Incidents. On August 26, 2024, the company released its 2024 semi-annual report. The company achieved operating income of 10.782 billion yuan in the first half of the year, a year-on-year decrease of -53.48%; net profit to mother was 0.389 billion yuan, -68.57% year over year; net profit after deduction was 0.38 billion yuan, -68.82% year over year; and net operating cash flow was 0.095 billion yuan, +174.16% year over year.

The share is leading in the industry, and profits are steady. In terms of shipment volume, the sales volume of 2024H1's phosphate cathode material products reached 0.3094 million tons, +43.3% over the same period last year, and continued to lead the industry. The company actively grasps the rapidly growing market demand in the energy storage sector, and sales of 2024H1 related products account for about 33%. In addition, the company actively promotes new products. Among them, the CN-5 series and YN-9 series sold about 0.0479 million tons, accounting for about 15% of the company's product sales. In terms of profit, according to our estimates, the net profit of 2024H1 lithium iron per ton is 0.0013 million yuan/ton. The good unit profit is due to perfect integrated layout, new product process innovation and optimization, and fine management to reduce costs and increase efficiency. Looking forward to the future, the supply and demand relationship in the industry will gradually improve, and the company is expected to achieve further breakthroughs in quantitative profit with technology and customer advantages accumulated over the years.

With a firm integrated layout, cost reduction and efficiency can be expected. The company continues to improve the integrated layout of the “resource-precursor-cathode material-recycling” industry:

1) Resources: The company has obtained a mining license for the Huangjiapo phosphate mine in Fuquan City, Guizhou Province, and has accelerated the progress of exploration and mining work such as rock mining in Fuquan City, Guizhou Province. Phosphorus resources are the core raw materials for preparing lithium iron phosphate, and the successful implementation of integration is expected to further reduce the company's costs and shape long-term competitiveness.

2) Precursors and recycling: The company has basically achieved full self-supply of iron phosphate, and is actively developing lithium carbonate processing and lithium battery recycling business to further improve the supply capacity of key raw materials resources.

The pace of internationalization is accelerating, and new products are progressing smoothly. Overseas electrification is still a blue ocean. The company is actively expanding its first overseas project and plans to build an annual production capacity of 0.05 million tons of cathode materials in Spain. By the end of June 2024, the company had established Yuneng (Singapore) and accelerated the establishment of a Spanish company. Accelerating overseas travel is expected to raise the company's profit level and global competitiveness. The new products CN-5 series and YN-9 series developed by the company cover different application scenarios, can meet the different needs of customers in the field of power energy storage, and effectively improve the company's comprehensive product service capabilities. In addition, the company's research and development of lithium manganese iron phosphate materials is progressing smoothly, with excellent performance in terms of comprehensive properties such as capacity and compaction density.

Investment advice: We expect the company to achieve revenue of 247.0 billion, 344.4, and 44.28 billion yuan in 2024-2026, a year-on-year change of -40.3%, +39.4%, and +28.6%; achieve net profit to mother of 0.92, 1.28, and 1.71 billion yuan, year-on-year changes of -41.8%, +38.9%, and +34.1%. The current stock price corresponds to the 2024-2026 price-earnings ratio of 21, 15, and 11 times, respectively. Considering that the scale effect of the company is prominent, the “recommended” rating is maintained.

Risk warning: NEV sales fall short of expectations, industry competition intensifies, new technology development falls short of expectations, etc.