Incidents:

The company released the 2024Q1 report. In 24Q1, it achieved revenue of 1,515 billion yuan, -8.00% year on year; net profit to mother 165 million yuan, -32.80% year over year; deducted non-net profit of 184 million yuan, -19.52% year on year.

The decline in raw material prices affected net profit. The organic fluorine business grew strongly. As of April 19, '24, the price of lithium hexafluorophosphate had fallen to 71,800 yuan/ton, the lowest price in the past three years. Overcapacity combined with increased competition in the electrolyte industry has caused the price of the company's electrolyte products to continue to decline, affecting net profit. In '23, the company's organic fluorine revenue was 1,425 billion yuan, +21.45% year-on-year. Hysford Phase II began trial production in 23Q4. All production lines have basically achieved stable output, and the company has a stable technological leadership position in the organic fluorine field. We expect the organic fluorine business to maintain its growth trend in 24 years.

Continuing to further reduce costs and improve efficiency, a novel sodium electroelectrolyte has been mass-produced

The company continued to further reduce costs and improve efficiency. The 24Q1 operating cost was 1.03 billion yuan, -2.19% year-on-year. In March '24, in order to improve production capacity utilization and increase the investment efficiency of the project, the company announced that the second phase of the Jingmen lithium battery project would be postponed to 26Q4. Currently, Jingmen already has 80,000 tons of electrolyte, which can meet the short-term electrolyte demand in central China. As of April '24, the company's new sodium-ion battery electrolyte-related products have been mass-produced and applied. They have advantages such as long cycle and low temperature performance, which will increase the company's competitiveness in the field of sodium-ion batteries and are expected to contribute new performance growth points.

The overseas layout is progressing steadily, and it is expected to become an international electrolyte leader in 23 years. The company's Polish plant has put into operation 40,000 tons of electrolyte as scheduled, and plans to further expand production capacity. The adjusted annual production capacity is expected to reach 6-8 thousand tons. The company is actively building production bases in the US and the Netherlands. The company planned the Ohio chemical project in '23 and is expected to be put into operation in '26. Currently, the company has reached an agreement with Nippon Catalyst and Toyota Tsusho to expand production, increasing the production capacity of the new lithium salt project with an annual output of 1,200 tons to 10,000 tons. In the future, the penetration of international new energy sources will continue to accelerate, and the company's forward-looking layout of overseas production capacity construction is expected to increase the company's international market share and profitability.

Profit Forecasts, Valuations, and Ratings

Due to the sharp drop in product prices, we expect the company's 24-26 revenue to be 81.96/97.33/11.804 billion yuan respectively, with year-on-year growth rates of 9.52%/18.75%/21.27%, respectively; net profit to mother will be 12.27/16.45/ 2.018 billion yuan, corresponding growth rates will be 21.40%/34.00%/22.66%, respectively, and a three-year CAGR of 25.92%; corresponding PE will be 20/15/12 times, and EPS will be 1.63/2.18/ 2.68 yuan/share. Referring to comparable company valuations, we gave the company 25 times PE in 24 years, with a target price of 40.75 yuan, maintaining a “buy” rating.

Risk warning: Industry competition increases risk; demand for electrolytes falls short of expectations; risk of large fluctuations in raw material prices.