Introduction to this report:

Affected by weak overseas demand and increased domestic lithium iron installed capacity, the company's demand for multiple cathodes was relatively sluggish in the first half of '24. Subsequent solid-state batteries and lithium iron phosphate (manganese) cathodes are expected to boost the company's cathode materials business.

Key points of investment:

Maintain an increase in holdings rating. Considering the slowdown in industry growth and increased competition, the company's 24-25 EPS was reduced to 1.24 (-1.90) yuan and 1.41 (-2.23) yuan, and the 26-year EPS was 1.60 yuan. Refer to the comparable company, which gave 1.47 XPB in 2024, and the target price was lowered to 39.43 yuan.

First exploration of solid-state battery industrialization. On August 28, 2024, Penghui Energy officially released two soft-pack all-solid-state battery products. It plans to start pilot R&D and small-scale production in 2025, and officially establish production lines and mass production in 2026. On September 3, Nandu Power stated that the company has been developing solid-state batteries since 2017 and undertook the Zhejiang Solid-State Battery Key R&D Plan in 2020. Currently, the energy density of solid-state battery products can reach 350 Wh/kg, and the cycle life is 2,000 times, and has passed safety tests such as heat boxes and short circuits. On September 11, Mercedes-Benz and American battery startup Factorial Energy announced a partnership to jointly develop a new solid-state battery and expect mass production by 2030. We believe that, driven by increased requirements for battery safety and energy density and downstream demand, solid-state batteries have ushered in development opportunities and are expected to complement the current liquid lithium-ion battery system.

Cathode material supplier for leading customers of card position solid-state batteries. The company has now successfully developed nanoscale solid electrolyte products with high ionic conductivity and high stability; cathode material products have been successfully introduced to high-quality solid-state battery customers such as Huineng, Qingtao, Weilan New Energy, and Ganfeng Lithium Battery, and successfully loaded into first-tier car companies' solid-state models, and shipped hundreds of tons in the first half of 2024. We believe that with the spread of electric vehicles and the development of low-altitude flight, the market demand for the company's solid-state lithium battery cathode materials and electrolytes is also expected to increase further.

Lithium iron phosphate (manganese) meets demand, and profitability is relatively stable. According to Xinyi News data, in the first half of 2024, global multi-material production was 0.479 million tons, up 1.9% year on year; domestic multi-material production reached 0.306 million tons, up 15.4% year on year; domestic lithium iron phosphate production was 0.989 million tons, up 43.7% year on year. Affected by sluggish demand for new energy sources from overseas and the increase in domestic lithium iron installed capacity, the company's multi-materials (including ternary cathode and lithium cobalate) were only 0.0227 million tons in the first half of the year, a decrease compared to 0.0291 million tons in the same period in '23. In terms of new products, the company achieved an output of 0.0133 million tons of lithium iron phosphate (manganese) cathodes in the first half of the year, and the expansion showed initial results.

In terms of profitability, the company achieved a gross profit margin of 13.51% in a single quarter in 24Q2, which remained relatively stable compared to 114.89% in 24Q.

Risk warning: The company's shipments fall short of expectations, and the industrialization of solid-state batteries falls short of expectations.