Incident: In 2024 Q1, the company achieved operating income of 1,517 billion yuan, -67.67% year on year; net profit to mother of 110 million yuan, -74.36% year over year; realized net profit without return to mother of 104 million yuan, -75.49% year on year.

Comment:

First-quarter results are under pressure, and expense ratios have risen. 2024Q1's gross margin was 14.89%, down 1.54 pcts year on year. In terms of cost ratio, sales expense ratio, management cost ratio, and R&D cost ratio were 0.55%, 2.70%, and 6.09%, respectively, and the cost ratio increased significantly year on year. Affected by multiple factors such as increased competition in domestic and international markets, a sharp drop in sales prices of raw materials and products, and a decline in the share of international sales, the company's profitability declined sharply year-on-year in the first quarter.

Solid-state battery material technology continues to advance, and on-board verification has been achieved. As a technical leader in the lithium battery cathode materials industry, the company has invested in research and development for many years in the field of solid lithium battery cathode materials and solid electrolytes, and has systematically laid out key material technology routes for mainstream solid state batteries such as oxides, sulfides, and polymers, which can be applied to all solid state and semi-solid state batteries. The company's related solid-state lithium battery products have been successfully introduced to solid-state battery customers such as Huineng, Qingtao, Weilan New Energy, and Ganfeng Lithium Battery, and mass sales have been achieved. The dual-phase composite solid state lithium battery cathode materials and solid state electrolyte products developed by the company solved the problem of the solid interface between cathode and electrolyte. The technical indicators are at the leading level in the industry, and many leading solid-state battery companies have achieved on-board verification.

Profit forecast and investment rating: We expect the company's net profit to be 8.24/10.59/1,465 million yuan in 2024-2026, respectively, -57%, 29%, and 38% year-on-year. As of April 24, the market value corresponding to the PE valuation for 24 and 25 was 30/23 times, respectively, maintaining a “buy” rating.

Risk factors: risk of industry demand falling short of expectations; risk of iterative changes in technology; risk of raw material price fluctuations exceeding expectations; environmental protection and production safety risks, etc.