Key points of investment

Incident: The company released an interim report on August 23. In mid-2024, it achieved total operating income of 3.541 billion yuan, net profit to mother of 0.287 billion yuan, -69.01% year-on-year, net profit after deducting 0.217 billion yuan and -79.66% year-on-year; among them, 2024Q2 achieved total operating income of 2.025 billion yuan, -45.43% year-on-year, and +33.48% month-on-month, net profit to mother 0.176 billion yuan. YoY -64.34%, month-on-month +59.87%, net profit not attributable to mother 0.112 billion yuan, -82.44% YoY, +7.77% month-on-month.

The decline in the price of raw materials affects the price of products. 2024H1 achieved revenue of 3.541 billion yuan, or -57.9% year-on-year. The main reason was a sharp drop in the price of raw materials, and the sales price of the company's products declined accordingly. The operating cost was 3.042 billion yuan, or -56.07% year-on-year. The main reason was a sharp drop in raw material prices, and the company's product costs declined accordingly. 2024H1's comprehensive gross profit margin was 14.10%, down 3.48pcts year over year. The Q2 comprehensive gross profit margin was 13.51%, down 5.53pct year on year and 1.38pct month-on-month. Financial expenses were -0.067 billion yuan, or -0.22 billion yuan, or +69.65% in the same period last year, mainly due to high exchange gains in the same period of the previous year; R&D investment of 0.203 billion yuan, or -30.33 year on year, mainly due to a sharp drop in raw material prices during the reporting period, and a corresponding decrease in the investment value of R&D and trial production costs.

Solid-state battery cathode materials were successfully loaded. The company is at the forefront of the industry in the commercial application of solid state battery cathode materials. It has shipped hundreds of tons during the reporting period, 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 first-tier car companies such as SAIC Motor Group.

The global market share is stable. In terms of overseas markets, as a leading global company that also exports cathode materials to countries and regions such as South Korea, Japan, Europe, the United States, etc., the company continues the international high-end supply chain, and has established stable cooperative relationships with first-tier brand power battery and vehicle companies such as LG New Energy, SK ON, Samsung SDI, Murata, and major European and American customers. Product support has entered overseas high-end new energy vehicle companies such as Volkswagen, Hyundai, Daimler, and BMW.

In the domestic market, the company successfully introduced mainstream domestic NEV and power battery companies in batches, and continued to increase the supply share of major customers in China such as Aviation, Honeycomb Energy, and Everweft Lithium Energy. Domestic sales of medium nickel high voltage and ultra-high nickel products achieved a significant year-on-year increase, supporting high-end domestic car companies such as Ideal, Xiaopeng, Great Wall, GAC, etc., and the market penetration rate continued to rise. At the same time, the company actively grasped the rapidly growing demand in the lithium iron phosphate (manganese) market, continued to increase cooperation with domestic first-class power and energy storage battery customers such as Everweft Lithium Energy, Lanjun New Energy, and Yichun Qingtao, further consolidating its core position as the number one supplier of China Airlines. Product sales increased several times over the same period last year, with cumulative shipments exceeding 10,000 tons within half a year, with an average monthly shipment of thousands of tons.

Steadily promote the international high-end production capacity layout. During the reporting period, the company accelerated the implementation process of the Finnish project. It has now successfully completed the establishment of Dangsheng (Hong Kong) Investment, Dangsheng (Luxembourg), and Dangsheng (Finland) New Materials Companies, and is steadily advancing the overseas production capacity layout according to the plan. The overall plan for the European project is 0.5 million tons, including 0.2 million tons of multi-material and 0.3 million tons of lithium iron phosphate (manganese), which will be built in stages. The first phase of the project will build a high-nickel multi-material production line with an annual output of 0.06 million tons. The production line is designed according to the requirements of ultra-high nickel and high nickel polycrystals and monocrystals, and also has the capacity to produce nickel products in use. In addition, the company has completed the construction of Changzhou Phase II, Haimen Phase IV, and Panzhihua Phase I projects, and has been put into operation one after another according to the market rhythm, laying a solid foundation to support the rapid expansion of the company's business and increase its market share.

Investment advice: The company is a leading enterprise in the ternary cathode materials industry and actively promotes the commercial application of solid state battery cathode materials. Considering the slowdown in demand for ternary cathode materials, we lowered the company's profit forecast. The company's net profit for 2024-2026 is 0.685 billion yuan, 0.909 billion yuan, and 1,119 billion yuan, respectively (the previous profit forecasts for 2024-2026 were 1.366 billion yuan, 1.568 billion yuan, and 1,803 billion yuan, respectively). The corresponding PE is 22.2, 16.7, and 13.6 times, respectively, to maintain the “buy-B” rating.

Risk warning: NEV sales fall short of expectations; international trade friction; the company's new production line falls short of expectations; overseas business expansion falls short of expectations, etc.