Year-on-year decline in revenue/net profit to mother in '23

The company achieved operating income of 17.311 billion yuan, or -39.79% year on year, net profit attributable to mother of 527 million yuan, or -52.93%; net profit without return to mother of 466 million yuan, or -52.44% year on year; 1Q24 company revenue of 3.299 billion yuan, -8.02% year on year, net profit to mother 111 million yuan, or -3.71% year on year. Considering weak downstream demand and increased competition, we revised the company's shipping volume and gross margin assumptions. The estimated net profit forecast value for 24-26 was 9.52/11.12/1,228 million yuan (the value was 1,348/1,579 million yuan 24-25 years ago). Referring to the consistent expectations of the comparable company Wind in 24, the average PE value was 17x. The company was given a target PE of 17x for 24 years, corresponding to a target price of 38.47 yuan (previous value of 56.66 yuan), maintaining a “buy” rating.

The profitability of the 23-year cathode is temporarily under pressure

The company shipped 72,100 tons of cathode materials in '23, of which 3,700 tons, or -19.39% year-on-year, mainly due to weak overall market demand. With the introduction of new projects, sales are expected to resume growth; 34,600 tons of lithium cobalate, +4.15% year-on-year, and the leading position in the market is stable. The company's gross profit margin in '23 was 7.99%, -0.61 pct year on year, net profit margin of 3.06%, and -0.87 pct year on year. It was mainly due to increased competition in the industry, declining processing costs, and large fluctuations in raw material prices dragging down costs. 1Q24's overall gross profit margin was 7.60%, +0.24/-0.46 pct; net profit margin was 3.35%, +0.12/+0.57 pct month-on-month, and processing fees were lowered, causing profitability to remain under pressure in the short term. The cost rate for the 23-year period was +0.77 pct to 4.49% year over year, mainly due to the year-on-year decline in revenue affecting cost dilution.

High pressure layout builds differentiated advantages

The company has a rich heritage of understanding and design capabilities for high-voltage products. 4.5V lithium cobalate products have been mass-produced and supplied, and 4.53V lithium cobalate has been certified by many customers and is in the small-batch production stage. In the ternary field, the cost of nickel ternary is lower than that of high nickel ternary in the domestic market, and the penetration rate is increased. The company has an advanced layout in high voltage/high power/high nickelization, and the high voltage layout is particularly leading. At present, the company's Ni6 series 4.45V ternary material has completed product finalization and is being tested; the Ni8 series high-safety ternary material samples have excellent performance, the samples meet customer needs, and production line amplification verification is carried out; the Ni9 series ultra-high nickel ternary material has been successfully certified by overseas car manufacturers.

Increase capital to European subsidiaries and promote overseas market layout

The company announced on December 20, 23 that it plans to use self-financing to indirectly increase the capital of the holding subsidiary France Xia Tungsten Xinneng by about 120 million euros. The partner Orano CAM will increase its capital in the same proportion to support France's 40,000 tons of ternary materials project to meet the growing needs of overseas customers, which is conducive to speeding up the company's development progress in the European market and further expanding the company's overseas business scale.

Risk warning: The company's production capacity expansion fell short of expectations; industry competition intensified; upstream raw material prices fluctuated beyond expectations.