Key points of investment

Incident: Hunan Yuneng disclosed its 2023 annual report and 2024 quarterly report.

The results slightly exceeded expectations. In 2023, the company achieved revenue of 41,358 billion yuan, -3.35%; achieved net profit of 1,581 billion yuan, or -47.44% year-on-year; realized net profit of 1,518 billion yuan without return to mother, or -49.9% year-on-year. In 24Q1, the company achieved revenue of 4.520 billion yuan, -65.69% year on year; realized net profit of 159 million yuan, or -43.56% year on year; realized net profit of 152 million yuan without return to mother, or -43.13% year on year. Against the backdrop of increased competition in the industry and sharp fluctuations in upstream material prices, the company's revenue and net profit declined year-on-year, but in a horizontal comparison, with most companies in the industry losing large amounts, the company still maintained a certain net profit and leading the industry in comprehensive capabilities.

The company's production and sales have increased rapidly, and its profitability is better than the industry average. In 2023, the company produced 504,400 tons of lithium iron phosphate, up 49.6% year on year; sales volume was 506,800 tons, up 56.49% year on year, of which products in the energy storage scenario accounted for about 28%. We estimate the company's net profit per unit of about 30,000 yuan/ton in 2023. 2024Q1, the company sold 136,000 tons of lithium iron phosphate, an increase of 32.63% over the previous year; of these, 59,400 tons were sold in a single month in March, and the capacity utilization rate was over 98%, which was basically close to full production. We estimate that the company's net profit per unit in 2024Q1 is about 0.12 million yuan/ton.

Combining integration and globalization, the company's comprehensive strength continues to improve. The company's wholly-owned subsidiary recently obtained a phosphate mining license, which will help the company open up an integrated layout of upstream core resources and produce 1.2 million tons of phosphate ore per year on a design scale. It is expected that 2025H2 will achieve large-scale mining.

On the other hand, the company has begun its overseas journey and plans to invest in the construction of 50,000 tons of lithium battery cathode materials in Spain. Currently, some customers have expressed their intention to cooperate in business. This overseas trip is in line with the global trend of new energy and is expected to enhance the company's overall competitiveness.

Profit forecasting and valuation

We expect the company's 2024-2026 revenue to be 249.48/316.95/38.282 billion yuan, up -39.68%/27.05%/20.78% year on year; net profit to mother is 10.67/20.21/2.771 billion yuan, up -32.50%/89.44%/37.09% year on year; corresponding PE is 26.32/13.89/10.13 times, respectively, giving a “gain” rating.

Risk warning:

Downstream demand falls short of expectations; risk of fluctuations in raw material prices; risk of increased market competition; risk of domestic and foreign policy changes.