Incident: The company released its semi-annual report, and 2024H1 achieved revenue of 3.541 billion yuan, YOY -57.85%; net profit to mother of 0.287 billion yuan, YOY -69.01%. Among them, the 2024Q2 company achieved revenue of 2.025 billion yuan, YOY -45.43%, +33.48% month-on-month; realized net profit of 0.176 billion yuan, YOY -64.34%, +59.87% month-on-month, after deducting non-return net profit of 0.112 billion yuan, +7.77% month-on-month.

Comment:

The fall in overseas demand affected shipments of ternary materials, and unit profits remained good. The company's 2024H1 multi-material and lithium cobalate production was 0.0209/0.0018 million tons respectively, of which 2024Q2 shipped a total of about 0.01 million tons+ of ternary and lithium cobalate, with a slight increase over the previous month. The decline in shipment volume is mainly due to a stable domestic share of three yuan and a decline in the growth rate of overseas demand from Europe and the US. In addition to maintaining cooperative relationships with overseas power battery companies such as LG New Energy, SK ON, and Samsung SDI, the company continues to increase the supply share of major customers in China such as Innovative Aviation, Honeycomb Energy, and Everweft Lithium Energy. The company's share of overseas revenue in 2024H1 fell to 21.49%. Affected by this, the gross margin of lithium battery cathode materials fell to 16.63%, a year-on-year decrease of about 1 pct. According to estimates, the total non-net profit of 2024H1 three yuan and lithium cobalate after deducting a single ton is about 0.0118 million yuan/ton, maintaining industry-leading profitability.

The amount of lithium iron phosphate released is obvious, and 2024H2 is expected to reduce losses. The first phase of the company's Dangsheng Shudao project was completed and put into operation. The output of 2024H1 phosphate (manganese), lithium iron, etc. was 0.0133 million tons, which was remarkable. The profit side was under pressure in the short term. The gross profit ratio was -2.91%, and the gross profit per ton was about -0.001 million/ton. When Shengshudao's 2024H1 net profit is 0.044 billion yuan, it is expected that losses will be reduced through scale effects in the second half of the year.

Actively lay out key materials for next-generation solid-state lithium batteries, and be the first in the industry to achieve batch loading applications. The dual-phase composite solid-state lithium battery cathode materials and solid-state electrolyte products developed by the company solve technical problems such as interface stability, interfacial ion transmission, and crystal structure phase transformation of solid-state battery materials. The company shipped hundreds of tons of 2024H1 solid state lithium battery cathode materials, successfully introduced solid state battery customers such as Huineng, Qingtao, Weilan New Energy, and Ganfeng Lithium Battery, and was successfully loaded and used in solid-state models of automobile companies such as SAIC Motor Group.

Investment advice: As a leader in the ternary materials industry, the company leads the profitability industry and actively lays out key materials for solid-state batteries. We expect the company's net profit to be 0.606/0.874/1.136 billion yuan respectively in 2024-2026, up -68.48%/44.12%/29.98% year over year, EPS is 1.2/1.73/2.24 yuan, corresponding PE is 25/18/14 times, respectively, covered for the first time, giving it a “buy” rating.

Risk warning: Risk that downstream demand falls short of expectations, and risk that performance forecasts and valuation judgments fall short of expectations.