Incident: The company released the 2023 financial report and the 2024 quarterly report. In 2023, it achieved total operating income of 41,358 billion yuan, -3.35% year on year, and net profit attributable to shareholders of listed companies of 1,581 billion yuan, or -47.44% year on year; the company plans to distribute cash dividends of 4.18 yuan (tax included) for every 10 shares to all shareholders. 2024Q1 achieved total operating revenue of 4.520 billion yuan, -65.69% YoY, -35.70% month-on-month, and net profit attributable to shareholders of listed companies of 159 million yuan, -43.56% YoY, and +307.75% month-on-month.

Shipments ranked first in the country for four consecutive years, and production capacity continued to expand. The company's lithium iron phosphate products have characteristics such as high energy density, long cycle life, and excellent low temperature performance. At the same time, the product quality is stable and reliable, and has high stability. In 2023, the company shipped 506,800 tons of lithium iron phosphate cathode materials, with a year-on-year increase of 56.49%. Among them, the sales share of products used in the energy storage field increased to about 28%, while overseas markets showed a trend of transformation and growth; the company's market share of lithium iron phosphate products exceeded 30%, ranking first in the country for four consecutive years, and customers covered nine of the top ten companies with installed lithium iron phosphate power batteries in 2023. In terms of capacity construction, the company is steadily promoting production capacity construction such as the Yunnan base and the Guizhou base; overseas, the Spanish cathode materials project is stepping up the relevant approval work in the early stages. The construction period is expected to be around 15 months, and the project scale is 50,000 tons. By the end of 2023, the company had a design production capacity of about 700,000 tons of lithium iron phosphate, further highlighting the advantages of scale.

Comprehensively promote the integrated layout of the industry and test mass production of lithium manganese iron phosphate. The company has continuously improved the integrated layout of the “resource-precursor-cathode material-recycling” industry, achieved full self-supply of iron phosphate, actively carried out lithium carbonate processing and lithium battery recycling business, further improving the supply capacity of key raw material resources, reducing comprehensive production costs, and increasing profitability. In terms of phosphate ore, the company recently obtained a mining license for the Huangjiapo phosphate mine. The phosphate mine is designed to produce 1.2 million tons of phosphate ore per year, and large-scale mining is expected to be achieved in the second half of 2025. In terms of recycling used batteries, the company has set up a subsidiary, Hunan Yuneng Recycling Technology Co., Ltd., to explore battery recycling technology, promote the formation of a closed loop in the industrial chain, and strengthen control over key raw materials. In terms of new products, the company is actively developing new products such as lithium manganese iron phosphate, ultra-long cycle lithium iron phosphate, and higher energy density lithium iron phosphate. Among them, lithium manganese iron phosphate materials are already in batch trial production; ultra-long cycle lithium iron phosphate products have achieved mass production, and have formed a strong comprehensive competitive advantage in terms of energy consumption, quality control, and automation.

Profitability is under pressure due to falling raw material prices. In 2023, the company achieved total revenue of 41,358 billion yuan, -3.35% year-on-year, mainly due to the average sales price of products falling by more than 30% compared to the beginning of the period, and net profit attributable to shareholders of listed companies of 1,581 billion yuan, or -47.44% year-on-year, mainly due to increased competition in the industry and a decline in gross margin due to a sharp drop in the price of lithium carbonate. As of the end of the 2023 reporting period, the company's operating activities generated a net cash flow of 501 million yuan, an increase of 118.01% over the previous year, mainly due to the company strengthening procurement management and reducing prepaid purchases; net cash flow from investment activities - 2,622 million yuan, a year-on-year decrease of 20.89%, mainly due to the company's additional production capacity construction and increased payments for construction equipment and land.

The new 2024Q1 product achieved nearly 10,000 tons of shipments. 2024Q1 achieved revenue of 4.520 billion yuan, -65.69% year over year, mainly due to falling product sales prices due to falling prices of major raw materials such as lithium carbonate; the company's comprehensive gross profit margin was 7.51%, +2.24pct year on year, +4.18pct month on month, net profit margin 3.51%, +1.38pct year on year, and +2.96pct month on month. 2024Q1 shipped 136,000 tons of lithium iron phosphate, an increase of 32.63% over the previous year, accounting for about 21% of sales of products used in the field of energy storage; in March 2024, 59,400 tons of lithium iron phosphate were shipped, with a capacity utilization rate of over 98%. At the same time, the company continues to launch a series of new products to the market. Among them, the new CN-5 series energy storage products have great advantages in terms of cycle life, energy efficiency, and energy density. The YN-9 series products have characteristics such as high energy density, excellent low temperature performance, and no impurities. They are mainly used in power batteries. The two new products, Q1, were shipped 0.84 million tons. 2024Q1, company sales expense ratio 0.22%, YoY +0.15pct, month-on-month +0.10pct, management expense ratio 1.62%, YoY +1.09pct, month-on-month +0.30pct, R&D expense ratio 0.85%, YoY +0.48pct, YoY -0.08pct, financial expense ratio 0.89%, +0.40pct month-on-month.

As of the end of 2024Q1, the company's inventory was 2,001 billion yuan, up 51.01% year on year, mainly due to an increase in inventory inventory; net cash flow from operating activities was -97 billion yuan, an increase of 91.57% year on year, mainly due to the expiration of bill security deposits and low cash payments.

Investment advice: The company is a leading enterprise in the lithium iron phosphate cathode materials industry. The integrated layout continues to advance, and actively lays out new products such as lithium manganese iron phosphate and ultra-long cycle lithium iron phosphate. Considering the intense competition in the industry, we lowered the company's profit forecast. The company's net profit for 2024-2026 is estimated to be 923 million yuan, 1,855 million yuan, and 2,814 billion yuan respectively (the previous profit forecasts for 2024-2025 were 26.53 billion yuan and 3.346 billion yuan, respectively), corresponding to PE of 28.7, 14.3, and 9.4 times, respectively, maintaining the “holdings increase -A” rating.

Risk warning: NEV sales fall short of expectations; prices of upstream resources fluctuate greatly; the company's newly built production line falls short of expectations, etc.