Event: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 11.484 billion yuan, a year-on-year increase of 24.57%; realized net profit of 0.184 billion yuan, a year-on-year decrease of 47.60%; realized net profit deducted from 0.175 billion yuan, a year-on-year decrease of 42.52%; achieved an overall gross profit margin of 9.88%, down 3.42pct from 2023H1; and achieved an overall net profit margin of 1.6%, down 2.20 Pct from 2023H1.

Incident reviews:

The growth rate of domestic demand for lithium batteries has slowed, and the pressure on processing costs has put pressure on the company's profits in the short term. According to research data from the Institute of Advanced Industrial Research, China's lithium battery shipments in 2023 were 940 GWh, an increase of 25% year on year. Among them, vehicle power battery shipments were 630 GWh, an increase of 31.4% year on year. In the first half of 2024, China's lithium battery shipments were 459 GWh, an increase of 21% over the previous year. Demand growth in the domestic NEV and lithium battery industries has slowed. Demand growth for battery foil as an important material for lithium battery cathode collectors was limited, compounded by the decline in battery foil processing costs in the industry. The company's profit in the first half of 2024 was under pressure, and net profit after deducting non-return mother fell 42.52% year on year.

Maintain a reasonable range of expenses during the company period. 2024H1, the company's cost rate for the period was 6.60%, down 1.08Pct from 2023H1; of these, sales expenses were 0.09 billion yuan, down 12.60% year on year; management expenses were 0.135 billion yuan, up 36.10% year on year, mainly because SLIM Aluminum merged from the second half of 2023. The company did not merge the company for the same period last year; the company continued to increase R&D investment, and 2024H1 R&D expenses were 0.512 billion yuan, an increase of 5.76% year on year. 2024H1's sales/management/R&D/finance expense ratios were 0.78%/1.17%/4.46%/0.19%, respectively, changing -0.33/+0.10/-0.79/-0.06Pct from 2023H1, and the company's overall cost reduction and efficiency results were obvious.

Overseas production capacity is gradually being released, and it is expected to be the first to supply downstream mainstream battery manufacturers. The electrification rate in overseas markets is low, and long-term space is vast. Domestic battery leaders such as Ningde Era, BYD, and Everweft Lithium are actively going overseas to seize overseas markets. The company has aluminum foil factories in Italy and Thailand, and the Ningde Era has production capacity plans of 14 GWh in Germany and 100 GWh in Hungary in Europe. The company is the first domestic aluminum foil company to complete an overseas layout, and is expected to be the first to supply it with 114 GWh production capacity in Europe. Furthermore, the company has close cooperation with leading companies such as BYD and LG, which is expected to fully benefit from high growth in overseas markets and increase its overseas and global market share.

Investment advice:

We lowered our performance forecast. We expect the company's net profit to be 0.506/0.632/0.761 billion yuan for 2024-2026 (the previous forecast was 0.594/0.693/0.841 billion yuan), EPS was 0.57/0.71/0.85 yuan, respectively, and the PE corresponding to the current stock price is 15.74/12.10.48 times, respectively. Considering that the company is a leader in battery aluminum foil, the gradual release of production capacity is expected to benefit from high growth in overseas demand, so it maintains a “buy” rating.

Risk warning:

Risk of fluctuating processing fees; risk of downstream demand falling short of expectations; risk of increased market competition.