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 17.311 billion yuan, a year-on-year decrease of 39.79%; operating profit of 560 million yuan, a year-on-year decrease of 54.80%; net profit after deduction of 527 million yuan, a year-on-year decrease of 52.44%; net cash flow from operating activities of 2,580 billion yuan; basic earnings per share of 1.25 yuan, a weighted average return on net assets of 6.30%; the profit distribution plan is to distribute a cash dividend of 7.0 yuan (tax included) for every 10 shares. The amount of cash dividends accounted for 55.72% of net profit due to mother in 2023, putting pressure on the company's performance in the short term. Among them, the company achieved revenue of 4.188 billion yuan in the fourth quarter, down 33.32% year on year and 16.25% month on month; net profit of 115 million yuan, down 49.61% year on year and 27.05% month on month. In 2023, the company's non-recurring profit and loss totaled 61.61 million yuan, including 74.98 million yuan in government subsidies. The company's main business is R&D, production and sales of new energy materials. The main products include lithium cobalate, ternary materials and hydrogen energy materials, which are widely used in new energy vehicles, 3C consumer electronics, energy storage and other fields. Energy storage and other fields.

Demand for consumer digital lithium batteries is expected to resume growth. The downstream of lithium cobalate cathode materials is mainly 3C consumer electronics represented by smartphones. Global smartphone shipments declined due to the global economic recovery falling short of expectations. Combined with IDC statistics, global smartphone shipments fell 11.02% year on year; 1,163 million units were shipped in 2023, down 3.54% year on year. After 8 consecutive quarters of year-on-year decline, positive year-on-year growth resumed in the third quarter and fourth quarter of 2023, with a year-on-year increase of 8.59% in the fourth quarter of 2024; In the first quarter of 2024, 289 million units were shipped, up 7.74% year over year.

According to the ICD's latest forecast, global smartphone shipments will resume growth in 2024, with 1.20 billion units shipped for the whole year.

Demand for ternary materials has benefited from the growth of power and lithium batteries for energy storage, and industry competition has intensified. 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 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, an increase of 29.5% over the previous year; of these, 16.6 GWh were exported. In December 2023, the Central Economic Work Conference made it clear that it will 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 new energy vehicles will maintain double-digit growth, and China's power battery production and demand for upstream battery cathode materials will increase. Gaogong lithium battery statistics show that in 2022, China shipped 1.9 million tons of cathode materials, up 68.14% year on year; in 2023, 2.84 million tons were shipped, up 30.53% year on year. Among them, lithium iron phosphate materials accounted for 66.53%, ternary materials accounted for 26.21%, and lithium cobalate accounted for 3.39%. In recent years, production has been greatly expanded in segments of the lithium battery industry chain, and production capacity has continued to be released since 2023. Multiple factors have led to a drop in prices and increased competition in the ternary materials industry.

The performance of the company's main products is under pressure, and growth is expected to resume in 2024. In 2023, the company's main product performance was under pressure. On the one hand, significant release of production capacity led to a decline in the average price of the main product industry, and sales of some products declined. Specifically, the company sold 3,4590 tons of lithium cobalate, up 4.15% year on year, ranking first; ternary materials sold 37404.32 tons, down 19.39% year on year, but with the introduction of new downstream customer projects, the capacity utilization rate in the fourth quarter returned to a good level; hydrogen energy materials were 3716.41 tons, down 7.66% year on year. In terms of product revenue in 2023, lithium cobalate achieved revenue of 8.863 billion yuan, a year-on-year decrease of 38.21%; revenue of ternary materials was 7.755 billion yuan, a year-on-year decrease of 43.21%; and revenue of hydrogen energy materials was 519 million yuan, a year-on-year decrease of 13.17%. Based on the company's industry position, industry demand in the segment, the average price and competitive trend of the industry segment, the company's performance is generally expected to resume growth in 2024, with lithium cobalate sales continuing to grow.

The company continues to increase investment in R&D and steadily recommends cutting-edge technology research and development. In recent years, the company's R&D investment has remained around 2.7% of the company's revenue; R&D investment in 2022 was 757 million yuan, accounting for 2.63%; R&D investment in 2023 was 465 million yuan, down 38.65% from the previous year, accounting for 2.68%. The decline in R&D investment was mainly due to falling raw material prices and material costs for R&D expenses. In terms of high-voltage lithium cobalate, 4.5V lithium cobalate products have been mass-produced and supplied, and 4.53V has been certified by many customers and is in the small-batch production stage; in terms of high-power lithium cobalate, high-voltage, high-ratio lithium cobalate has been developed one after another, and high-power lithium cobalate products with higher energy density are being actively developed. In terms of ternary materials, Ni9 series high-nickel ternary materials have been successfully certified by overseas vehicle manufacturers; high-power, high-voltage ternary products developed for low-altitude aircraft and drones have achieved mass production, with monthly sales of hundreds of tons and continued to grow. The continuous circulation capacity of next-generation products under high power output has been greatly improved. They have now passed customer sample certification and are expected to be used in next-generation low-altitude flight functional battery terminals, with broad prospects. In terms of hydrogen energy materials, the company's third-generation automotive hydrogen storage alloys are stably supplied to new hybrid models of internationally renowned car companies. At the same time, the company is steadily advancing cutting-edge technology research and development. In terms of cathode lithium supplement materials, various high-performance products have been recognized by customers, and product promotion is being accelerated. In terms of solid state battery cathode materials, the company focuses on the problem of matching cathode materials with solid electrolytes. Through structural improvements, the company successfully developed second-generation lithium zirconium lithium zirconium cathode materials suitable for all solid sulfides, actively cooperated with domestic and foreign customers to develop high-nickel single-crystal cathode materials suitable for all solid sulfides, and achieved 100 kg sample supply; In terms of solid electrolytes, the company successfully developed second-generation lithium zirconium and zirconium LLZO with low residual alkali and high ratio cathode materials. Coating, positive and negative electrode additives. Continued investment in R&D and the gradual release of new products provided a guarantee for the company's long-term performance.

The company actively lays out overseas. In May 2023, the company's subsidiary European Xiamen Tungsten Xinneng signed separate joint venture agreements with Orano CAM and Orano PCAM to jointly fund the establishment of a battery cathode materials joint venture and a precursor joint venture in France. Both joint ventures have an initial registered capital of 20 million euros. Among them, the battery cathode materials joint venture is 51% invested by European Xiateng Xinneng and 49% by Orano CAM. The precursor joint venture is 49% invested by European Xiamen Tungsten New Energy and Orano PCAM 51%

Orano CAM and Orano PCAM are part of the Orano Group and have battery recycling technology. The group is a French listed company focusing on the nuclear energy industry and low-carbon renewable energy, and has a history of more than 50 years.

The company's profitability has declined and is expected to rise slightly overall in 2024. In 2023, the company's gross sales margin was 7.99%, down 0.61 percentage points from the previous year; the gross sales margin for the first quarter of 2024 was 7.60%, down 0.46 percentage points from the fourth quarter. The profit of main products in 2023 shows that lithium cobalate was 8.45%, up 1.76 percentage points year on year; ternary materials were 6.86%, down 3.35 percentage points year on year; hydrogen energy materials were 13.37%, up 1.46 percentage points year on year. Looking ahead to 2024, upstream raw material prices for cathode materials are under overall pressure, and competition in the cathode materials industry is intensifying. Combined with the company's position in the industry, overall profits are expected to rise steadily and slightly in 2024.

The company's performance in the first quarter was still under pressure, and sales of its main products increased significantly. In the first quarter of 2024, the company achieved revenue of 3.299 billion yuan, a year-on-year decrease of 8.02%; net profit to mother of 111 million yuan, a year-on-year decrease of 3.71%; net profit after deduction of 103 million yuan, an increase of 4.28%; net cash flow from operating activities of 504 million yuan, a year-on-year decrease of 25.51%; and basic earnings per share of 0.26 yuan. In the first quarter of 2024, the company continued to implement the big customer strategy. The sales volume of ternary materials was 15,900 tons, up 249.47% year on year, mainly due to the obvious cost advantage of the company's high voltage ternary materials and continued to release; sales volume of lithium cobalate was 0.84 million tons, up 62.50% year on year, making it the market leader.

Maintain the company's “gain” investment rating. The company's earnings per diluted share for 2024-2025 are estimated to be 1.51 yuan and 2.00 yuan, respectively. Based on the closing price of 32.71 yuan on April 22, the corresponding PE is 21.68 times and 16.38 times, respectively. The current valuation is reasonable compared to the industry level. In line with the industry's development prospects and the company's industry position, the company's “gain” investment rating is maintained.

Risk warning: Competition in the industry intensifies; smartphone shipments fall short of expectations; sales of new energy vehicles in China fall short of expectations; prices of upstream raw materials fluctuate greatly; exchange rates fluctuate greatly.