Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved operating income of 47.748 billion yuan, +14.00%; net profit to mother of 2,305 million yuan, +20.77% year on year; net profit after deducting non-return to mother of 1,883 billion yuan, +21.92% year on year; Q1 in 2024, the company achieved operating income of 9.328 billion yuan, -13.24% year on year; net profit attributable to mother 502 million yuan, YoY- 71.95%

Key points of investment:

The main lead-acid battery industry is developing steadily, and its leading position in the industry continues to be consolidated. As the traditional main business of the company, lead-acid batteries have contributed about 90% to the company's total revenue in recent years. Within 23 years, the company has effectively improved the performance of lead-acid battery products and ensured sufficient production capacity release through measures such as promoting IPD R&D system construction, improving the level of materials and process technology, and promoting smart factory construction, thus continuing to stabilize its leading position in the industry. Among them, the company vigorously promoted product development and project construction of lead-carbon batteries. Within 23 years, it was connected to the grid to operate the “Peace Industrial Storage Project”, the world's largest single lead-carbon energy storage power station, and thanks to lower costs, high safety and high recovery rates, the company achieved revenue of 355 million yuan in 23 years, a significant increase of 114.76% over the previous year.

The expense ratio continued to grow during the period, and the cash flow situation was good. In 2023, the company's gross margin and net margin were 17.55%/4.46%, respectively, -1.01/+0.07pct year on year; in Q1 '24, the company's gross margin and net margin were 15.86%/5.44%, respectively, -3.29/-0.1pct, respectively. In Q1, the company's sales/management/R&D/finance expense ratios were 2.69%/4.29%/-0.08%, respectively, with year-on-year changes of +0.18/+0.19/+0.79/+0.13 pcts. In terms of cash flow, the net cash flow from the company's operating activities in Q1 in '24 was about 2,050 billion yuan, a sharp increase of 997.67% over the previous year, due to increased payment of major notes and increased advance payments. The net profit of the company withheld from mother in Q1 fell sharply by 71.95% year-on-year in Q1, mainly due to a decrease in the net profit of the 24Q1 company and an increase in government subsidies.

Lithium battery energy storage has been vigorously deployed, and the new battery business is progressing steadily. As another major source of revenue for the company, the lithium battery business contributed 904 million yuan to the company's revenue in '23, a decrease of 45% over the previous year. Considering the continuous decline in the price of lithium battery raw materials and the intensification of industry competition, the company strategically and vigorously lays out the energy storage business as one of the directions of lithium battery development, strengthening technology research and development while expanding customers in the energy storage application field at all levels. In '23, the company completed the smooth integration of Datang Lubei Power Company's 100mW/200MWh independent shared energy storage power plant. In addition, the company is also steadily developing new battery businesses such as hydrogen fuel cells and sodium-ion batteries. The hydrogen fuel cell system (80kW/130kW) and electric stack (100kW graphite plate) developed independently by the company in '23 already have loading conditions, and fuel cell system buses have also been put into operation in Muyang, Jiangsu; while the sodium-ion battery “Tianta-1” series products have also been tested by automakers in two rounds, and the commercialization process is expected to accelerate further in the future.

Profit forecasting and investment advice. The company is a leading domestic lead-acid battery company, and in recent years it has been actively deployed in the fields of lead-carbon and new batteries. Considering that most of the corresponding projects are currently in R&D or trial production, and it will still take time to contribute additional revenue and performance to the company, we lowered our profit forecast. We estimated the company's net profit to mother for 24-26 was 26.41, 30.84, and 3.518 billion yuan, respectively (the original forecast for 24-25 was 2,977 billion yuan and 3.438 billion yuan). The corresponding PE is 11, 9, and 8 times PE, respectively, giving the company 12 times PE in 24 years , corresponding to the target price of 32.60 yuan, maintaining the “buy” rating.

Risk warning: risk of lead-acid batteries being replaced; risk of production capacity release falling short of expectations; risk of large fluctuations in the price of lithium battery raw materials; risk that public data used in research reports may be out of date or not updated in a timely manner.