Key points of investment

Q2 Performance was in line with expectations, and profit levels increased month-on-month. The company's 24H1 revenue was 10.78 billion yuan, down 53.5%, net profit to mother of 0.39 billion yuan, down 68.6%, gross profit margin 8.2%, 1.5 pct, net profit margin 3.6%, same decrease of 1.7 pct; of these, 24Q2 revenue was 6.26 billion yuan, 37.4%/+38.5% year on month, net profit to mother 0.23 billion yuan, -75.9%/+45.3% year-on-month, gross profit margin 8.6%, year-on-month -6.7/+ 1.1 pct, in line with market expectations.

Q2 New products were released quickly, and the demand for energy storage exceeded expectations, and the company maintained full production. The company shipped 0.3094 million tons in 24H1, an increase of 43.3%, and the market share of the company's energy storage sales increased to 33% in the first half of the year, of which Q2 had increased to 40% +. In addition, the new CN-5 series and YN-9 series sold about 0.0479 million tons in the first half of the year, accounting for about 15% of sales. Of these, 24Q2 shipped 0.173 million tons, an increase of 28%. Among them, CN-5 and YN-9, the new high-priced energy storage products CN-5 and YN-9, we expect to ship nearly 0.04 million tons, an increase of 500% over 24Q1. The product structure has improved markedly. Since September, the US energy storage demand has surpassed expectations, and the company's downstream demand has been strong to maintain full production. In Q3, we expect to ship around 0.18 million tons. We expect to ship 0.7 million tons in 24, an increase of 38%. Subsequent expansion of the company's production in Yunnan, Guizhou and overseas has progressed steadily, and sales are expected to maintain 30% growth in 25 years.

Q2 profit increased month-on-month, with an estimated net profit of 0.0014 million yuan per ton in '24. The average price of lithium iron in Q2 was 0.041 million yuan/ton, with a gross profit of 0.0031 million yuan per ton, and a net profit of 0.0013 million yuan per ton. If the impairment loss was 0.027 billion yuan, the corresponding net profit per ton was about 0.0015 million yuan, an increase of 50% over 24Q1. This was mainly due to increased capacity utilization and product structure optimization. 24Q1 processing fees have bottomed out. 24H2 ships mainly high-end products, processing costs remain stable, and new products enjoy technical premiums. We expect unit profit to improve further in the second half of the year. We expect the net profit per ton to reach 0.0014 million yuan for the whole year. The integration ratio increased profits after the company's phosphate ore was put into operation in '25, and the net profit per ton is expected to rise to 0.002 million yuan in '25.

Q2 The cost per ton was stable, and inventory increased slightly compared to the end of Q1. The company's expenses for the 24H1 period were 0.4 billion yuan, with an expense ratio of 3.7%, and an increase of 1.4 pct, of which the Q2 period cost 0.24 billion yuan, -32.4%/49.4%, the cost ratio was 3.9%, +0.3/+0.3 pct, Q2 cost per ton 0.0014 million yuan, a slight decrease from month to month; 24H1 net operating cash flow was 0.1 billion yuan, a decrease of 174.2%, of which Q2 operating cash flow was 0.19 billion yuan, down -81.2% from month to month; inventory at the end of 24Q2 was 2.22 billion yuan, up 10.9% from the end of Q1.

Investment advice: Considering the slight decline in industry processing costs in the second half of the year, we lowered the company's net profit forecast for 2024-2026 to 0.96/1.82/2.81 billion yuan (originally estimated 1/2.5/3.4 billion yuan), compared to -39%/+90%/+55%, corresponding PE is 20/11/7 times. Considering that the company is a leading iron lithium cathode, the cost advantage is remarkable. The cost advantage is remarkable. The target price is 43 yuan for 25 years, maintaining the “buy” rating.

Risk warning: Raw material prices fluctuated beyond market expectations, and electric vehicle sales fell short of market expectations.