Incidents:
Enjie Co., Ltd. released the 2023 annual report and the first quarter report of 2024. In 23, the company achieved revenue of 12.042 billion yuan, -4.36% year on year; net profit to mother of 2,527 billion yuan, or -36.84% year on year; 24Q1 achieved revenue of 2,328 billion yuan, -9.38% year on month, -21.07% month on month; net profit to mother of 158 million yuan, -75.64% year on month.
Price affects net profit, leading market share in the world
In '23, due to oversupply in the industry, diaphragm price competition was fierce. The company adopted a price reduction strategy, strived to maintain 100% production capacity, and focused on market share leading the industry. Price cuts put pressure on the company's performance in the short term. In '23, the company achieved gross profit margin of 37.43%, year-on-year -10.4pct, net profit margin 22.01%, year-on-year -11.44pct; 24Q1 company achieved gross profit margin of 18.87%, year-on-year -27.16pct, month-on-month -9.56pct, net profit margin 6.75%, year-on-year -19.66pct, and -5.87pct month-on-month. The company sold 6.2 billion square meters of diaphragms in '23, making it the largest supplier of lithium batteries in the world, and ranked number one in the world in terms of market share.
Accelerate the launch of new products and consolidate the leading position in technology
In January '24, the company developed a new product, semi-solid electrolyte composite film. This product has excellent low-temperature discharge performance and is suitable for new energy vehicles, 3C, energy storage and other fields. In March '24, the company successfully developed new high porosity high strength diaphragms for fast charging batteries - HSV7 and HSV9, achieving another technological breakthrough in high rate cell diaphragms in the industry. The porosity of this product is more than 20% higher than that of conventional ND series diaphragm products, helping many downstream customers meet the technical requirements of 3C and 4C high rate charging (full charge in 15-20 minutes). The accelerated implementation of new products is expected to consolidate the company's leading position in technology in the industry.
Actively layout overseas markets and have sufficient orders in hand
The company actively promotes overseas market development. In May '22, the Hungarian company and ACC of France reached a cooperation agreement to supply it with around €655 million lithium battery isolation film products in 2024-2030; in May 23, the company received a PPES supplier nomination letter and will supply 2.59 billion yuan of lithium battery separator products to it in 2024-2028; in August '23, the company signed agreements with many large global lithium battery manufacturers to supply 960 million square meters of lithium battery separator materials to them in 2025-2033. Profitability is expected to increase further as the company becomes more aggressive in going overseas.
Profit Forecasts, Valuations, and Ratings
Due to the impact of the off-season and maintenance, the 24Q1 production capacity utilization rate is low, and product prices have dropped sharply. We expect the company's 24-26 revenue to be 126.38/150.17/17.696 billion yuan, respectively, with year-on-year growth rates of 4.95%/18.83%/17.84%, respectively; net profit to mother will be 22.96/29.33.35 billion yuan, corresponding growth rates are -9.14%/29.08%/15.90%, and the three-year CAGR is 10.77%; corresponding PE is 16/13/ Eleven times, EPS was 2.35/3.03/3.51 yuan/share, respectively. Continued attention is recommended.
Risk warning: Industry competition increases risk; NEV sales fall short of expectations.