1H23's performance fell slightly short of our expectations
The company announced 1H23 results: 1H23 achieved revenue of 12.94 billion yuan, -7.1% year-on-year, net profit of 4.1 billion yuan, and -39.3% year-on-year, slightly lower than our expectations. Mainly due to a fire in the cobalt production line workshop, the cobalt trioxide business lost 112 million yuan, and the Green Cycle was affected by a decline in fund subsidies for the entire electronic waste treatment industry, with losses of 60 million yuan, dragging down the company's performance.
Development trends
The new energy materials business increased steadily: 1H23's new energy battery materials business revenue was -7% year-on-year to 9.757 billion yuan, with a revenue contribution of 75.4%. 1) The revenue of the 3rd Precursor was +0.46% year-on-year to 7.552 billion dollars, with a year-on-year shipment volume of +7.75% to 711,000 tons, ranking in the top two in the global market. Among them, high-nickel products of the 8-series and above accounted for more than 80% of shipments, the 9-series ultra-high nickel products accounted for more than 62% of shipments, and the product structure continued to be upgraded with high nickel. 2) With 3,053 tons of cathode materials sold, Panasonic's PPES power battery project has made substantial progress. 3) Cobalt tetroxide sold 4,000 tons, revenue was -75% year-on-year to 514 million yuan, and net profit was -112 million yuan, which dragged down performance in the first half of the year, mainly due to a fire in the cobalt production line workshop and the decline in cobalt prices in the first half of the year. Looking ahead, the company indicates that in 2023, shipments of ternary precursors and cobalt tetroxide would reach 180,000 tons and 13,000 tons respectively.
The volume of battery recycling business increased: 1H23 urban mining business revenue was -6% year-on-year to 3.182 billion yuan, with revenue contribution of 24.6%. Among them, the total amount of recycled and graded power batteries increased by more than 40% year-on-year to 12,900 tons (129GWh), accounting for 10% + of the amount of power batteries scrapped in China, and achieved revenue of +58% over the same period to 404 million yuan. The company indicated that the annual battery recycling volume would reach 30,000 tons and achieve sales revenue of 1.5 billion yuan. In addition, the company has initiated the construction of a comprehensive recycling production line with 10,000 tons of lithium waste. Within the year, the production capacity of battery-grade lithium carbonate will reach 10,000 tons/year, and the battery-grade lithium hydroxide production capacity will reach 5,000 tons/year, which will be well connected to the targeted cycle of mainstream domestic battery factories.
Nickel resources have become a new profit growth point: 1H23 Indonesia's Qingmeibang nickel resource project has delivered ~ 10,300 tons of nickel metal MHP; the second phase of the project is fully under construction, with a planned total production capacity of 123,000 tons of nickel metal. The company has guided Indonesia's nickel resources to produce 26,000 tons of nickel throughout the year. We believe it is expected to become the company's new profit growth point.
Profit forecasting and valuation
Considering that the fire in the 1H23 cobalt production line workshop affected shipment volume and unit profit, we lowered the net profit for 23/24 by 37%/26% to 14.2.1 billion yuan; the company is currently trading at 23/16 x 23/24 price-earnings ratio.
The company's performance is disrupted by production and is under pressure in the short term. Considering that shipments of precursors in the third century have continued to grow rapidly and that the volume of nickel resource projects can be expected, we lowered the target price by 11% to 8.5 yuan, corresponding to the 31/21x 23/24 price-earnings ratio and 32% upward space, maintaining an outperforming industry rating.
risks
The release of production capacity fell short of expectations, and market sales prices fluctuated.