Incidents. On August 29, 2024, the company released its 2024 semi-annual report. In the first half of the year, the company achieved operating income of 2.264 billion yuan, +1.32% year over year; net profit to mother was 0.069 billion yuan, +155.44% year over year; net profit after deduction was 0.088 billion yuan, +180.19% year over year.

The gross margin of anode materials increased year-on-year. In terms of volume, the 2024H1 lithium battery anode sector achieved operating income of 2.079 billion yuan, +0.53% year over year; shipped 0.0921 million tons of anode materials, +52.86% year over year. Revenue growth was mainly lower than the shipping growth rate 1) competition in the industry intensified when supply and demand in the industry were mismatched; 2) prices of upstream raw materials and outsourced processes declined. On the positive side, the gross profit margin of 2024H1's anode materials was 16.23%, an increase of 9.07 percentage points over the previous year. On the customer side, the company maintains good cooperation with well-known domestic and foreign lithium battery manufacturers such as Ningde Times, BYD, China Airlines, Everweft Lithium Energy, Ruipulanjun, Honeycomb Energy, ATL, Korea's LGES, and SK On, which strongly guarantees the continuity of the company's orders. The company's product strength continues to win recognition from new customers, and the 2024H1 has been designated by a battery subsidiary of an internationally renowned overseas car company. In terms of technology, the company attaches great importance to technology research and development and talent introduction, especially graphitization furnaces designed and built by itself. Compared with traditional graphitization processing lines, they have advantages such as low electricity consumption costs, low core consumables, high degree of automation, green environmental protection, etc., and have leading advantages in graphitization processing technology for lithium battery anode materials in China. Looking forward to the future, the company will continue to improve product performance, serve high-quality customers at home and abroad, strengthen refined internal management and reduce costs, and the profit level is expected to continue to improve.

Entered Morocco and sped up sailing. The holding subsidiary Hunan Zhongke Star City has set up a new wholly-owned subsidiary in Hong Kong, China or other overseas regions to indirectly invest in the establishment of a Moroccan project company, and plans to implement an integrated anode material base project with an annual output of 0.1 million tons. The total investment of the project is planned to be no more than 5 billion yuan. The construction is divided into two phases. The first phase and phase two production capacity plans are 0.05 million tons/year each, and the construction period is expected to be 24 months each. After completion, the project will help the company improve its overseas layout, enhance its global business radiation capacity, and thereby enhance its global influence. Overseas customers have high requirements for product quality, and going overseas is expected to further improve the company's profit level.

Collaborative development of magnetoelectric equipment. The company's magnetoelectric equipment business and lithium battery anode business can collaborate to develop special lithium battery equipment such as automated electrical control equipment, lithium battery material demagnetization equipment, vertical high temperature reactors, and next-generation graphitization furnaces suitable for lithium battery production processes. The magnetoelectric equipment division of 2024H1 achieved revenue of 0.185 billion yuan (excluding revenue from holding subsidiaries), +11.06% over the same period last year.

Investment advice: We expect the company to achieve revenue of $51.1, 62.2 and 7.52 billion yuan in 2024-2026, with year-on-year changes of +4.1%, +21.8% and +20.8%; net profit to mother of 0.19, 0.33, and 0.45 billion yuan, with year-on-year changes of +350.9%, +74.5%, and +38.4%. The current stock price corresponds to the 2024-2026 price-earnings ratio of 29, 17, and 12 times, respectively. Considering the company's overseas superposition technology iterations, the “recommended” rating is maintained.

Risk warning: NEV sales fall short of expectations, increased industry competition, geopolitical and tariff risks faced when going overseas, new technology development falls short of expectations, etc.