3Q24 results are in line with market expectations

The company achieved operating income of 5.661 billion yuan in 1-3Q24, a year-on-year decrease of 12.81%, and realized net profit attributable to shareholders of listed companies of -0.303 billion yuan, an increase of 58.33% over the previous year, and realized deduction of non-net profit of -0.401 billion yuan, an increase of 49.39% over the previous year. Among them, 3Q24 achieved operating income of 2.092 billion yuan in a single quarter, down 0.10% from the previous quarter, achieving net profit attributable to shareholders of listed companies of -81.89 million yuan, QoQ reduced loss of 60.96 million yuan, deducted non-net profit of -0.105 billion yuan, and QoQ reduced loss of 76.978 million yuan. We believe that the company significantly reduced its losses month-on-month, that profits in the fourth quarter are expected to improve further, and the performance is basically in line with expectations.

By business, the sales volume of 3Q24 lubricants/diesel engine exhaust treatment fluid/antifreeze/vehicle maintenance products/lithium iron phosphate was 8719/71719/22675/4794/50257 tons (QoQ -5.2%/-16.3%/-21.2%/+25.8% +5.0%); the average sales price was 18870/1903/5418/2835/32023 yuan/ton (QoQ +12.4%/+8.1%/+23.5%/-31.6%/-4.6%), respectively.

Development trends

3Q24 lithium iron phosphate sales increased month-on-month, and gross margin recovered. According to the company's operating data, 3Q24 lithium iron phosphate sold 50,257 tons (YoY +53.2%, QoQ +5.0%); the average sales price was 32023 yuan/ton (YoY -51.7%, QoQ -4.6%). We believe that the decline in the company's average sales price of lithium iron phosphate is mainly due to the drop in the price of lithium carbonate on the raw material side. The company currently has plenty of orders, and the utilization rate of new lithium iron phosphate production capacity is gradually increasing. The trend of increasing production and sales volume in the third quarter is expected to continue, leading to an increase in market share and an increase in the ability to bargain processing fees, and the profit situation is expected to improve.

The Hong Kong stock listing raised HK$0.5 billion, and the Indonesian factory received a capital injection of US$200 million. On October 30, Lung ?$#@$ Technology was officially listed on the Hong Kong Stock Exchange. Lung ?$#@$ Technology sold 0.1 billion H shares globally, accounting for 15.04% of the company's total shares after the issuance was completed. The total capital raised was about HK$0.55 billion, and the net proceeds were approximately HK$0.495 billion. Additionally, the Indonesian Investment Authority (INA) and other co-investors signed an investment letter of 0.2 billion US dollars with Longpan Technology on October 8 to build the world's largest lithium iron phosphate cathode material manufacturing plant outside of China. We believe that with the company's subsequent financing, cash flow is expected to improve markedly, the overseas lithium iron phosphate market is growing rapidly, and the company is expected to be the first to benefit as a pioneer in lithium iron phosphate going overseas.

Profit forecasting and valuation

Considering the decline in lithium carbonate prices, it will still take time for the lithium iron phosphate industry to reverse losses. We lowered our 2024 net profit forecast of 0.208 billion yuan to -0.315 billion yuan, and the profit of the lithium iron phosphate industry is expected to improve in 2025. We maintain net profit of 0.456 billion yuan in 2025, which corresponds to a P/E of 14.4x in 2025. 4Q24 lithium iron phosphate processing fees are expected to rise, sector expectations are picking up, and the valuation center is increasing. We raised our target price by 25% to 10.6 yuan/share, which has 8% room to rise compared to the current stock price, corresponding to the 2025 P/E of 15.4x, maintaining an industry performance rating.

risks

Overseas demand for lithium iron phosphate fell short of expectations, and lithium carbonate prices continued to decline.