Company announcement: In the first three quarters of 2024, the company achieved revenue, return to mother, and deducted non-net profit of 11.3 billion yuan, 0.116 billion yuan, and 0.089 billion yuan, respectively, with year-on-year declines of 39%, 81%, and 84%, respectively.

Q3 The results exceeded expectations. The company's Q3 net profit was about 0.106 and 0.0925 billion yuan, respectively, up 123% and 168% month-on-month, exceeding expectations. It was mainly due to the rapid month-on-month increase in shipments of Q3 ternary materials. Shipments were about 0.035 million tons, an increase of about 33% month-on-month. At the same time, the volume of overseas customers increased, and unit profit was also recovering.

Three-way cathode business analysis. It is estimated that the company shipped about 0.035 million tons in Q3 2024, up 25%/33% month-on-month, exceeding the industry's growth rate. The company invested about 46 million yuan in strategic businesses such as Q3 precursors, lithium manganese, and sodium electricity. After excluding strategic business investment, the ternary cathode business made a profit of 0.165 billion yuan in Q3. The profit per ton is estimated to be about 0.0047 million yuan/ton, and the profit has clearly recovered. Mainly in Q3, overseas customers began to grow, and the share of overseas customers increased to 20%, which led to a significant recovery in unit profits. Currently, the first phase of the Korean factory is 0.02 million tons, which is expected to gradually be fully produced in Q4. Next year, the second phase of the 0.04 million ton plant in Korea will also be completed. The share of overseas customers is expected to increase further. It is expected to increase to 50% in the medium to long term, and overseas customers may be higher than domestic customers in terms of processing fees, business terms, and order stability.

Accelerate the expansion of new products and new application fields. The company has a forward-looking layout in the field of solid-state batteries. In 2022, it announced in-depth cooperation with companies such as Ningde and Weilan on solid-state battery materials. Currently, the company's Ni90 high-nickel products have begun to supply Weilan New Energy 360Wh/kg semi-solid state battery systems, officially applied to three models including the NIO ET7; the company's forward-looking layout of the solid-state battery industry keeps pace with the continuous iterative progress of leading battery companies. The company's solid state electrolyte shipments have reached tens of tons, and sulfide electrolytes have also achieved kilogram level shipments. In addition, in order to match the launch of 4,680 large cylindrical battery products, the company has shipped more than 0.02 million tons of ultra-high nickel 9 series products in the first three quarters of this year, and the ternary product structure has been further optimized. In addition, the company is also increasing its investment in lithium manganese, sodium electricity, and precursors, which are expected to pay off in the future.

Investment advice: The company took the lead in large-scale mass production of NCM811 in China, and continues to lead the market share of high-nickel products. In 2023-2024, the company's production capacity in Korea began to climb, and overseas customers landed large orders. At the same time, the company continued to accelerate the expansion of production capacity in South Korea, Europe, and North America. With its ability to independently design construction plans and equipment, the construction cycle and investment amount were lower than those of overseas peers, and the profit center is expected to rise. In addition, the company has accelerated the expansion of new materials such as solid-state batteries, lithium manganese, and sodium electricity, and cooperated closely with leading customers, all of which are in a leading position in the industry. Maintaining the “Highly Recommended” rating, the company has increased its investment in various new materials fields. Currently, the non-Sanyuan division still has certain losses. The profit forecast is adjusted. The net profit for 2024 and 2025 is expected to be 0.266 and 0.72 billion yuan.

Risk warning: Production in the NEV industry is sluggish; the progress of product structure upgrading is lower than expected; capacity construction and new product promotion are lower than expected