Core views:

Innovation and fine management are among the leaders in lithium iron phosphate materials. The company is a mixed ownership enterprise. As of 24Q1, Electrochemical Group, Xiangtan Electrochemical and Zhenxiang SDIC held a total of about 17% of the shares, and Ningde Times and BYD held about 8%/4% of the shares. With its high-quality customer structure, the company has been a new leader in the lithium iron materials industry since 2021. The company's ROE leads the industry, and refined management leads the company's expense ratio to continue to be low in the industry. Excellent product strength enables it to maintain a high operating rate during the intensification of industry competition, and the excellent inventory turnover ratio leads the industry in terms of total asset turnover. The company's self-developed high-pressure tight series products such as CN-5 and YN-9 are used in the field of power and energy storage to help the fast charging system accelerate the world's deep electrification. The company announced the 2024 equity incentive plan and set performance assessment targets for 24-26 with a sales growth rate of not less than 25%/35%/50%, respectively, and net profit of not less than 1.5/2 billion yuan for 25-26, respectively, demonstrating management's high confidence in growth.

The only lithium iron supplier in the world that has completed the integration of phosphate ore. The company's 2023 annual report revealed that it has achieved complete self-supply of iron phosphate. Sun Company Guizhou Yuneng Mining obtained Guizhou Fuquan Dashichang phosphate prospecting rights and Huangjiapo phosphate mining rights in November 2023 and April 2024 respectively. The latter is expected to be mined on a large scale in the second half of 2025, which is expected to meet 0.438 million tons/year of lithium iron phosphate material production. The company lays out phosphate ore in Guizhou. It is rich in phosphate resources and is close to the production base, which can save transportation and procurement costs, and create the world's only “phosphate - iron phosphate - lithium iron phosphate” integrated layout.

Yuntianhua has a gross profit margin of 16% for wet phosphoric acid in 23. Assuming a gross profit margin of 10-20% for wet phosphoric acid, elastic estimates that the upstream phosphate layout can reduce the cost of lithium iron phosphate products by about 390-960 yuan.

Phosphate-iron-copper coupling, moving towards a new generation of global fine chemicals. The company invested 3.5 billion yuan in Fuquan, Guizhou, to build the first phase of a project with an annual output of 0.2 million tons of copper smelting co-production of sulfuric acid and 0.8 million tons of steam. Instead of outsourced sulfuric acid, it was directly used to produce wet phosphoric acid to produce iron phosphate, which could save 835 yuan/ton. The by-product steam instead of outsourced production of lithium iron phosphate can save 51 yuan/ton. According to estimates, the copper smelting layout can reduce the cost of lithium iron phosphate materials by nearly 900 yuan/ton.

Profit forecasting and investment advice. The company uses phosphate-iron-copper coupling to build a barrier to deepening global fine chemicals. EPS is expected to be 1.12/2.73/3.82 yuan/share in 2024-2026. Considering comparable company valuations, a PE valuation of 15 times 2025 is given, corresponding to a reasonable value of 41.02 yuan/share. For the first time, coverage is given, and a “buy” rating is given.

Risk warning. Sales of new energy vehicles fell short of expectations; production progress fell short of expectations, etc.