Event: The company publishes its 2023 annual report.
Key points of investment:
The increase in the company's revenue does not increase profit. In 2023, the company achieved revenue of 3,013 billion yuan, a year-on-year increase of 4.62%; operating profit of 824 million yuan, a year-on-year decrease of 2.72%; net profit after deduction of 545 million yuan, a year-on-year decrease of 20.20%; net cash flow from operating activities of 1,134 million yuan, a year-on-year decrease of 12.29%; basic earnings per share of 0.45 yuan, a weighted average return on net assets of 6.63%; the profit distribution plan is to distribute a cash dividend of 2.2 yuan per 10 shares (incl. tax). Among them, the company achieved revenue of 803 million yuan in the fourth quarter, a year-on-year increase of 1.90% and a decrease of 6.0% month-on-month; net profit of -91 million yuan. In 2023, the company's non-recurring profit and loss totaled RMB 31.22 million, of which government grants amounted to RMB 102 million. The company specializes in the R&D, production and sales of lithium battery separators. The main products include wet diaphragms, dry diaphragms, coated diaphragms and various functional films.
Sales of new energy vehicles and power battery production in China continue to grow, driving the demand for diaphragms to increase. 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 a total of 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 2,089 million new energy vehicles, up 31.76% year on year, accounting for a total of 31.10%. 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, 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 NEVs will continue to grow by double digits, and demand for upstream battery diaphragm materials will continue to grow. Gaogong lithium battery statistics show:
In 2022, China shipped 13.1 billion square meters of lithium battery diaphragms, a year-on-year increase of 67.95%; in 2023, it shipped a total of 171 billion square meters, an increase of 30.53% over the previous year. Baichuan Yingfu statistics show that by the end of March 2024, China's effective production capacity of lithium battery diaphragms was 23.562 billion square meters, an increase of 56.43% over 15.062 billion square meters at the end of 2022. In line with the expected growth rate of downstream demand, it is expected that the diaphragm industry will still be in the phase of de-capacity in the short term, and its development direction will focus on thinning and coating.
The company's revenue increased slightly due to rising and falling prices for lithium battery separators. The company's main business is lithium-ion battery separator materials. In 2015-17, the company's lithium battery separator sales volume and revenue growth rate showed a downward trend; the overall revenue growth rate remained at a single-digit level in 2017-2019; the growth rate remained above 45% in 2020-2022, of which the company sold 1.703 billion square meters in 2022, up 39.62% year on year; corresponding revenue of 2,767 billion yuan, up 55.60% year on year, accounting for 99.54% of the company's revenue. In 2023, the company sold 2,529 billion square meters of lithium battery diaphragms, up 48.49% year on year; the average sales price of diaphragms was 1.18 yuan/㎡, down 29.95% year on year, mainly due to the release of production capacity in the industry, leading to increased industry competition; corresponding revenue was 2,982 billion yuan, up 4.02% year on year, accounting for 98.96% of the company's revenue.
The company's diaphragm sales are expected to continue to grow in 2024. The company's main diaphragm sales will increase in 2024. The main logic is: First, demand in the lithium battery diaphragm industry will continue to grow, mainly benefiting from the increase in sales of new energy vehicles and the growth of energy storage lithium batteries. Gaogong lithium battery statistics show that in 2023, China shipped 206 GWh of energy storage lithium batteries, an increase of 58.46% over the previous year.
Second, China's diaphragm industry has made significant technological progress, and the global market share has increased. As domestic diaphragm companies become more mature in technology, the world is more competitive, and the global market share has reached more than 80% in 2023. At the same time, the equipment side of diaphragm companies is iterating in the direction of greater width and higher line speed. Leading middle and high-end diaphragm companies are expected to increase their share of the global diaphragm market with good product quality and strong capacity expansion capacity. Third, the company is an early domestic enterprise engaged in diaphragm R&D and manufacturing. It is in a leading position in the industry. It has fully mastered dry, wet, and coated diaphragm preparation technology, and established an industry-leading R&D platform. The company has set up separate research institutes in Germany, Sweden, Japan, etc., to achieve a global R&D center with Shenzhen as the center.
By the end of 2023, the company and its holding subsidiaries have applied for 558 patents and obtained 285 valid patents, including 122 invention patents (including 36 foreign invention patents).
Fourth, the company has the advantage of independent design of complete equipment. In August 2023, the company launched the world's fifth-generation ultra-wet line with a width of more than 8 meters and a production capacity of 250 million square meters. On the basis of the fourth-generation wet line, the single-line production capacity was increased by more than 2 times, production efficiency updated industry standards, and created a competitive barrier in equipment. Fifth, the company has market advantages. In the domestic market, the company's main customers cover many well-known lithium-ion battery manufacturers such as Ningde Times, BYD, China Airlines, Guoxuan Hi-Tech, Sunwoda, Honeycomb Energy, and Everweft Lithium Energy; in the international market, the company supplies products in batches with LG Chemical, Samsung SDI, Vision AESC, NORTHVOLT, etc., and has established business partnerships with many large lithium-ion battery manufacturers, and has been awarded LGES “Excellent Partners” by leading customers many times. In 2023, the company's top five customers had a total revenue of 1.903 billion yuan, accounting for 63.17% of the company's revenue.
Follow the progress of the implementation of the strategic cooperation between the company and LG Enegy. In November 2023, the company announced the signing of a global strategic cooperation memorandum with LG Energy Solution, Ltd. The main contents are as follows: 1. LG Energy Solution, Ltd. recognizes the company as the supplier with the highest quality in the market and gives priority to purchasing company diaphragms in overseas markets; 2. The company also prioritizes supplying LG Energy Solution, Ltd. to overseas markets and promises to provide the most competitive products and services. Between 2024 and 2030, the two sides agreed to strengthen cooperation and jointly establish a global cooperation framework for the purchase of no less than 12 billion square meters of diaphragms. 3. The two sides will continue to carry out in-depth communication, exchanges and strategic cooperation in various fields of technology and high-level visits.
4. This Global Strategic Cooperation Memorandum was signed in writing and entered into force on November 28, 2023. This Global Strategic Cooperation Memorandum is valid from the effective date until December 31, 2024, and automatically extended for one year thereafter. The signing of this memorandum of understanding will further highlight the company's dominant position in the field of lithium battery diaphragms and bring positive effects to the company's diaphragm product promotion. Successful implementation will have a positive impact on the company's business performance, and follow-up attention will be paid to the implementation situation.
The company's profits have declined and are expected to remain under pressure in 2024. In 2023, the company's gross sales margin was 44.42%, down 1.15 percentage points year on year; it was 35.99% in the first quarter of 2024, down 2.31 percentage points from 38.30% in the fourth quarter of 2024. The company's main business profit shows that the gross margin of lithium battery separator sales in 2023 was 44.42%, down 1.08 percentage points from the previous year, mainly due to increased competition in the industry. Considering the competitive landscape of the industry and downstream cost reduction pressure, it is expected that the overall profitability of the company's main product, lithium battery separators, will remain under pressure, and the overall profitability of the company is expected to be under pressure in 2024.
The company's net profit for the first quarter of 2024 was under pressure. In the first quarter of 2024, the company achieved revenue of 715 million yuan, up 7.51% year on year and 10.97% month on month; net profit of 107 million yuan, down 41.45% year on year; net profit after deduction of 96.93 million yuan, down 39.66% year on year; basic earnings per share were 0.08 yuan. The decline in net profit was mainly a decrease in diaphragm profitability.
For the first time, the company was given an “increase in wealth” investment rating. The company's diluted earnings per share for 2024-2025 are estimated to be 0.46 yuan and 0.62 yuan, respectively. Based on the closing price of 10.14 yuan on April 19, the corresponding PE is 21.84 times and 16.36 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: industry competition intensifies; China's NEV sales fall short of expectations; prices of upstream raw materials fluctuate greatly; exchange rates fluctuate greatly.