Key points of investment:

Profitability recouped quarterly in 2023

In 2023, we achieved revenue of 4.91 billion yuan, -7% year-on-year, net profit attributable to mother of 40 million yuan, -89% year-on-year, deducted 90 million yuan from non-return mother, -80% year-on-year, and accrued asset impairment losses of 150 million yuan. Gains and losses on non-current asset disposal, mainly accrued from -68 million yuan of Shenzhen Venture Capital's investment funds, 24 million yuan in government subsidies, and 100 million yuan in non-current asset disposal. Gross profit margin 15%, net profit margin 0.2%. The anode achieved annual sales of 141,100 tons (+24% year over year), and the non-net profit after deducting a single ton was 0.02 million yuan/ton, or 0.12 million yuan/ton when added back. 23Q4 achieved revenue of 1,385 billion yuan, -8% YoY, +8% month-on-month, estimated sales volume of 43,000 tons, +30% YoY, +8% month-on-month, and non-net profit of 0.27,000 yuan/ton (+0.11,000 yuan/ton) Z after deduction of a single ton. If added back, the impairment value was 0.42 million yuan/ton (+0.28 million yuan/ton), profitability was restored quarterly.

Shipments in 24Q1 increased rapidly year on year, and cost control capabilities exceeded the expected 2024Q1 revenue of 1,066 billion yuan, +2% year over year, and -23% month-on-month, accruing asset impairment losses of 16 million yuan. We expect to ship close to 40,000 tons (+63% year over year), with a unit price of 24,400 yuan/ton (-0.48,000 yuan/ton). The annual price decline is gradually reflected by the annual price reduction of 10,000 yuan/ton after deducting non-net profit of 10,000 yuan/ton (-0.17,000 yuan/ton). If added back, the impairment value will be 0.14 million yuan/ton (-0.29 million yuan/ton). The decline in profit per ton was less than the drop in price. Against the backdrop of insufficient operating rates in the first quarter, cost control was still achieved that exceeded expectations. We believe it was mainly due to further digestion of the company's high-priced inventory, reduced costs, and further optimization of management capabilities.

Overseas, Morocco lays out integrated production capacity, and the cancellation of share buybacks enhances shareholder returns. The company plans to invest in the construction of a 100,000 ton integrated anode base in Morocco, with a total investment of no more than 5 billion yuan.

The first phase of the project is 50,000 tons, and the construction period is expected to be 24 months. Morocco is adjacent to Europe and is an FTA country. It can meet the future localization requirements of European and American electric vehicles and support the overseas development process of core customers.

The company announced the progress of the repurchase. It has repurchased 350 million yuan (38 million shares, accounting for 5.24% of the company's total share capital). The use was changed from “for employee stock ownership plans or equity incentive plans” to “for cancellation and corresponding reduction of registered capital”, increasing returns to existing shareholders.

Profit forecasting and investment advice

Considering the intensification of competition in the anode market, the average decline in prices and gross profit per ton, and the overall demand base of the industry falling short of expectations, we adjusted the company's net profit to mother for 2024-2026 to be 3.3/5.7/790 million yuan (the previous forecast was 10.2/16.5/- 100 million yuan), and the corresponding PE was 22/12/9 times, respectively. Considering that the company's shipment growth rate and cost control capabilities have exceeded expectations, it is expected to increase its share in fierce competition, giving 15 times PE in 2025, corresponding to a target price of 11.85 yuan, and maintaining a “buy” rating.

Risk warning

Demand recovery fell short of expectations, price wars continued, etc.