The company is one of the top three lithium battery precursor material manufacturers in China, and has been deeply involved in the field of comprehensive resource utilization for many years. The company was founded in 2001. At the beginning of its establishment, it focused on the treatment and recycling of materials such as waste metals and electronic waste. In more than 20 years of development, the company's business map has expanded into various fields such as ternary precursors, cobalt tetroxide, cathode materials, nickel smelting, comprehensive utilization of power batteries, comprehensive utilization of end-of-life vehicles, and comprehensive utilization of electronic waste. In 2023, the company shipped more than 170,000 tons of tertiary precursors, ranking third in the country in terms of market share.
The company forwardly lays out high-nickel products, builds global production bases, and consolidates the advantages of ternary precursors. With the price of lithium salt stabilizing, demand for ternary batteries with long battery life and high safety is expected to pick up. We expect global shipments of tertiary precursors to reach 108/124/1.38 million tons in 2024-2026, with a compound annual growth rate of 13%.
The company's high-nickel precursor layout is leading, with 8 series and above precursor shipments accounting for more than 80%. Relying on product advantages, the company has in-depth cooperation with domestic and foreign customers such as Ecopro, Samsung SDI, and Ningde Times, and has a stable market position. Looking forward to the future, the company will rely on domestic, Indonesian, South Korea and other global factories to deepen cooperation with customers, and precursor shipments are expected to grow steadily. At the same time, the company's increased share of high-nickel product shipments and the improvement of nickel smelting and nickel and cobalt sulfate layouts are also expected to keep profitability relatively stable.
The company's Indonesian nickel projects have begun to be put into operation one after another and are expected to continue to contribute to profits. The company has a 123,000 metal-ton nickel project layout in Indonesia, of which 30,000 tons have already been put into operation in 2023, and subsequent projects are expected to be put into operation within 2024. The company uses a hydrosmelting process, and the comprehensive cost is expected to be reduced to less than 10,000 US dollars/ton of metal. As Indonesian nickel production capacity is released one after another, the nickel business is expected to continue to contribute profits to the company.
Policies such as trade-in guide the direction, and the company's comprehensive resource utilization business is expected to achieve rapid development. In 2024, the State Council issued a “trade-in” action plan. The plan states that by increasing policy guidance and financial support, the amount of scrapped vehicles recycled and the amount of used household appliances will increase by about double and 30%, respectively, by 2027 compared to 2023. A series of combo punches, such as trade-in policies and reverse invoicing policies, are expected to reduce the burden on the cost side of recycling companies and activate the vitality of the recycling industry chain. At the beginning of its establishment, the company focused on the comprehensive utilization of resources, and has been working in the fields of electronic waste recycling, end-of-life vehicle recycling, and comprehensive utilization of power batteries for many years. The company is in a leading position in the industry in terms of recycling channels, capacity layout, and dismantling and recycling technology, and related businesses are expected to benefit from policies to promote rapid development.
Profit forecasting and valuation: First coverage, with a “gain” rating. We expect the company to achieve net profit of 641/12.25/1,635 billion yuan in 2023-2025, or -51%/+34% year-on-year; EPS is 0.12/0.24/0.32 yuan, respectively, and dynamic PE is 48/25/19 times, respectively. Based on absolute valuation and relative valuation, we believe that the reasonable value of the company's stock is between 6.3-6.8 yuan, and there is room for a 6%-14% premium compared to the company's current stock price.
Risk warning: risk of large fluctuations in metal prices; risk of increased competition in the industry; sales of new energy vehicles falling short of expectations; risk of policy changes in the recycling industry; risk of overseas policy changes.