Key points of investment:

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 2.163 billion yuan, +3.01% year-on-year, and realized net profit of 352 million yuan, or -10.63% year-on-year. With 2024Q1, the company achieved revenue of 360 million yuan, -22.51% year-on-year; realized net profit of 49 million yuan, +20.07% year-on-year.

Electrolytic manganese dioxide business: stable in 2023. In recent years, the electrolytic manganese dioxide industry has focused on supply-side structural reforms in accordance with high-quality development requirements. The overall operation of the electrolytic manganese dioxide industry was relatively stable in 2023. The company is the company with the longest history of development in the electrolytic manganese dioxide industry. The market share of mercury-free manganese products remained industry-leading in 2023, and was awarded the “National Manufacturing Single Champion Product”.

Lithium manganate business: The company has grown into a leading enterprise in the industry. In 2023, against the backdrop of a cliff-style decline in lithium carbonate prices, the sales price and cost of lithium manganate products fell sharply. Affected by the production cycle and inventory, sales prices and costs were inverted, and the gross margin of the lithium manganate industry declined sharply. It is expected that as the price of lithium carbonate returns to a reasonable level and remains relatively stable, the profitability of the lithium manganate business will gradually stabilize and increase. The company began to lay out the lithium manganate industry in 2021, and has now grown into a leading enterprise with competitive advantages in the lithium manganate industry. According to ICC Xinyi's statistics on lithium manganate shipments, the company's lithium manganate market share increased year by year from 2021 to 2023, which was 1.24%, 6.46%, and 15.22% respectively. In 2023, the company's lithium manganate market share ranked third in the industry.

Focus on innovation and reach a new level of research and development. The company's R&D is closely integrated with production and strategy. The first is to strengthen research and development. The R&D team conducted research and achieved breakthroughs on topics such as iterative renewal of manganese battery material products, resource utilization of manganese slag, and intelligent production, and continued to launch new EMD products and put into use the industry's first fully automatic packaging line. Powered lithium manganate is currently working on key technical indicators. The second is to strengthen platform construction. The company continues to deepen cooperation with universities and research institutes in Changzhu Tan, such as Central South University and Xiangtan University, to build a high-quality innovation platform for industry-university-research cooperation and accelerate the industrialization process of technological achievements. In 2023, the company was awarded the “Hunan Advanced Manganese Energy Storage Material Pilot Platform”, and the R&D team was rated as the “Xiangtan Science and Technology Innovation Key Team”. The third is to strengthen intellectual property management. In 2023, the company applied for 8 patents and was granted 15 patents. The company and its subsidiary Jingxi Electrochemical were rated as “National Intellectual Property Advantage Enterprises”.

Profit forecasting and investment ratings. We expect the company's 2024-2026 EPS to be 0.54 yuan, 0.60 yuan, and 0.75 yuan respectively. Referring to the valuation level of comparable companies, they were given 24-25 times PE in 2024, with a corresponding reasonable value range of 12.96-13.50 yuan, giving them an investment rating of “superior to the market”.

Risk warning: product price fluctuations, project construction, rising raw material prices.