Incidents. The company released its report for the third quarter of 2024. Among them, in the third quarter, the company achieved operating income of 0.761 billion yuan, +148.63% year over year; realized net profit to mother was -55.5011 million yuan, +35.61% year over year. From the first quarter to the third quarter, the company achieved operating income of 1.777 billion yuan, +44.09% year on year; realized net profit to mother of 24.1632 million yuan, +155.58% year over year; and net cash flow from operating activities was 0.137 billion yuan, +124.55% year over year.

The trial production of the Anhui Tiantie lithium battery project helps the all-solid-state lithium battery industry and lays the foundation for future new energy business expansion. According to the company's official WeChat account, the total investment of the Anhui Tiantie lithium battery project is 1.2 billion yuan, focusing on the R&D, production and sales of new energy materials for lithium batteries. The products are widely used in various fields such as pharmaceuticals, organic chemicals, rubber, lithium-ion power batteries, all-solid-state lithium batteries, and controlled nuclear fusion.

After the project is put into operation, it will have an annual production capacity of 0.03 million tons of anhydrous lithium chloride, 0.01 million tons of battery-grade lithium carbonate, 0.01 million tons of battery-grade lithium hydroxide monohydrate, and 3000 tons of lithium metal. Therefore, we believe that the completion of this project is expected to strengthen the company's development momentum, indicating that the company will continue to deepen its dual business strategy and inject new impetus into the company's continuous development.

It is proposed to invest in a modified graphite anode material project to improve the product structure of the lithium battery industry chain. According to the company announcement, the company plans to invest in a modified graphite anode material project with an annual output of 0.1 million tons in the Lujiang High-tech Zone. The total investment of the project is about 1.45 billion yuan, of which the fixed asset investment is about 1.2 billion yuan and the working capital is about 0.25 billion yuan.

After the entire project is completed and delivered, it is expected to achieve an annual output value of 2.5 billion yuan. According to the plan, the project is expected to be completed by the end of June 2026.

Graphite anode materials are an indispensable and important component of lithium-ion batteries. Their characteristics such as high specific energy, good stability, and cycle life make them widely used in mobile electronic devices, electric vehicles, energy storage systems, etc. Considering that graphite anode materials are currently the mainstream direction of lithium battery anode materials, they are an indispensable and important part of the lithium battery industry chain. The industry has also shown a rapid development trend in recent years. Graphite anode materials have excellent comprehensive properties, low production costs, rich raw material sources, and broad application prospects.

At Tesla's 2024Q2 earnings conference, Tesla finally officially announced that the Double Ganfa 4680 large cylinder will be mass-produced and will be the first to be applied to Cybertruck. Tesla's dry anodes use natural graphite, and natural graphite anode materials are also more energy efficient and environmentally friendly due to non-graphitized processes, thus meeting the “double carbon” policy and sustainable development goals.

Therefore, the completion of this project will further strengthen the company's strategic layout in the lithium battery industry chain, help the company improve the product structure of the lithium battery industry chain, fully benefit from the development trend of the new energy industry, and enhance the company's profitability.

Investment advice: Considering the long-term demand trend of the rail transit industry and the company's continued strengthening of the lithium battery industry, optimistic about the improvement in subsequent performance, and maintaining a “buy” rating, the company's net profit from 2024 to 2026 is estimated to be 0.151 billion yuan, 0.302 billion yuan, and 0.411 billion yuan, respectively, corresponding to PE of 37 times, 18 times, and 14 times, respectively.

Risk warning: Lithium-related business and market expansion risks; risk of uncertainty in investment agreements; risk of disclosure of company information; risk of railway fixed asset investment falling short of expectations; risk of unobvious corporate business synergy.