Incident: Recently, the company released its 2023 annual report.
Key points of investment:
The company's performance was in line with expectations. In 2023, the company achieved revenue of 48.784 billion yuan, up 34.38% year on year; operating profit of 4.846 billion yuan, up 37.98%; net profit of 4,050 billion yuan, up 15.42% year on year; net profit after deduction of 2,755 billion yuan, up 2.23% year on year; net cash flow from operating activities of 8.676 billion yuan, up 203.34% year on year; basic income per share of 1.98 yuan, weighted average return on net assets of 12.48%. The profit distribution plan is to distribute a cash dividend for every 10 shares 5.0 yuan (tax included), full year results are in line with expectations. Among them, fourth-quarter revenue was 13.255 billion yuan, up 10.27% year on year, up 5.59% month on month; net profit was 626 million yuan, down 25.80% year on year, down 50.86% month on month. In 2023, the company's non-recurrent profit and loss totaled 1,295 billion yuan, including government subsidies of 1,478 million yuan in current profit and loss; investment income of 609 million yuan, accounting for 12.60% of total profit, of which long-term equity investment income calculated under the equity method was 667 million yuan. Currently, the company's main business is R&D, production and sales of consumer batteries (including lithium primary batteries, small lithium-ion batteries, cylindrical batteries), power batteries (including batteries for new energy vehicles and their battery systems), and energy storage batteries.
Global new energy vehicles continue to grow, and the global market share of China's power batteries has increased. According to Clean Technica data, global sales of new energy passenger vehicles were 10.0753 million units in 2022, an increase of 54.6% year over year. In 2023, global sales of new energy passenger vehicles totaled 13.6858 million units, an increase of 35.84% over the previous year, accounting for 16% of the overall market. SNereSearch statistics show that in 2022, global power battery loading volume was 517.9 GWH, up 71.8% year on year; in 2023, global power battery loading volume was 705.5 GWh, up 38.6% year on year. 6 Chinese companies were selected in the top 10, and 6 Chinese companies accounted for 63.5% of the market, up 4.0 percentage points from the same period in 2022. Overall, global NEVs are expected to maintain double-digit growth in 2024.
China's sales of new energy vehicles have continued to grow, and the share of China's power battery production and exports has increased.
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%; from January to January 2024, total sales of 2,089 million vehicles were sold, 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 power battery production continues to grow. In 2022, China's power battery production was 545.22 GWh, a sharp increase of 148.19% over the previous year, doubling for two consecutive years. Among them, exports were 68.08 GWh throughout the year, accounting for 12.49% of China's power battery production.
In 2023, China's total output of power and energy storage batteries was 778.10 GWh, up 42.5% year on year; annual exports were 152.6 GWh, and the share of exports increased to 19.61%; in January-January 2024, China's total output of power and other batteries was 108.8 GWh, with a cumulative increase of 29.5%. The December 2023 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 upstream raw material prices 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 China's NEVs will maintain double-digit growth in 2024. GGII predicts that in 2024, China's power battery shipments will exceed 820 GWh, a year-on-year increase of 20%.
The company's power battery shipments grew rapidly, and the 46 series helped release the company's power battery performance for a long time. The company's power battery technology system includes ternary and lithium iron phosphate. The main products include 46 series large cylindrical, square lithium iron, square ternary, and large soft pack ternary batteries. In 2023, the company shipped 28.08 GWh of power batteries, up 64.22% year on year, and the growth rate was significantly higher than the industry level; corresponding revenue was 23.984 billion yuan, up 31.41% year on year, accounting for 52.75% of the company's revenue, indicating a significant decline in the average sales price of power batteries, mainly due to falling upstream material prices and increased competition in the power battery industry. It is expected that the company's power battery performance will continue to grow in 2024 and the long term, mainly based on: First, global and Chinese power battery demand will continue to grow. Second, the company's power batteries have a certain position in the industry. Power batteries ranked in the top ten global shipments in 2023, with a market share of 2.3%; domestic shipments ranked fourth, with a market share of 4.45%. The third is to strengthen technological leadership. The 46 series large cylindrical battery is an important development direction for the next generation of battery technology. In 2021, the company pioneered the launch of the 46 series large cylindrical battery, which is both safe and economical, to achieve mass production and loading. The first phase of the large cylindrical battery factory with an annual output of 20 GWh planned by the company has already been put into operation in Jingmen, and the first batch of equipment in the second phase will enter the market at the end of 2023. By the end of 2023: The company's 46 series large cylindrical batteries have been discontinued more than 4.25 million. The company has simultaneously planned construction arrangements for over 50 GWh of production capacity in Shenyang, Chengdu, Hungary, etc., to meet the needs of domestic and foreign customers in stages. According to EVtank statistics, in terms of global cylindrical battery shipments in 2023, the company ranked fourth in the world and number one in the country. Currently, the company's large cylindrical battery yield can reach more than 90%.
The company has released a significant amount of energy storage batteries and is expected to grow at a high rate throughout the year. The company's energy storage battery products include lithium iron, lithium square iron, and lithium cylindrical iron batteries, covering all aspects of products and solutions from cells, modules, systems to BMS. In 2023, the company shipped 26.29 GWh of energy storage batteries, up 121.14% year on year; corresponding revenue was 16.340 billion yuan, up 73.24% year on year, accounting for 33.50% of the company's revenue. Guided by the global “dual carbon” target and the reduction in the cost of new energy generation, energy storage is gradually moving from policy enforcement to a market-driven development stage. The company launched a new generation of Mr. flagship series products. The Mr. Big battery has a capacity of 628 Ah and uses third-generation high-speed lamination technology, which has an energy efficiency of 96%; the Mr. Giant system uses a standard 20-foot cabinet, with an energy efficiency of 5 MWh, and the system's energy efficiency is as high as 95%. The company's planned industry's first single largest 60 GWh energy storage gigafactory is under construction. According to S&PHIS forecasts, the compound annual growth rate of new demand in the global energy storage market is expected to be 38.4% in 2023-2027, and new demand is expected to exceed 1 TWh in 2028. According to Infolink and SMM data, the company ranked third in the world in terms of energy storage cell shipments in 2023, and has kept the third largest global energy storage cell shipment for two consecutive years. Combining the development potential of the industry and the company's position in the energy storage industry, it is expected that energy storage batteries will continue to grow in 2024.
The company's profitability has increased and is expected to be generally stable in 2024. In 2023, the company's gross sales margin was 17.04%, up 0.60 percentage points from the previous year, mainly due to the overall pressure on the price of upstream battery raw materials; the gross margin for the fourth quarter was 17.72%, down 0.62 percentage points from the third quarter. The company's gross margin by product in 2023 shows that the gross margin for power batteries is 14.37%; energy storage batteries are 17.03%; and consumer batteries are 23.73%. Considering that the price of upstream raw materials for batteries will generally be under pressure in 2024, the reduction in the price of downstream new energy vehicles will shut down upstream battery concessions. Overall, the company's profit is expected to be stable in 2024.
Follow the progress of implementation of major contracts and memorandums of understanding. In June 2023, the company successively signed supply agreements: First, a procurement agreement was signed with Powin on June 14: Yiwei Power will produce and deliver 10GWh square lithium iron phosphate batteries to Powin according to the agreement. Second, the main procurement agreement was signed with ABS on June 15: the company produces and delivers 13.389GWh square lithium iron phosphate batteries to ABS according to the scheduled forecast. The company signed a memorandum of understanding with EA in July 2023; signed a memorandum of understanding with Rimac in September; and in January 2024, the company signed a memorandum of understanding with Aksa: to jointly establish a joint venture in Turkey to manufacture, market and sell battery modules, outdoor cabinets, containers, and implement energy storage system projects in Turkey as a general contractor.
Maintain the company's “gain” investment rating. The company's earnings per diluted share for 2024-2025 are estimated to be 2.37 yuan and 2.90 yuan, respectively. Based on the closing price of 35.0 yuan on April 23, the corresponding PE is 14.78 times and 12.06 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: industry competition intensifies; China's NEV sales fall short of expectations; prices of upstream raw materials fluctuate greatly; exchange rates fluctuate greatly.