Key points of investment:

Mainly engaged in lithium iron phosphate, 2024H1 bottomed out profits. The company focuses on R&D, production and sales of lithium ion battery cathode materials. The main products are phosphate cathode materials. 2024H1 achieved operating income of 10.782 billion yuan, a year-on-year decrease of 53.48%; net profit to mother of 0.389 billion yuan, a year-on-year decrease of 68.57%. Since 2023, competition in the industry has intensified, but the company has maintained positive profits despite large losses from peers, and its leading position is prominent.

Shipments are growing rapidly, and the leading position continues to be consolidated. With stable product performance and high-quality customer resources, the company has ranked first in the industry for many years in a row since 2020, and its leading position is stable.

The sales volume of 2024H1's phosphate cathode material products reached 0.3094 million tons, a year-on-year increase of 43.3%. The capacity utilization rate was 93.15%, and the market share remained leading in the industry. We expect the company to ship 0.68 million tons throughout 2024. Shipments are expected to grow further in the future as production capacity continues to be released at the company's new bases in Yunnan and Guizhou, and the 0.05 million tons/year production capacity project in Spain continues to advance overseas.

Vigorously promote vertical integration to create the ultimate cost reduction. The company focuses on its main business and continues to improve the “resource-precursor-cathode material-recycling” integrated industrial layout. At present, it has basically achieved full self-supply of iron phosphate.

2024H1, Guizhou Yuneng Mining Co., Ltd., a holding subsidiary of the company, obtained a mining license for Huangjiapo phosphate ore in Fuquan City, Guizhou Province. The design capacity is 1.2 million tons of phosphate ore per year. Large-scale mining is expected to be achieved in the second half of 2025. Dashichang Phosphate Mine in Fuquan City, Guizhou Province is also actively promoting exploration and mining work.

At the same time, the company plans to invest in the construction of a 0.5 million tons/year copper smelting project and add 0.3 million tons/year iron phosphate and phosphate cathode material production project in Guizhou. Through innovative and comprehensive use of by-products such as steam and sulfuric acid generated during copper smelting, the company has a high coupling effect with the phosphate cathode material industry, building a competitive advantage with extreme cost reduction and empowering the company's main business development.

Lay out cutting-edge technology to promote iterative product upgrades. The company's new products, CN-5 series and YN-9 series, can cover different application scenarios. Among them, CN-5 series products mainly target energy storage application scenarios and have characteristics such as long cycle life and excellent low temperature performance, which can better meet the trend demand of energy storage batteries switching to large cells; YN-9 series products mainly target power battery application scenarios. By improving particle size grading technology, the compaction density of materials is effectively improved, and the capacity and ratio performance of materials are guaranteed. The 2024H1, CN-5 series, and YN-9 series achieved sales volume of about 0.0479 million tons, accounting for about 15% of sales.

Binding leading downstream customers, the share of energy storage shipments has increased. The company covers a wide range of downstream customers, and has now established long-term and stable business cooperation with domestic leaders such as Ningde Times and BYD. On the basis of consolidating the stock market, the company is steadily developing other high-quality customer groups. In addition to the two core strategic customers of Ningde Era and BYD, the 2024H1 achieved a year-on-year increase in sales to other customers. At the same time, in the face of rapidly growing market demand in the energy storage industry, the company promptly optimized the product sales structure and seized the development opportunities of the energy storage market. The share of energy storage product sales increased from 28% in 2023 to 33% in 2024H1.

Profit forecast and rating: We expect the company's net profit to be 0.88, 1.443, and 1.882 billion yuan, respectively, in 24-26, -44.3%, +63.9%, and +30.4% compared with the same period last year. As a leading lithium iron phosphate company, the company gave the company a 36-38 times PE valuation in 2024, corresponding to a reasonable value range of 41.76-44.08 yuan, and gave it a “superior to the market” rating.

Risk warning: risk of fluctuations in raw material prices; risk of changes in industrial policy.