Key points of investment

Removal of lithium batteries from inventory affects positive and negative electrode prices, putting pressure on the company's profits

(1) In 2023, the company achieved revenue of 19.070 billion yuan, a year-on-year decrease of 12.13%; net profit to the mother was 765 million yuan, a year-on-year decrease of 71.56%; mainly due to a slowdown in terminal demand growth, a sharp drop in product prices due to an imbalance between the supply and demand of midstream lithium battery materials in the lithium battery industry, and product prices and profits related to anode materials and participating cathode materials declined year on year; at the same time, the company accelerated divestment of non-core businesses and inefficient assets. Asset impairment has an impact on the company's performance. (2) In the first quarter of 2024, the company achieved revenue of 3.752 billion yuan, a year-on-year decrease of 15.67%; net profit to mother was -73 billion yuan, which turned into a year-on-year loss.

The domestic share of artificial graphite continues to rise, and the large-scale supply of fast charging anodes strengthens the leading position. The company sold 264,400 tons of anode materials in 2023, up 44.55% year on year, and further increased its market share by 44.55% through positive measures such as accelerating product iteration and upgrading, deepening cooperation with major customers, and fully implementing cost reduction measures. According to Xinyi Information, the company's production of artificial graphite as an anode material ranked first in the world for 3 consecutive years. China accounted for 19% of the production of artificial anode materials, ranking first in the industry. The company's consumer fast charging products maintain leading market share. It has achieved batch shipment of 5C products and tonnage supply of 6C products. Power fast charging products have achieved large-scale supply of 4C and 5C products, 6C products have completed customer customization, the technical advantages of the company's fast charging products have been further expanded, and cooperation with leading global battery companies has been further deepened.

The global share of polarizers has further increased, and it is proposed to acquire the polarizer business of LG's high-end polarizer division to achieve a 10.18% year-on-year increase in sales in 2023. According to CINNO Research data, in 2023, the company's share of the shipping area of large-size (including TFT-LCD TV/monitor/laptop) polarizers increased from 30% in 2022 to 33%, continuing to rank first in the world. According to the company's announcement, in terms of high-end products, the company has completed technical and patent reserves in the field of automotive polarizers. In terms of VR/AR polarizers, polarizers for VR displays have been independently developed and are currently in the customer certification stage. In order to accelerate the breakthrough of LCD+OLED polarizers, the company's subsidiaries Shanjin Suzhou and Shanjin Guangzhou plan to acquire LG Chemical's automotive, OLED, and high-end IT display polarizer businesses to accelerate the increase in the high-end polarizer market share. Currently, the acquisition is progressing steadily.

Profit forecasting and valuation

The profit forecast was lowered and the “buy” rating was maintained. The company is a leading supplier of anode materials and polarizers in the world, and its share continues to increase. Considering the removal of inventory in the lithium battery industry chain and increased competition in the industry, we lowered the company's profit forecast for 2024-2025. The net profit forecast for 2024-2025 is 11.38 billion yuan and 1,595 billion yuan respectively, and the net profit forecast for 2026 is 1.937 billion yuan, corresponding EPS is 0.50, 0.71, and 0.86 yuan/share. The PE corresponding to the current stock price is 21, 15, and 12 times, respectively. Maintain a “buy” rating.

Risk warning

Technology iteration and emerging technology route substitution risks; raw material fluctuations and inventory risks; further intensification of market competition leading to price declines.