Desai Battery: The business layout revolves around the lithium battery industry chain. Desai Battery is engaged in R&D and manufacturing of lithium battery power management systems, energy storage cells and SIP package integrated products. The second-level subsidiary Huizhou Lanwei Xinyuan Technology Co., Ltd. specializes in power management systems and packaging integration services for large-scale power batteries, energy storage batteries, etc. 2024H1 achieved operating income of 8.93 billion yuan (+1.52% YoY) and achieved net profit of 0.108 billion yuan (YoY -38.70%), mainly due to the continued decline in energy storage cell market prices. The net loss of Hunan Battery, a holding subsidiary that specializes in energy storage cell business, increased from 0.049 billion yuan to 0.138 billion yuan in the same period last year. The energy storage business achieved sales of 0.986 billion yuan (+313.68%); the SIP business achieved sales of 0.847 billion yuan (including internal sales, +16.08%); and the smart hardware assembly business achieved sales of 0.703 billion yuan (+119.96% year over year).

Consumer batteries lead the market share, and plan the layout of energy storage cells. In the consumer battery sector, the company has focused on lithium battery power management and packaging integration business for more than 20 years, leading the market share. In the field of energy storage batteries, on the basis of focusing on developing lithium battery power management and packaging integration services, the company further planned and laid out the energy storage cell business. The first phase of 6 GWh production capacity was put into operation in 2023. The company's Vietnam factory mainly matches Samsung in the early stages. It is expected that later customers will be more diverse. In addition to smartphone customers, manufacturers such as power tools will gradually be introduced.

Investment in R&D supports next-generation battery technology. The company is in a leading position in the world in terms of technology in the field of lithium battery products such as smartphones, smart wearables, laptops, power tools, vacuum cleaners, and energy storage, and the number of patents is at the forefront of the industry. In terms of next-generation battery technology, the company has technical reserves and mass production capabilities related to sodium-ion batteries, and is currently being shipped in small batches. In terms of solid-state batteries, the company has determined the technical route, and related products are still in the laboratory verification stage.

The progress of the project is progressing steadily, and the first phase of the SIP project has been completed. As of 24H1's Huizhou battery IoT power high-end intelligent manufacturing project progress reached 53.02%, the company's energy storage battery project progress reached 21.42%, and Desai's silicon praseodymium SIP packaging industry project progress reached 62.84%. Among them, the total planned investment of the SIP project is about 2.1 billion yuan, of which the fixed asset investment is not less than 1.5 billion yuan. The main project of the 2024H1 project has been approved and transferred to fixed assets. The company's current SIP revenue is mainly concentrated on lithium battery power management systems, and efforts are being made to expand beyond lithium batteries. At this stage, it is expanding application fields such as IoT modules and vehicle modules.

Profit forecast, valuation and rating: Considering that the company's downstream recovery fell short of expectations, we lowered the company's 2024-2025 net profit forecast to 0.266/0.377 billion yuan (adjustments were -62.43%, -61.53%), and added the 2026 forecast to 0.447 billion yuan. The PE valuation corresponding to the current market value is 38x, 27x, and 23x, respectively. We are optimistic about the recovery of the company's main business and long-term development of businesses such as energy storage cells, and maintain a “buy” rating.

Risk warning: Industry competition further exacerbates risks, downstream demand falls short of expectations, and new product development progress falls short of expected risks.