Xiamen Tungsten Xinneng released its 2024 semi-annual report, and Q2 profit levels improved month-on-month. 2024H1 achieved revenue of 6.3 billion yuan, or -22.4% YoY; net profit due to mother 0.24 billion yuan, -6.1% YoY; net profit not attributable to mother 0.22 billion yuan, or -3.2% YoY. Among them, Q2 achieved revenue of 3 billion yuan, -9.0% month-on-month; net profit of 0.13 billion yuan, +14.8% month-on-month; net profit of 0.12 billion yuan after deducting non-return to mother, +14.1% month-on-month. Q2 The company's gross sales margin/net margin was 11.6%/4.3%, +4.0/0.9pct.

The leading position of lithium cobalate has been further stabilized, and ternary cathodes rank among the top five in China. According to the company's announcement, sales of lithium battery cathode materials were 0.045 million tons in the first half of the year. With the continuous release of 4.5V high-voltage products, lithium cobalate achieved sales volume of 0.018 million tons, +30.0% over the same period last year, and the leading position was steady. Among them, Q2 shipped 0.01 million tons, +19.1% month-on-month; with the technical advantages of high voltage and high power, ternary materials achieved sales volume of 0.026 million tons, or +108.6% year-on-year. Of these, Q2 shipped 0.01 million tons, or -34.3% YoY. According to Xinyi's data, domestic ternary cathode production in the first half of the year was 0.306 million tons, of which 6 series's share increased from 20% in the full year of last year to 28% in the first half of this year. With the continuous distribution of 6 series high-voltage products from downstream customers, the company ranks among the top 5 in China.

Stabilize advantages in existing fields and continue to explore new application directions.

1. Existing fields: 1) In terms of lithium cobalate, 4.53V lithium cobalate has passed multiple terminal project certifications and has begun to be shipped in small quantities. Furthermore, lithium cobalate products for AI functions are expected to be used in terminals in the second half of the year. 2) In terms of ternary materials, the overall performance and quality of the new-generation Ni6 series high-voltage materials are stable, and mass production is expected in the second half of the year; high-nickel ternary materials have entered mass production or certification stage in several overseas customer projects.

2. New application directions: 1) In low-altitude fields such as drones, next-generation ternary materials meet the customer's next-generation material index requirements and complete small test finalization. 2) Lithium supplement materials: Highly stable lithium supplement materials have been developed and supplied in small quantities. 3) Sodium electrocathode material: completed test line process completed. 4) Solid-state battery materials:

The solid cathode material focuses on surface coating, and on the premise of achieving uniform coating, the interfacial impedance is further reduced; the solid-state battery electrolyte improves the structural stability of lithium lanthanum, zirconium, and oxygen LLZO through doping and coating.

European production capacity is gradually being implemented, and localization support capacity has been significantly enhanced. In September 2023, the company announced the construction of a French ternary materials project with an annual output of 0.04 million tons. A joint venture with Orano will be the implementing entity.

The project is being built in two phases, with the first phase of 0.02 million tons of production capacity expected to be completed and trial production in 2025Q4, and the second phase of 0.02 million tons of production capacity is expected to be completed in 2027Q3. Furthermore, on August 2 of this year, the company announced that the joint venture subsidiary will invest in the construction of a ternary cathode material precursor project with an annual output of 0.04 million tons, with a total investment of 0.21 billion euros. The company will invest at a 49% shareholding ratio. The company is expected to use the advantages of localization support to enter more international customer supply chains and open up new growth space.

Profit forecast: Considering the impact of fluctuations in raw materials on the sales price and profit of the company's products, the 2024-2026 net profit was adjusted to 0.58/0.74/0.9 billion yuan, an increase of 9.4%/28.0%/21.5% over the previous year. Based on the closing price on August 5, the corresponding PE is 21.0x/16.4x/13.5x. Maintain an “Overweight” rating.

Risk warning: Downstream demand for new energy vehicles falls short of expectations, risk of fluctuations in raw material prices, and implementation of new products and technologies falls short of expectations.