Description of the event

Hunan Yuneng released its 2024 quarterly report. 2024Q1 achieved revenue of 4.520 billion yuan, a year-on-year decrease of 65.69%, and net profit to mother of 159 million yuan, a year-on-year decrease of 43.56%. After deducting non-net profit of 152 million yuan, a year-on-year decrease of 43.13%.

Incident comments

Looking at the breakdown, 2024Q1 shipped 136,000 tons, up 32.6% year on year, with only a slight decrease from month to month. The growth rate was better than that of the industry, which represented a continued upward trend in market share. As a result, the gross profit per ton was about 0.25 million yuan (the company's overall gross profit divided by shipment volume), which was clearly recovered from 2023Q4, thanks to the weakening of the negative impact of the price drop in lithium carbonate, but the 2024Q1 off-season still affected capacity utilization rate and depreciation per ton; the cost per ton cost was about 0.13 million yuan (the company's overall cost divided by the shipment volume), which was further reflected in the company's cost reduction and control fee; the company's cost reduction and control fee was further reflected; the net profit per ton of operation was about 0.09 million yuan (calculated by reducing net profit tax on a single ton of gross profit and net profit deduction in the industry) While 2024Q1 is still under pressure, it has been confirmed once again The company's cost advantage. In addition, the company's other revenue for 2024Q1 was $0.12 billion, and credit impairment surged back to $0.29 billion.

In terms of other financial data, the company's inventory at the end of 2024Q1 was 2.01 billion yuan (2023Q4 was only 1,325 billion yuan). As a leading company, the company clearly showed the advantages of active inventory management in the past two years based on downstream customers and scale advantages. Fixed assets of 10.476 billion yuan are expected to be basically stable month-on-month. After the company concentrated around 1.5 billion yuan in 2023Q4, the company is currently constructing 923 million yuan. The company's subsequent consolidation amount will decrease. According to the 2024Q2 shipment volume will show an upward trend, 2024Q2's single-ton depreciation is expected to decline sequentially, supporting the company's profit improvement.

Furthermore, the company announced that its wholly-owned subsidiary Guizhou Yuneng Mining has completed the transfer of prospecting rights to mining rights for the Huangjiapo phosphate mine, with a production scale of 1.2 million tons/year to accelerate the construction and implementation of mining projects. It is expected that large-scale mining will be achieved in the second half of 2025, which is expected to drive the company's integrated profits to increase.

Looking forward to the future, the overall profit of the lithium iron industry is currently low. Cash flow pressure is compounded by tightening financing. As demand recovers and the desire to stabilize lithium iron prices increases, production capacity expansion is slowing down. The company's current production capacity has maintained a steady pace of expansion. At the end of '23, it had 700,000 tons of production capacity to ensure steady growth in subsequent shipments; the company's top two customers are still deeply cooperating, while shipments from other battery manufacturers are steadily increasing, and the market share level is expected to remain stable. In terms of profit, the overall profit level of the lithium iron industry is currently low. In the future, as production capacity expansion slows down and demand grows, the recovery in production capacity utilization is expected to drive the industry's profit back to a reasonable ROE level. The company is expected to use its scale advantage and subsequent phosphate ore layout to achieve a certain level of excess profit, and continue to recommend.

Risk warning

1. Market competition increases risk;

2. The risk that demand in the power battery industry falls short of expectations.