Incident: Recently, the company released its report for the first quarter of 2024.
Key points of investment:
The company's performance is under pressure in the short term. In the first quarter of 2024, the company achieved revenue of 2.119 billion yuan, down 13.87% year on year and 32.43% month on month; net profit of 39.57 million yuan, down 63.92% year on year and 16.27% month on month; net profit after deduction of 8.1 million yuan, down 90.46% year on year; net cash flow from operating activities - 649 million yuan, down 817.39% year on year; basic earnings per share of 0.04 yuan, weighted average return on net assets of 0.43%. In the first quarter of 2024, the company's non-recurring profit and loss totaled RMB 31.46 million, of which RMB 22.75 million was subsidized by the government.
The company focuses on research and industrialization of the four elements of lithium fluoride and silicon boron, focusing on new material systems such as new fluorine-based materials, new energy materials, and electronic information materials. In 2023, new energy materials and new energy batteries accounted for 62.06% of total revenue.
Sales of new energy vehicles and power battery production in China continue to grow, driving the demand for electrolytes and lithium hexafluorophosphate electrolytes. Statistics from the China Automobile Association and the China Automobile Power Battery Industry Innovation Alliance show that in 2023, China sold a total of 9.4481 million new energy vehicles, up 37.48% year on year, accounting for 31.45%; of these, total exports of new energy vehicles were 1.203 million units, an increase of 77.6% year on year. From January to January 2024, China sold 2,089 million new energy vehicles, up 31.76% year on year, accounting for a total of 31.10%. Along with the increase in sales of new energy vehicles in China and the increase in power battery exports, China's production of power batteries and other batteries continues to grow. In 2023, China's total output of power batteries and other batteries was 778.10 GWh, an increase of 42.5% over the previous year; of these, 152.6 GW was exported. From January to January 2024, China's total output of power and other batteries was 184.60 GWh, a cumulative year-on-year increase of 33.5%; of these, 12.2 GWh were exported. In December 2023, the Central Economic Work Conference made it clear that it will further promote the construction of ecological civilization and green and low-carbon development, and continue and optimize the NEV vehicle purchase tax exemption policy in 2024; the fall in the price of upstream raw materials for power batteries will help reduce the price of power batteries and improve the cost performance ratio of new energy vehicles. Overall, it is expected that in 2024, China's NEV sales will continue to grow by double digits, corresponding to the demand for materials such as electrolytes and the electrolyte lithium hexafluorophosphate. Gaogong lithium battery statistics show that in 2022, China shipped 844,000 tons of electrolyte, up 68.80% year on year; in 2023, 1.11 million tons were shipped, up 31.52% year on year.
Looking ahead to 2024, under the trend of downstream vehicle price reduction and cost reduction, lithium battery companies should seek the ultimate cost performance ratio on the basis of continuously improving product performance. For this reason, cost reduction will continue to be the main theme in the industry; shipments from dominant companies in the electrolyte and electrolyte lithium hexafluorophosphate segment are expected to continue to grow.
The company's new energy materials performance is under pressure in the short term, and shipments are expected to increase in 2024. The company's new energy materials mainly include electrolyte salts represented by lithium hexafluorophosphate, lithium difluorosulfonimide (LiFSi), and sodium hexafluorophosphate. In 2023, the company shipped about 40,000 tons of lithium hexafluorophosphate. New energy materials achieved total revenue of 4.795 billion yuan, a year-on-year decrease of 27.62%. The share of the company's revenue fell from 53.6% in 2022 to 40.17% in 2023, accounting for about 47.5% of gross profit in 2023. The decline in revenue was mainly due to a significant drop in the price of lithium hexafluorophosphate products. On the one hand, the decline was due to the decline in the price of upstream raw materials, and secondly, increased industry competition due to the release of lithium hexafluorophosphate production capacity. Statistics from Baichuan Yingfu show that by the end of 2023, China's lithium hexafluorophosphate production capacity was 367,300 tons, an increase of 61.62% over 22.73 million tons in early 2023. Data shows that in 2023, global shipments of lithium hexafluorophosphate were 169,000 tons, up 26.1% year on year; however, the market size was 19.44 billion yuan, down 53.7% year on year. Currently, lithium hexafluorophosphate is the most important component of lithium battery electrolytes. Compared with other electrolytes, lithium hexafluorophosphate has significant cost performance advantages. The company independently developed the preparation of high-purity crystalline lithium hexafluoride using industrial-grade lithium carbonate, anhydrous hydrogen fluoride, and phosphorus trichloride. The product has high purity, good quality, strong stability, and transportation safety. The key performance indicators are superior to domestic peers. Its downstream customers cover mainstream domestic electrolyte companies, and are exported to South Korea, Japan and Europe, and the production and sales volume ranks among the highest in the world. LiFSi is used as an electrolyte additive for lithium batteries to improve battery capacity and electrochemical performance. The company uses new technology to drastically reduce production costs. It plans to build a production capacity of 2,000 tons in 2024, and is expected to ship about 1,000 tons. The company's sodium hexafluorophosphate has been commercialized and mass-produced. Customers include many mainstream sodium battery and electrolyte manufacturers, which will benefit from the development of sodium battery technology. The company is transforming from a “lithium salt seller” to a “lithium salt solution provider”. The company's series of lithium salt technology upgrades and industrialization continue to advance. With the gradual release of production capacity, profit growth points will continue to expand. At the same time, the company has a complete industrial chain of “fluorine resources → hydrofluoric acid and electronic grade hydrofluoric acid → lithium hexafluorophosphate → lithium battery”, which has significant cost advantages and strengthens its cost advantage through continuous technological iteration. For example, in the 40,000 tons of lithium hexafluorophosphate production capacity under construction, the fixed asset investment amount of 10,000 tons has been reduced to less than 200 million yuan, of which 10,000 tons of production capacity is expected to be completed and put into operation in 2024. As the downstream new energy industry changes to steady growth, the price of lithium hexafluorophosphate will enter a new stage of steady development. The competitiveness of enterprises with cost control capabilities and scale effects will be further strengthened, and industry concentration may further increase.
The company's new energy battery performance will continue to grow. The company's new energy battery products include soft packs, cylindrical, square aluminum-shell lithium-ion batteries and sodium-ion batteries. The downstream focuses on three market segments: the first is large-scale energy storage. Currently, it mainly lays out the offshore market. Since 2017, it has established an overseas energy storage industry base, and has a complete customer structure in the US and Europe. At the same time, the company continues to promote large-scale energy storage and the marketization of industrial and commercial energy storage in China, and has formed long-term cooperation with many leading enterprises. The second is the NEV market, which mainly uses fast-charging soft pack batteries and an omnidirectional cylindrical product layout. Third, the small energy storage market has 40 to 60 series of omnidirectional multi-cylinder battery products, covering the product range from 15Ah to 70Ah. Unique cans and explosion-proof technology on both sides fundamentally solve the safety and cost problems of the industry, and are an excellent choice for light vehicles and small energy storage. In 2023, the company's new energy batteries achieved revenue of 2,613 billion yuan, an increase of 31.97% over the previous year. Considering the advantages of low cost and good low temperature performance, sodium-ion batteries have broad application prospects in low-speed vehicles, two-wheelers, and energy storage. The company began studying sodium hexafluorophosphate, the core material for sodium batteries in 2017, and successfully supplied downstream customers in batches in 2019; in 2020, mass production of large cylindrical sodium batteries began in 2022, and automotive power batteries are being jointly developed with GM Wuling; in the field of energy storage, energy storage application scenarios have been jointly developed by China Tower, which will form new profit growth points in the future. According to statistics from the China Automobile Power Battery Industry Innovation Alliance, in 2023, the company's power battery load volume was 2.14 GWH, accounting for 0.55%, ranking in the top 15 domestic power battery companies. Combined with the new energy battery product layout and industry position, revenue is expected to continue to grow in 2024.
The company's electronic information materials performance is growing rapidly, and its share of revenue will further increase. The company's electronic information materials include electronic grade hydrofluoric acid, electronic grade silane, and other electronic chemicals.
In 2023, the company's electronic information materials achieved revenue of 1,239 billion yuan, a sharp increase of 78.82% over the previous year. The share of the company's revenue increased from 5.60% in 2022 to 10.38% in 2023, accounting for about 23.2% of gross profit in 2023. The company has broken through UPSSS (Grade 5) grade hydrofluoric acid production technology, and its purity and particle indicators can meet the process requirements of mainstream chip production. The “Development and Industrialization of Key Technology Development and Industrialization of Ultra-Clean High-purity Electronic Grade Hydrofluoric Acid for the Next Generation Information Technology Industry” project won the Henan Science and Technology Progress Award, and the “Key Technology, Equipment and Engineering Demonstration for High-purity Hydrofluoric Acid Preparation for Semiconductors” was listed as a national key R&D plan and strategic mineral resource development and utilization project. The company has an annual production capacity of 60,000 tons of electronic-grade hydrofluoric acid, including 20,000 tons of semiconductor-grade and 40,000 tons of photovoltaic grade. It has successfully established long-term stable cooperative relationships with many domestic and foreign semiconductor companies; the ultra-clean high-purity electronic grade hydrofluoric acid project with an annual output of 30,000 tons and a wet electronic chemical project with an annual output of 30,000 tons is under construction, and the product range will be further enriched after delivery. In addition, the company has also mastered a series of electronic chemical production processes such as high-purity nano silicon powder, high-performance silicon-carbon materials, high-purity fluorine gas, electronic grade nitric acid, electronic grade ammonia, and PI peeling liquid. It is currently at the leading level in the domestic industry. Currently, many well-known semiconductor and panel companies have carried out online verification, and some have achieved mass sales. In the context of the increase in the localization rate of the semiconductor industry, combined with the company's product layout, it is expected that the company's share of electronic information materials revenue will further increase.
The company's new fluorine-based materials rank among the industry leaders. The company's new fluorine-based material products include anhydrous aluminum fluoride, polymer cryolite, anhydrous hydrogen fluoride, etc., which are mainly used as co-solvents to reduce the melting temperature and increase the conductivity of electrolytes during aluminum electrolysis, which is the company's traditional advantage.
In 2023, the company's new fluorine-based materials business achieved revenue of 2,236 billion yuan, a year-on-year decrease of 4.56%, accounting for 18.73% of the company's revenue and accounting for about 12.8% of gross profit. The company's anhydrous aluminum fluoride production process is a third-generation technology developed independently. It has reached the country's leading level. Production, sales and export volume have maintained a leading position in the industry for many years. Considering the development expectations of the electrolytic aluminum industry, the overall performance of this business is expected to be stable.
Follow the listing progress of Zhongning Silicon. In April 2024, the company announced that its control subsidiary Zhongning Silicon Industry intends to apply for listing on the New Third Board. Zhongning Silicon's main business is R&D, production and sales of electronic specialty gases and silicon-based materials. The main products include electronic grade silane gas, silicon-based electronic special gas such as silicon tetrafluoride, and new silicon-based materials such as nanosilicon powder and silicon-carbon anodes. It is one of the few domestic silane manufacturers that have entered the four industries of photovoltaics, LCD, semiconductors and coated glass at the same time. The semiconductor sector has established cooperative relationships with JD, TSMC, etc. In 2023, Zhongning Silicon achieved revenue of 820 million yuan and net profit of 300 million yuan. Its main product, electronic-grade silane, was fully produced and sold, and plans to increase production capacity by 5,000 tons. It is expected that part of the production capacity will be put on the market by the end of 2024. After listing, it is conducive to increasing the value of the company's assets and is in line with the company's long-term development strategy.
The company's profitability declined, and full-year profit is expected to improve compared to the first quarter. In 2023, the company's gross sales margin was 16.25%, down 14.27 percentage points from the previous year; the first quarter of 2024 was 7.57%, a new low in a single quarter in recent years, down 3.54 percentage points from 11.11% in the fourth quarter of 2023. Mainly due to the continuous release of production capacity in the lithium battery industry chain, prices in the segment fell significantly, and industry competition intensified. The company's gross margin by product in 2023 showed that new fluorine-based materials were 11.13%, down 1.11% year on year; electronic information materials 36.42%, up 9.28% year on year; new energy materials 19.21%, down 22.82% year on year; and new energy batteries 9.83%, down 1.92% year on year. By the end of 2023, the company had applied for 1,340 patents and authorized 843 patents, including 224 invention patents. The company's “Key Technology Development and Industrialization of High-purity Crystal Lithium Hexafluorophosphate as the core material for lithium-ion batteries” won the second prize of the National Science and Technology Progress Award. Combined with the price level of the industry and the company's position in the industry, the annual profit is expected to improve compared to the first quarter.
The capped buyback shows the company's confidence. In September 2023, the company announced a plan to repurchase the company's stock price: using its own funds to repurchase the company's shares through centralized transactions. The total repurchase capital range is 151 million yuan to 300 million yuan. The repurchase price is no more than 20 yuan/share, and the repurchase of shares is used to implement the company's share incentives or employee stock ownership plans. As of April 12, 2024, the company's repurchase plan was completed. A total of 214,25011 shares were repurchased, accounting for 1.8% of the company's current total share capital, with a total repurchase capital of 300 million yuan. The completion of the company's maximum repurchase shows the company's confidence, and the motivation of core personnel will be fully mobilized after implementation.
For the first time, the company was given an “increase in wealth” investment rating. The company's diluted earnings per share for 2024-2025 are estimated to be 0.48 yuan and 0.82 yuan, respectively. Based on the closing price of 14.35 yuan on May 8, the corresponding PE is 29.97 times and 17.40 times, respectively. The current valuation is reasonable compared to the industry level. Combining the industry's development prospects and the company's status in the industry, the company was given an “increase in wealth” investment rating for the first time.
Risk warning: Competition in the industry has intensified; sales of new energy vehicles in China have fallen short of expectations; prices in the industrial chain have fluctuated greatly; and the exchange rate has fluctuated greatly.