Description of the event

Zhongke Electric released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 4.908 billion yuan, a year-on-year decrease of 6.64%, realized net profit of 42 million yuan, a year-on-year decrease of 88.55%, and realized deduction of non-net profit of 93 million yuan, a year-on-year decrease of 79.67%. In the first quarter of 2024, the company achieved operating income of 1,066 billion yuan, an increase of 2.38% over the previous year, and attributed net profit of 024 million yuan, an increase of 117.57% over the previous year, after deducting non-net profit of 0.33 million yuan, an increase of 124.31% over the previous year.

Incident comments

Looking at the whole year, the company's anode business achieved shipments of 1411,000 tons, an increase of 23.84% over the previous year. The increase in shipments was mainly due to customer structure optimization. Domestic customers mainly include Ningde Era, Everweft Lithium, China Innovation Aviation, BYD, etc., while overseas customers SK and LG are also actively increasing; in terms of production capacity, the company's effective anode production capacity in 2023 was 188,200 tons, with a capacity utilization rate of 76.24%, and a production capacity under construction of 125,000 tons, mainly additional production capacity at the Quzhou and Jing'an bases; in terms of profit, the company's anode products had a gross profit margin of 12.8% year-on-year The decline is mainly due to the fact that raw materials purchased at high prices in 2023H1 were not digested in a timely manner. As the price of terminal anode products declined, rising costs and asset impairment brought about by raw materials lowered the company's annual negative profit level. Looking at 2023Q4 alone, shipments of the company's anode products are expected to increase month-on-month; in terms of profit, the price of 2023Q4 anode products remains stable month-on-month. High cost costs are expected to basically no longer affect profits after 2023Q2-2023Q3 shipments are digested. At the same time, the proportion of graphitized self-supply increased after Gui'an's integrated production capacity was put into operation, and the decline on the cost side led to a recovery in profits. Furthermore, the company's asset impairment loss was 68 million yuan.

According to the analysis of 2024Q1, the company achieved a slight month-on-month decline in anode shipments, mainly affected by the seasonality of the industry, but the company's shipment growth is expected to be better than that of the industry, especially since March, mainly due to the recovery in downstream demand, especially the increase in sales volume of fast charging models; in terms of profit, the price of anode products has decreased slightly since the beginning of 2024, while operating rate declined slightly from 2023Q4, which collectively led to a decline in single-ton profit.

Looking ahead to 2024Q2 and the full year of 2024, the company's operating rate will continue to pick up since the end of March. Q2 is expected to achieve full production and sales, leading to continued profit recovery. On the customer side, the company continues to bind and consolidate previous domestic and foreign customers while actively promoting new customer certification; in terms of product structure, the company's fast charging orders from major customers are growing rapidly. As terminal demand continues to pick up, the company's capacity utilization rate is expected to continue to operate at a high level and continue to be recommended.

Risk warning

1. Market competition increases risk;

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