Core views

Company Profile: Sanyuan Cathode Co., Ltd., profits declined in 2023. Company Overview: Jointly built by China and South Korea, after more than ten years of development. The company's core products are ternary high nickel products, which are divided into three categories: NCM523/NCM622/NCM811. Customers cover domestic and foreign countries, covering many mainstream leading battery companies. The management has Chinese and Korean backgrounds, and is represented by Baek Ho-sun and Yoo Sang-yeol. Financial analysis: After a peak in 2022, earnings were under pressure in 2023. Rongbai Technology's revenue and net profit to mother increased in 2021 and 2022, and declined by 2023. In 2023, the company's revenue was 22.66 billion yuan, -25% year-on-year, and net profit to mother was 580 million yuan, -57% year-on-year.

Industry introduction: Demand drives growth, and Rongbai maintains the lead. 2023 review: Industry output is still high, CR5 concentration is 61%. According to Xinyi Lithium Battery, the global output of ternary materials in 2023 was 966,000 tons, -2.8%. Judging from China's Sanyuan material production, the concentration of CR5 is about 61%. Among them, Rongbai Technology is still number one. 2024 outlook: Production is expected to increase, and Rongbai will maintain the lead.

According to Gaogong Lithium, China's output of ternary materials is expected to be 750,000 tons in 2024, with a year-on-year growth rate of about 15%. Ternary materials account for about 26% of the positive electrode, which is basically the same as in 2023. 2024Q1 Rongbai Technology still maintains a leading share, and leading companies in the industry have benefited from increased demand for downstream batteries, and there have also been significant changes, such as Nantong Ruixiang and Xiamen Tungsten Xinneng, etc., and the rankings have also improved.

Core highlights: Have core technology and a global strategic layout. Technology: Rongbai Technology has deep technical capabilities. Specifically, it includes precursor co-precipitation technology, cathode material doping technology, cathode material atmosphere sintering technology, cathode material surface treatment technology, high-voltage single crystal material production technology, NCM metal recovery technology, lithium carbonate recovery technology, etc. Research and development: Ensure the competitiveness of world-class secondary battery technology. According to NE Era New Energy, Rongbai Technology is expected to build a R&D center in Korea in December 2024, an R&D center in the US in June 2025, and a European R&D center in December 2025. Production capacity: Build and improve the global production capacity construction layout. By 2030, the target is to build a three-yuan production capacity of 1 million tons, a lithium manganese production capacity of 560,000 tons, a sodium electricity production capacity of 500,000 tons, and a precursor production capacity of 430,000 tons.

Investment advice

As industry demand increases, the company uses core technical barriers to advance its globalization strategy. We expect the company's revenue for 2024-2026 to be 229/278/33.8 billion yuan, with a year-on-year growth rate of 1%/21%/22%, respectively, and net profit to mother of 6.4/9.2/1.38 billion yuan, a year-on-year growth rate of 10%/44%/50%. According to the closing market value on June 11, PE was 19/13/9 times, respectively. The first coverage gave the company a “buy” rating.

Risk warning

The risk that the price of upstream raw materials will rise too fast, the risk that downstream demand will be affected less than expected by the economy, the risk of adjusting support policies related to lithium batteries, and the risk of choosing the company's strategic direction.