Event

The company announced on May 10 that the company will set up a joint venture with Xinfeng Lithium Industry. The company plans to invest 141.12 million yuan and hold 49% of the shares, with a joint plan to invest about 900 million yuan to build a "30,000 tons of lithium hydroxide / lithium carbonate project".

Analysis

Invest in lithium resources projects, improve the company's industrial chain layout, and further strengthen the supply capacity of raw materials. The company is engaged in the production of lithium iron phosphate cathode materials. with the rapid development of downstream new energy, it continues to carry out capacity construction, and has successively laid out a number of production bases in Tianjin, Jiangsu, Sichuan, Shandong, Hubei and other production bases to enhance the production capacity of lithium iron phosphate cathode materials. the company's investment in lithium resources will further improve the company's industrial chain layout in the field of lithium iron phosphate cathode materials. The company carries out the capacity layout of the precursor iron phosphate through self-construction and joint venture, which is expected to realize the self-supply capacity of iron phosphate in the second half of the year, while this superimposed on the layout of the lithium resources project is expected to further enhance the company's raw material guarantee capacity and effectively control the production cost of the product.

Xinfeng lithium industry has the resource and technical foundation to accelerate the project landing and help the company to effectively control the cost of lithium iron phosphate: Xinfeng lithium industry is the company's lithium carbonate raw material supplier, with the production technology and process basis of lithium carbonate and lithium hydroxide, and its related parties have the advantage of lithium ore mineral resources located in the EPL7228 mining area in Namibia. According to Baichuan data, Xinfeng lithium industry now has a production capacity of 10,000 tons of lithium carbonate. The 10,000-ton lithium hydroxide capacity will accelerate the landing of the 30,000-ton lithium project in the future and is expected to be put into production in June 2023. As one of the investors, on the one hand, the company will fully enjoy the performance contribution brought by the production and sales of the lithium project, on the other hand, the contract stipulates that 85% of the lithium production capacity of the joint venture company will be first supplied to Longfu and its affiliated companies. and priced at 1% below the market price, while the raw materials are priority to purchase from Xinfeng lithium industry and related parties at a preferential price. Assuming that the 30,000 ton lithium project gives priority to the purchase of 85% of the company's lithium salt, the company's lithium source consumption of more than 100000 tons of lithium iron phosphate will be guaranteed.

Investment suggestion

The company grasps the demand trend of lithium iron phosphate and speeds up capacity construction. with the increase of production capacity, the company is expected to enter the fast lane of development. It is predicted that the company's 2022-2024 net profit will be 768 million yuan, 904 million yuan and 1.006 billion yuan respectively, corresponding to 21, 18 and 16 times of PE, maintaining the "overweight" rating.

Risk hint

The process of building new production capacity is not up to expectations, and intensified competition in the industry has led to the reduction of risks in industrial profits.