Key points of investment

The performance was in line with expectations. The company's 24H1 revenue was 3.54 billion yuan, down 57.9%; net profit to mother was 0.29 billion yuan, down 69%; of these, 24Q2 revenue was 2.02 billion yuan, 45.4%/+33.5%, net profit to mother 0.18 billion yuan, -64.3%/+59.9% year-on-month, after deducting 0.11 billion yuan of non-net profit, -82.4%/+7.8% year-on-year. Non-recurring profits and losses were mainly government subsidies and recovery of BAK battery arrears. The gross profit margin was 13.5%, -5.5/-1.4pct year-on-month, and the performance was in line with expectations.

24Q2 ternary shipments remained flat month-on-month, and lithium iron increased significantly. On the shipping side, the company produces 0.021 million tons of 24H1 ternary cathode and 0.0018 million tons of lithium cobalate. We expect Q2 ternary cathode and lithium cobalate to be shipped 0.01 million tons+, which is basically the same; the company has built a production capacity of 0.11 million tons, maintaining its overseas advantage in 24 years, and will actively expand the domestic market. We expect shipments to increase by 10-20% in 24 years.

In terms of lithium iron, 0.04 million tons of the first phase of the Panzhihua project was put into operation in March 24. 24H1 lithium iron phosphate (manganese) production was 0.013 million tons. We expect Q2 lithium iron to be shipped about 0.01 million tons, an increase of more than 2 times over the previous month. We expect 0.03 million tons+ of lithium iron to be shipped in 24, an increase of 0.03 million tons+. In terms of solid state cathodes, 24H1 has shipped hundreds of tons and has been successfully loaded and used in solid state models of first-tier car companies such as SAIC Motor Group.

The profit per ton of three yuan remained flat month-on-month in 24Q2, and is still far ahead of the industry average. The profit per ton is expected to remain stable throughout the year. On the profit side, we estimate that 24H1 ternary cathode has a gross profit of 0.024 million yuan per ton and 0.01 million+ per ton, of which 24Q2 deducts 0.01 million+ of non-profit per ton, which is flat from month to month, and the profit level is still far ahead of the industry average; the share of overseas customers fell to 30-40% in the first half of the year, and some new projects gradually expanded in the second half of the year. The share of overseas customers is expected to increase slightly over the first half of the year. The profit level for the whole year is expected to remain around 0.01 million/ton. Furthermore, the 24H1 lithium iron business lost 0.013 billion yuan in gross profit, and the gross profit per ton was about 0.001 million yuan. We expect the scale of lithium iron shipments to increase and reduce losses starting in Q2.

Q2 Operating cash flow improved significantly, and capital expenditure slowed. The company's expense ratio for the 24H1 period was 6.9%, up 5 pcts, of which Q2 cost ratio was 6.8%, +8.1/-0.4pct; 24H1 net operating cash flow was 0.46 billion yuan, the same year on year, of which Q2 was 0.61 billion yuan, which was positive month on month; Q2 capital expenditure was 0.09 billion yuan, -74.5% year on month; 24Q2 end inventory was 0.92 billion yuan, compared to the end of Q1.

Profit forecast and investment rating: Considering the decline in the share of overseas customers, we lowered the company's profit forecast for 2024-2026 to be 0.77/0.95/1.31 billion yuan (originally expected 0.85/1.09/1.57 billion yuan), -60%/+24%/+38% year-on-year, corresponding to 19x/15x/11xPE in 24-26, considering that the company's profit is still better than the market average, maintaining the “buy” rating.

Risk warning: Production capacity release falls short of expectations, demand falls short of expectations.