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 41,358 billion yuan, a year-on-year decrease of 3.35%; operating profit of 1,881 billion yuan, a year-on-year decrease of 47.79%; net profit of 1,581 billion yuan, a year-on-year decrease of 47.42%; net cash flow from operating activities of 501 million yuan, an increase of 118.01% year on year; basic earnings per share of 2.18 yuan, a weighted average return on net assets of 15.96%; the profit distribution plan is to distribute a discovery dividend of 4.18 billion yuan per 10 shares Yuan (tax included), the company's performance is under pressure in the short term.
Among them, the company achieved revenue of 7.029 billion yuan in the fourth quarter, a year-on-year decrease of 36.95% and a year-on-year decrease of 56.79%; net profit of 38.91 million yuan, down 87.17% month-on-month and 95.63% year-on-year. In 2023, the company's non-recurring profit and loss totaled 62.27 million yuan, including 74.18 million yuan in government subsidies. The company is mainly engaged in R&D, production and sales of lithium battery cathode materials.
Sales of new energy vehicles and power battery production in China continue to grow, driving an increase in demand for cathode materials. 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, 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 maintain double-digit growth, and demand for upstream cathode materials for batteries will continue to grow. Gaogong lithium battery statistics show:
In 2022, China shipped 1.9 million tons of cathode materials, up 68.14% year on year; in 2023, 2.88 million tons were shipped, up 30.53% year on year, with lithium iron phosphate materials accounting for 66.53%, ternary materials accounting for 26.21%, and lithium cobalate for 3.39%.
The company's LFP shipment growth rate is higher than the industry level, and shipments are expected to grow in 2024. Since 2019, shipments of the company's main product, lithium iron phosphate, have continued to grow, from 12,500 tons in 2019 to 32.39 million tons in 2022, with a compound growth rate of 195.55%; along with the increase in sales volume of the main products, the company's corresponding revenue for lithium iron phosphate increased dramatically, from 557 million yuan in 2019 to 42,677 billion yuan in 2022. The compound revenue growth rate for the period was 324.68%, which is significantly higher than the compound sales growth rate, mainly due to high demand growth, and the overall tight balance between LFP supply and demand, in particular In 2021-2022, LFP's share of installed power batteries increased significantly, leading to a sharp rise in industry prices; LFP's overall share of the company's revenue continued to rise, accounting for 99.71% in 2022. In 2023, the company shipped 506,800 tons of lithium iron phosphate, a year-on-year increase of 56.49, and the growth rate was significantly higher than the industry level. Among them, the share of sales in the energy storage sector had increased to about 28%; corresponding revenue was 41.06 billion yuan, down 3.66% year on year, accounting for 99.39% of revenue; the decline in revenue was mainly due to a significant decline in the average sales price of the company's products, and the LFP industry and other lithium battery industry chains expanded sharply in the early stages, and the expansion capacity was released in an orderly manner since 2023, when combined with the decline in downstream raw material prices and the slowdown in downstream demand growth. The following causes LFP The overall price of these products has been under significant pressure since 2023, and the overall forecast is that 2024 will still be in the de-capacity phase. At the same time, it is expected that the company's LFP shipments will maintain a high growth rate, mainly based on: First, China's power battery and energy storage battery shipments will continue to grow, which will drive an increase in demand for upstream battery LFP cathode materials.
Second, technological progress and policy changes in the battery and LFP industry have caused LFP to maintain a high share of installed capacity in the power battery sector, and the growth rate of demand for energy storage batteries will be higher than that of power batteries. For example, Gaogong lithium battery statistics: in 2023, China's energy storage battery shipments were 225 GWH, an increase of 50% over the previous year, while LFP is the main cathode material for energy storage batteries. Third, the company is deeply tied to strategic customers. The company has established long-term stable business cooperation with Ningde Times, BYD, etc. In December 2020, the company increased its capital and shares and introduced Ningde Times and BYD as strategic investors. By the end of 2023, the two companies held 7.90% and 3.95% of their shares, respectively; in 2023, the company's top five customers accounted for 96.11% of revenue, with the largest customer accounting for 40.98% of revenue. Fourth, the company adheres to the integrated development idea of “resource-precursor-cathode material-recycling” and is currently accelerating phosphate exploration, mining, etc.; it has achieved full self-supply of iron phosphate precursors. By the end of 2023, the company's lithium iron phosphate design capacity is about 700,000 tons, with a capacity utilization rate of 89.77% in 2023; lithium iron phosphate products have a market share of over 30%, ranking first in the industry for 4 consecutive years.
Follow the progress of the company's plan to issue non-public shares. In August 2023, the company announced a plan to issue shares to specific targets: it plans to issue shares to 35 specific targets. The number of shares issued will not exceed 11358,7960 shares, and the total capital raised will not exceed 6.5 billion yuan. It is intended to be used for the construction of 4 projects, including a lithium manganese-iron phosphate project with an annual output of 320,000 tons, an ultra-long-cycle lithium iron phosphate project with an annual output of 75,000 tons, and supplementary liquidity.
The stock incentive plan shows the company's confidence. The company announced the 2024 restricted stock incentive plan: the total amount of restricted shares to be granted to the incentive target is 15145.06 million shares, accounting for 2.0% of the company's total share capital, of which no more than 12.382 million shares are to be granted for the first time; the initial and reserved grant price is 17.43 yuan/share; the plan is to grant incentives to no more than 288 people, including directors, senior management and core key personnel; the assessment year is 2024-2026, of which the company-level performance assessment requirements for the first vesting period are compared to the 2024 lithium iron phosphate sales growth rate Net profit due to mother should not be less than 25% in 2023 and not less than 1.5 billion yuan and 2 billion yuan in 2025-2026, respectively. In the context of the industry's loss of production capacity, the company's equity incentive performance assessment requirements demonstrate the confidence of the company's management.
The company's profitability has declined significantly and is expected to remain under pressure in 2024. In 2023, the company's gross sales margin was 7.65%, down 4.83 percentage points from the previous year; of these, gross margin for the fourth quarter was 3.33%, down 2.92 percentage points from the third quarter. The profit margin of the main products in 2023 shows that the gross sales margin of lithium iron phosphate was 7.30%, down 5.17 percentage points from the previous year, and 2.20 percentage points from the first half of 2023. It is mainly due to the significant release of lithium iron phosphate cathode material production capacity, which has intensified competition in the industry, and the bargaining power of the industry is relatively weak. Looking ahead to 2024, upstream raw material prices are still under pressure, the cathode materials industry is still in the phase of de-capacity, and overall profits are expected to remain under pressure in 2024.
Maintain the company's “gain” investment rating. The company's earnings per diluted share for 2024-2025 are estimated to be 1.52 yuan and 2.92 yuan, respectively. Based on the closing price of 31.96 yuan on April 24, the corresponding PE is 21.0 times and 10.95 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; sales of new energy vehicles in China fall short of expectations; prices of upstream raw materials fluctuate greatly; project market expansion falls short of expectations.