putting pressure on the company's profits. In 2023, the company's gross margin was 25.92%, down 12.05 percentage points from the previous year, mainly due to increased industry competition, lower electrolyte prices, and a slowdown in terminal market growth. The company's expense ratio for the 2023 period was 9.97%, up 2.93 pct. Among them, the sales/management/R&D/finance expense ratios were 0.66% (+0.17pct), 4.16% (+1.70pct), 4.19% (+0.18pct), and 0.97% (+0.87pct), respectively. The higher management expenses were due to employee remuneration +16.7%, and the large change in financial expenses was due to the company accruing interest on convertible bonds in 2023.
The electrolyte faucet position is stable, and the proportion of core raw materials supplied by itself is high. According to Xinyi data, the company's domestic and global market share of electrolytes in 2023 was 36.4% and 31.2% respectively, ranking first. The self-supply ratio of lithium hexafluorophosphate and LiFSi reached more than 93%, and the self-supply ratio of some core additives reached more than 80%. Despite the decline in electrolyte prices, with the support of the company's integrated layout, the company's electrolyte product market share and profit level continued to maintain its leading position in the industry.
Actively allocate upstream resources, and the profitability of daily chemical materials is stable. Lithium resource layout: 1) On December 5, 2023, the company announced the use of self-funded investment to build a “30,000 ton lithium carbonate project”. The project construction period is 14 months, with a total investment of no more than RMB 1.07 billion; 2) Resource cycle: The company's lithium carbonate purification production line was successfully put into operation to build a chain processing capacity from the raw material end to high-purity lithium carbonate, and improve the company's layout on the resource side. Affected by market price fluctuations, the company's daily chemical materials achieved revenue of 1,017 billion yuan in 2023, down 10.43% year on year, but product gross profit was relatively stable. The gross profit of daily chemical materials increased 7.6% year on year in 2023. The company implemented a marketing strategy that was deeply tied to major customers. Sodium taurine entered the Estée Lauder supply chain system, 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, P&G, and Unilever.
Investment advice: Considering the company as a leader in the lithium battery electrolyte industry, new additives+binders will help the company develop new growth points. We expect the company to achieve operating income of 155.96/187.95/22,686 billion yuan in 2024/2025/2026, +1.24%/+20.70% year-on-year, the company's net profit to mother in 2024/2025/2026 is 15.67/21.25/2,820 billion yuan, and EPS is 0.81/1.10/1.47 yuan/share, respectively, corresponding to the current P/E of 28x/21x/16x. First coverage, giving a “buy” rating.
Risk warning: risk of fluctuations in demand for new energy vehicles; risk of increased competition among electrolyte manufacturers; risk of fluctuations in raw material prices.