The company is a rapidly growing newcomer in anode materials. It has multiple competitive advantages such as technology, production capacity, cost, and customers. It has successfully introduced supply chains for major overseas customers such as LG Chemical and Samsung SDI, which in turn has become an indirect supplier for Tesla's Shanghai factory project; for the first time, coverage has given a rating for increasing holdings.
Key points to support ratings
Anode materials are new and expensive, with equal emphasis on natural and man-made materials. The company is mainly engaged in R&D, production and sales of lithium battery anode materials. The products include natural graphite and artificial graphite, which are mainly used in lithium battery fields such as power, 3C consumer electronics, and industrial energy storage. The company's management has a background in materials from institutions of higher learning such as Tsinghua University and Chongqing University, and has many years of experience in the anode materials industry. Benefiting from the high growth in demand for downstream new energy vehicles, the company's growth was good. The average compound annual growth rates of revenue and profit in 2015-2019 were 49.30% and 70.36%, respectively.
Demand for anode materials is growing rapidly, and the competitive pattern in the industry is relatively good. Natural graphite and artificial graphite are currently the most widely used anode materials industrially. Both have advantages and are suitable for different application scenarios.
The continuous increase in favorable policies is compounded by the acceleration of the electrification process of mainstream car companies. Global sales of new energy vehicles are growing rapidly, driving high demand for anode materials. We expect global demand for anode materials in 2020 and 2025 to be 25,000 tons and 988,000 tons respectively, with an average compound annual growth rate of over 30% over five years. The pattern of the anode materials industry is relatively good. Natural graphite is superior to the strongest, and the artificial graphite echelon is clear.
Multiple competitive advantages are superimposed to accelerate introduction into overseas supply chains. The company's R&D investment has been growing steadily, and the performance of some products has reached industry-leading levels. The company's production capacity is expanding in an orderly manner, with an estimated production capacity of 60,000 tons in 2022, laying the foundation for continued growth in production and sales. The company already has a graphitized production capacity of 3,000 tons, and a new production capacity of 12,000 tons is expected to be put into operation by the end of 2020. Vertical integration is expected to further reduce costs. The company has an excellent customer structure. The main customers include LG Chemical, BYD, Ningde Shidai, Samsung SDI, etc.; in the first half of 2020, LG Chemical became the company's largest customer, accounting for 46% of sales; the natural graphite products supplied by the company were used by LG Chemical for Tesla's Shanghai factory project and became an indirect supplier to Tesla's Shanghai factory.
valuations
We expect the company's earnings per share to be 0.69, 1.40, and 2.13 yuan respectively in 2020-2022, with corresponding price-earnings ratios of 75.4, 37.2, and 24.4 times, respectively; the first coverage gave an increase rating.
The main risks faced by ratings
The impact of the COVID-19 pandemic exceeded expectations; NEV industry policies fell short of expectations; NEV product strength fell short of expectations; demand in the industrial chain fell short of expectations; price competition for anode materials exceeded expectations; the company's production capacity construction fell short of expectations; and the introduction of the company's major customers fell short of expectations.