Investment logic
The company is a leading platform-based lithium battery company. Since its establishment, the company has been developing for more than 23 years, starting with consumer batteries and entering the fields of power and energy storage batteries. The company's power/energy storage/consumer battery revenue in '23 was 240/163/8.4 billion yuan, respectively, +31%/+73%/-2% year-on-year.
The supply-side pattern is optimized, and the industry's operating rate is expected to rise. We expect demand in the energy storage battery industry to grow by nearly 30% in '24. Demand will remain high, the combined inventory cycle will bottom out, industry expansion will slow down, policies will guide the supply side, and the industry's operating rate is expected to rise. According to the battery clock, we recommend paying attention to the trend of increasing capacity utilization, each track Longyi and Longyi's track Long2, which has a relatively high capacity utilization rate.
Shipments of energy storage batteries have increased, benefiting from increased industry concentration. In '23/1Q24, the company shipped 26/7 GWh of energy storage batteries, +121%/+113% year-on-year, and 1Q24's share reached the second highest in the world. In the long run, distribution and storage will pay more attention to economy, and product life will significantly affect economy. The industry is expected to shift from low prices to quality competition, and orders are expected to be concentrated among leading companies; in the medium term, industry inventories will tend to be healthy, and prices of energy storage cells and systems will gradually stabilize. The company's customers include leading domestic and foreign power grid companies and integrators, and have launched products such as the LF560K and Mr series. They maintain leadership in system energy efficiency (95%) and cycle life (12,000 cycles), benefit from industry concentration trends, and are expected to increase profits by increasing overseas and system share.
The power tool cycle has increased, and revenue from small cylindrical batteries has recovered. The power tool industry experienced 22-23 years of downside and inventory recovery in '24. If the US cuts interest rates, demand will continue to rise. The company is a domestic leader in small cylindrical batteries. It is expected to continue to replace the share of overseas companies such as Samsung through higher cost performance. Revenue growth is expected in 24 years, which will drive recovery in operating rate and gross margin. The company has a factory in Malaysia with small cylinders and energy storage batteries to cope with anti-globalization trends and reduce the impact of trade and tariffs in the US and other regions.
The share of power is progressing steadily, and new technologies are yet to be deployed. From January to April '24, the company's global market share of power batteries rose to 8th place. Among them, its share in the commercial vehicle sector increased significantly. The company's main customer verification process for 46 series ternary batteries is expected to be completed in 24 years. Changan Qiyuan and JAC Ruifeng RF8 have been mass-produced and loaded, waiting for customer demand to increase.
Refinancing: The company announced fixed increases in '20 and '22, with issue prices of 51.61 and 62.95 yuan/share, raising a total of 11.5 billion yuan. Currently, the company's convertible bond projects are under approval, raising 5 billion yuan to invest in cylindrical LFP batteries and large cylindrical power battery projects.
Profit forecasts, valuations, and ratings
We expect the company's net profit to be worth 49, 6, and 7.5 billion yuan in 24-26, +20%, +23%, and +25% year-on-year. Referring to comparable companies, based on the company's leading global position in the field of energy storage & consumer batteries, deep R&D strength, and perfect industrial chain layout, the company was given 23 XPE in 24 years, with a target price of 54.74 yuan. For the first time, coverage was given, and a “buy” rating was given.
Risk warning
Downstream demand falls short of expectations; trade policies deteriorate; product prices fall short of expectations; demand for large cylindrical batteries falls short of expectations; large-scale transformation of projects under construction; risk of major shareholders' pledges, etc.