3Q24 results are in line with market expectations

The company announced 3Q24 results: revenue of 3.81 billion yuan, up 0.7% and 6.5%; net profit to mother of 0.174 billion yuan, up 44.3% and 10.0%; after deducting non-net profit of 0.14 billion yuan, a 2% increase and a decrease of 19.8%; the company's 3Q24 performance was in line with market expectations.

Development trends

Domestic demand for automotive start-stop batteries is under pressure, overseas growth is high, and profits are being pressured by fluctuations in lead prices. Shipments of the company's 3Q24 automobile start/stop batteries were 8.8-8.9 GWH, up 3.5%. By business, domestic 3Q was a low season for automobile demand, and commercial vehicle operations, which combined with production material attributes, were affected by the decline in macroeconomic sentiment. Shipments in the company's support/replacement markets all declined slightly year over year; overseas shipments increased 70% + and continued to increase rapidly as production capacity continued to be released in Malaysia/US factories; we estimate 3Q revenue of about 2.9 billion yuan, the same increase of 4-5%. In terms of profit, lead prices gradually declined in August, and the company was affected by high-priced lead inventories in the short term. Combined, the 3Q operating rate declined, and the 3Q gross margin of start-stop batteries was under pressure. Looking ahead to 4Q24, along with the strength of the “trade-in” policy, automobile demand is picking up and entering the “gold nine silver ten” peak season. At the same time, fluctuations in lead prices have narrowed. We expect the company to start and stop battery shipments, and profits are expected to recover.

Low-voltage lithium batteries continue to be released, which may exceed expectations to reduce losses throughout the year. Driven by sales growth from customers such as Geely, Cyrus, and Chery, the company continued to release 3Q24 low-voltage lithium batteries, and shipped about 0.17-0.18 million units, exceeding 1H24 total, driving revenue growth of 360% + to 0.13 billion yuan +; in terms of profit, along with lithium carbonate price reduction and rapid revenue growth, the company's costs will continue to be optimized and scale effects will gradually be released. We expect 3Q low-voltage lithium batteries to continue the loss reduction trend and exceed expectations throughout the year.

The pattern of recycled lead still needs to be improved, and tax rebates have been reduced due to the policy. Currently, the price of used batteries is still running high, and the profit of the company's 3Q24 recycled lead business declined month-on-month; at the same time, the State Council's “Fair Competition Review Regulations” were officially implemented in August, and local government tax rebate/preferential policies will face review (claims have now been suspended), leading to a reduction in tax rebates for the recycled lead business. Overall, the improvement in profits in the recycled lead business is yet to be strengthened on the recycling side of waste batteries and the clearance of supply-side production capacity.

Stock/equity investment income and exchange earnings increased profits, and operating cash flow improved significantly. Benefiting from the recovery of the stock market, the company's stock investment (Jindalai, etc.) and long-term equity (innovation funds, etc.) achieved a profit of about 43 million yuan + in 3Q24; in addition, 3Q24 financial expenses achieved exchange earnings of about 60 million yuan; increasing apparent profits. The company's 3Q24 operating cash flow was 0.37 billion yuan, which was positive year-on-year.

Profit forecasting and valuation

Considering that there is still uncertainty about the subsequent tax rebate for recycled lead, we slightly lowered the company's 2024 profit forecast by 4% to 0.672 billion yuan, maintain the 2025 profit forecast of 0.957 billion yuan, maintain a target price of 9.5 yuan and outperform the industry rating. The current stock price corresponds to 15.0x/10.5x P/E in 2024/2025, and the target price corresponds to 16.6x/11.6x P/E in 2024/2025, with 10.6% upward space.

risks

Demand for automobiles in China fell short of expectations, mass production of low-voltage lithium battery projects fell short of expectations, and lead prices fluctuated sharply.