1Q24 revenue and net profit to mother declined year-on-year
1Q24's revenue was 2.463 billion yuan, or -42.91% YoY; net profit to mother was 114 million yuan, -83.54% YoY. The price of electrolytes fell, leading to a year-on-year decline in the company's revenue and profit. Considering the intense short-term competition in the industry, we lowered the company's 24-year electrolyte gross margin assumption, but as production capacity is digested, it is expected to pick up and revise the 25-26 gross margin assumption. The company's net profit for 2024-2026 is estimated to be 11.10/20.16/2,486 billion yuan, respectively (previous value was 14.82/17.57/2.388 billion yuan). Referring to the consistent forecast of the company's 25-year Wind, the average PE is 15 times. Considering that the profit of the electrolyte business is currently at the bottom, the company's cost advantage is clear, and the market share has increased. The company was given 25 times reasonable PE in 25 years, corresponding to a target price of 26.19 yuan (previous value of 23.11 yuan), maintaining a “buy” rating.
Electrolyte profitability is temporarily under pressure
The company's Q1 revenue was 2,463 billion yuan, or -42.91% YoY/-24.92%. The year-on-year decline was mainly due to the decline in electrolyte prices; net profit to mother was 114 million yuan, -83.54%/-17.65% yoy. We estimate that it was mainly due to pressure on the profitability of the electrolyte business and the increase in losses in the iron phosphate business. The company's Q1 gross profit margin was 19.53%, -11.00 pct year on year, 4.61% net profit margin, -11.61 pct year on year, and profitability declined year on year. The cost rate during the Q1 period was +6.36 pct year on year to 15.25%, mainly due to the year-on-year decline in revenue affecting the cost rate dilution. Electrolyte prices have basically bottomed out after nearly two years of decline. The company is only marginally profitable as the most cost-effective leader in the industry. Subsequently, as production capacity is digested, electrolyte prices pick up, and capacity utilization rates rise, electrolyte profitability will gradually recover.
The integrated layout at home and abroad continues to advance
The company is leading the industry in terms of integration. It already has an annual electrolyte production capacity of about 850,000 tons, iron phosphate production capacity of about 180,000 tons, and an annual production capacity of lithium hexafluorophosphate of about 112,000 tons. At the same time, it is actively laying out upstream resource recycling business, covering the entire industry chain from lithium carbonate to electrolyte, and the integrated cost advantage has been further enhanced. Overseas, the company's German OEM factory was successfully put into operation, the US electrolyte project continues to advance, and the company plans to promote integrated overseas production capacity construction by setting up a subsidiary in Morocco to continue expanding the overseas production capacity layout.
The LIFSI addition ratio has increased, and the pace of new product development is steady
The company continues to promote the use of LIFSI in lithium iron phosphate batteries and continues to provide customers with electrolyte solutions that meet their needs. The company added about 1.8% of LIFSI to the electrolyte in '23, and the company expects the ratio to continue to rise this year. The company invests heavily in the development of new products, including lithium iron ultra-high energy density systems, ternary high nickel systems, silicon-carbon systems, lithium manganese iron phosphate systems and sodium-electric systems, as well as nickel-manganese binary 5V electrolyte development and fast charging, and semi-solid/solid electrolytes and supporting solutions.
Risk warning: Electrolyte demand falls short of expectations; lithium hexafluorophosphate prices are lower than expected; the degree of application and profitability of LiFSi falls short of expectations.