The company's operating performance was good in 2022. In particular, profitability recovered beautifully. The gross margins of lead storage and lithium batteries all increased markedly year-on-year. Looking ahead to this year, we expect the company's lead-acid business to continue to grow steadily under the positive expectations of leading two-wheelers this year, and the lithium battery business is expected to rise significantly under large-scale energy storage, achieving the company's second growth.

The operation was steady, and profits recovered rapidly. In 2022, the company's revenue was 41.9 billion yuan, +8.2% year on year, achieving profit of 1.91 billion yuan, +39.3% year on year, net profit of 1.54 billion yuan, +49.0% year on year; in the fourth quarter, the company's revenue was 11.8 billion yuan, -1.1% year on year, achieving profit of 4.8 billion yuan, +59.1% year on year, net profit of 4.6 billion yuan, +74.3% year on year. The company's operating performance was good throughout the year. In particular, the return to profitability exceeded expectations, and new and old businesses increased in parallel, so a second increase can be expected.

The lead-acid business remained steady, and energy storage led to a rise in lithium batteries. According to the company's 2022 annual report, in terms of lead-acid, in 2022, the company's lead-acid battery revenue was 36 billion yuan, +11.4% year on year. The company's lead-acid performance was good in the year of the pandemic. Furthermore, in 2022, the company's lead-carbon battery revenue was 170 million yuan, +238.6% year on year. The growth rate exceeded the energy storage industry as a whole, and Changxing Taihu Energy Valley signed a three-year lead-carbon purchase agreement with the company, planning to purchase no less than 30 GWh in three years. In terms of lithium batteries, the company sampled 180Ah and 280Ah batteries in 2022, achieving lithium battery revenue of 1.64 billion yuan for the whole year, +64.9% over the same period last year, including 640 million yuan for lithium electric two-wheelers and 560 million yuan for energy storage. In terms of other new businesses, hydrogen fuel cell revenue is 64.1 million yuan, and the Shuyang base company with an annual production capacity of 3,000 fuel cell systems and components is expected to start production this year, and has continued to deepen cooperation with Xiamen Jinlong, Gerun Shidai, and Guohong Hydrogen Energy. In addition, the company has built a 300MW sodium power pilot production line, and the number of battery cycles has exceeded 2000 times.

The company's profitability has been restored, and investment in R&D and employees has been increased. In 2022, the company's gross margin was 18.6%, +3pcts year on year. Among them, the gross margin of lead-acid batteries was +2.6pcts year on year, and the gross margin of lithium batteries was +2.8 pcts year on year, mainly benefiting from some price increases+scale effects. In 2022, the company's sales/management/finance expense ratio was 3.0%/2.7%/0.1%, respectively, compared to +0.1/0.7/0pct. The overall change was not significant. The increase in management expenses was mainly due to the increase in employee remuneration. In 2022, the company achieved a net profit margin of 4.6%, +1.0pct over the previous year, a significant increase, mainly driven by an increase in gross margin.

Risk factors: Affected by the local epidemic, lead-acid battery market demand fell short of expectations; the continued rise in upstream energy storage costs such as lithium carbonate caused energy storage costs to fall short of expectations, which in turn led to lower energy storage economics than expected; the company's lithium battery production capacity was put into production lower than expected, and target production capacity was difficult to achieve; the company's core technology and talent were lost, and R&D patents were at risk of being leaked; the company's hydrogen fuel cells are still in the R&D and testing stage, and the commercialization rate may be lower than expected.

Profit forecast, valuation and rating: The company's lead-acid+lithium battery two-wheel drive, lead-acid business progressed steadily, the lithium battery business started a sharp increase, and energy storage accelerated. The company's 2023-2025 net profit forecast for 2023-2025 was slightly adjusted to 22.69/26.83/3021 billion yuan, corresponding to the EPS forecast of 2.33/2.76/3.11 yuan (the original forecast was: 2023-2024 was 2.48/2.97 yuan, 2025 was the new forecast), and the current price corresponds to 15/13/11 times PE. The company's lead-acid business has bottomed out and rebounded, and new businesses such as lithium battery energy storage are expected to release production capacity and start a second increase. Maintain the company's “buy” rating.