The company issued a three-quarter report: Affected by industry overcapacity and falling processing costs, the company's performance is under pressure. According to the quarterly report, the company achieved revenue of 1.916 billion yuan (yoy +17.71%, qoq +28.36%) and net profit to mother of -38.7954 million yuan in Q3, continuing losses. Q1-Q3 2024 achieved revenue of 4.339 billion yuan (yoy +17.10%), net profit to mother of -0.144 billion yuan, deducted non-net profit of -0.174 billion yuan. The industry is still in the process of finding its bottom. Leading copper foil companies have continued to lose money, and there is room for further decline in processing costs; production capacity in the industry may accelerate, and the future lithium battery copper foil market share will be concentrated on leading companies to maintain a “gain” rating.

Revenue increased significantly month-on-month, but performance continued to lose money

According to the “Investor Relations Activity Record Form” (2024.09.12), at the company level, looking ahead to the second half of the year, industry demand will be more prosperous than in the first half of the year. The company's shipments in the second half of the year are expected to be higher than in the first half of the year, and high value-added products will continue to be released, so we see a significant increase in Q3 revenue compared to Q2. However, the company continued to lose money in Q3, mainly due to: 1) the industry is still in the process of bottoming out, and the average processing fee level declined further compared to Q2; 2) credit impairment losses in Q3 were 0.008 billion yuan, and asset impairment losses were 0.003 billion yuan.

Processing fees have stabilized, and there is limited room for further decline in the future

According to SMM, as of October 28, 2024, the processing fee for lithium battery copper foil 6 μm/8 μm was 0.0165/0.016 million yuan/ton, respectively, and has remained stable since July 12. Currently, leading copper foil companies have continued to lose money, processing costs may stabilize, and there is limited room for further decline in the future. Production capacity in the industry may be accelerated, and the lithium battery copper foil market share will be concentrated on leading companies in the future.

Eliminate excess capacity construction and continue to develop high value-added products

The company voluntarily disclosed the announcement that it signed the “Letter of Intent Cancellation Agreement” with the Meixian District People's Government of Meizhou City (2024.09.24) to cancel the agreement on a high-end copper foil construction project with an annual output of 0.05 million tons. The company abolished construction of excess production capacity and continued to develop high value-added products. According to the “Investor Relations Activity Record Form” (2024.09.12), in the field of lithium battery copper foil, the company has carried out R&D and sample delivery related to the new anode fluid collector products required for semi-solid state and all-solid-state batteries, such as different technical routes and “low altitude economy,” and has made some breakthroughs. Copper foil used in semi-solid batteries has been supplied in small quantities. In the field of copper foil for electronic circuits, companies are actively deploying high-end application products such as high frequency, high speed, low profile (VLP), very low profile (HVLP), and carrier copper foil around the AI field. Ultra-thin copper foil (UTF) for PCBs has been mass-produced.

Maintain an increase in holdings rating

Based on our assumption that processing fees will be reduced based on market performance, BPS is expected to be 16.70/17.35/18.03 yuan for 24-26, respectively (previous value 16.72/17.41/18.14 yuan). Comparatively, the company's 25-year wind unanimously expected an average PB of 1.29 times. Considering that the company was still losing money, the company was given 0.9 times PB in '25, corresponding to a target price of 15.62 yuan (previous value of 11.7 yuan), maintaining an increase in holdings rating.

Risk warning: Downstream demand in the industry is lower than expected, production capacity output is slower than expected, etc.