incident. On April 26, 2024, the company released its report for the first quarter of 2024. Operating revenue was 4.520 billion yuan, down 65.69% year on year; net profit to mother was 159 million yuan, down 43.56% year on year; net profit after deduction was 152 million yuan, down 43.13% year on year. Net operating cash flow for a single quarter - $97 million, +91.57% year over year.

Close to full production, profits or bottoming out and stabilizing. In terms of quarterly shipments, lithium iron phosphate sales reached 136,000 tons, an increase of 32.63% over the same period last year, with energy storage accounting for about 21% of sales, effectively meeting the differentiated needs of customers. The company actively develops new products. The CN-5 series and YN-9 series sell 0.84 million tons, and their performance is highly recognized by downstream customers. Although the price is high, sales are gradually increasing, which fully confirms the company's technical iteration ability and market insight. Looking at March alone, the company's sales volume of lithium iron phosphate reached 59,400 tons, and the capacity utilization rate was over 98%. The Beijing Auto Show highlights the strong product strength of domestic trams. The May 1st Golden Week is expected to further drive sales of electric cars and midstream lithium battery materials. The company's production schedule is expected to remain high, thereby effectively diluting costs, enhancing pricing flexibility, creating a virtuous cycle, and consolidating long-term competitive advantage. In terms of quarterly profit, according to our estimates, the net profit per ton of lithium iron is 0.12 million yuan/ton. Profit distribution in the industrial chain requires a virtuous cycle, and the advantages of leading enterprises are expected to be reflected. In the future, as the supply and demand relationship in the industry gradually improves, corporate governance capabilities are improved, and product cost performance is optimized, the profit center is expected to move upward.

Accelerate integration, improve quality and reduce costs, and consolidate competitiveness. The company continues to improve the integrated layout of the “resource-precursor-cathode material-recycling” industry:

1) Resources: Previously, its holding subsidiary Guizhou Yuneng Mining successfully competed for Dashichang Phosphate Mine and Huangjiapo Phosphate Mine in Fuquan City, Guizhou Province. Up to now, it has completed the work related to the conversion of prospecting rights to mining rights for Huangjiapo phosphate ore and obtained a “mining license”. The mine has a production scale of 1.2 million tons/year, and the mining area is 0.23 square kilometers. As of February 16, 2024, the Huangjiapo phosphate mine had 2.5 million tons of resources. Of the available resources, the amount of proven resources was 10.9032 million tons, the amount of resources controlled was 2.22,900 tons, and the estimated amount of resources was 11.9075 million tons.

The company expects large-scale mining in 2025H2. Phosphorus resources are the core raw materials for preparing lithium iron phosphate, and the successful implementation of integration is expected to further reduce the company's costs and shape long-term competitiveness.

2) Precursors: The company has achieved full self-supply of iron phosphate.

3) Recycling: Actively carry out lithium battery recycling business to further improve the supply capacity of key raw material resources and reduce comprehensive production costs. Through integration or effective cost reduction and quality improvement, the company is expected to win the long-term trust of customers and further improve the company's profit level through technical accumulation, skilled technology, and cost advantages.

Investment advice: We expect the company to achieve revenue of 296.0, 407.4, and 55.28 billion yuan in 2024-2026, with year-on-year changes of -28.4%, +37.6% and +35.7%; net profit to mother of 11.9, 20.0, 2.97 billion yuan, year-on-year changes of -24.6%, +67.8%, and +48.4% year-on-year. The current stock price corresponds to the 2024-2026 price-earnings ratio of 20, 12, and 8 times, respectively. Considering the company's large-scale effects, the “recommended” rating is maintained.

Risk warning: NEV sales fall short of expectations, industry competition intensifies, new technology development falls short of expectations, etc.