Core viewpoints
Shipments of core products continue to grow, and the epidemic causes price fluctuations, which is a drag on performance. The company achieved operating income of 552 million yuan in the first half of 2020, down 5.68% from the same period last year, and its net profit was 16.434 million yuan, down 68.27% from the same period last year. Under the dual influence of the epidemic and Sino-US friction, the company's operating income has basically remained stable, while the company's product competition has further expanded, prices have declined to varying degrees, and it is difficult for the cost side to keep up with the decline in product prices. as a result, the scale of profits has dropped sharply compared with the same period last year.
The output of lithium manganate increased compared with the same period last year, manganese sulfate prices were depressed and production was actively reduced, and the overall performance of lithium materials business was stable. The company shipped 37100 tons of electrolytic manganese dioxide, unchanged from the same period last year, but the price decreased by 11.39%; lithium manganate was in strong demand, with shipments of 8500 tons, an increase of 33% over the same period last year, but the price decreased by 20.5%. At the same time, due to the low price of high-purity manganese sulfate, the company took the initiative to reduce production. Benefiting from higher prices, sewage treatment business achieved positive growth compared with the same period last year, with 47.2 million tons of sewage treated in the first half of the year, with a gross profit margin of more than 60 per cent. During the reporting period, the gross profit margin of the company's lithium battery materials declined to varying degrees, and it is expected that in the second half of the year, with the continuous recovery of downstream demand, product prices will rise steadily and profitability will continue to recover.
The participating company Yuneng New Energy Iron Lithium cathode continues to release volume, the price downward cycle ends, and profits enter a period of stable growth. In the case of a sharp drop in prices, the participating company, Yuneng New Energy Iron Lithium cathode Materials, achieved an income of 250 million yuan, an increase of 13% over the same period last year, with an estimated shipment size of about 6900 tons (calculated at an average price of 36,000 yuan per ton) and a net profit of 19 million yuan. The company's downstream customers are mainly Ningde era and BYD, Ningde era supporting Tesla, Inc. iron lithium version has entered the recommended catalog, the second half of the year is expected to release; and BYD blade battery has been loaded with their own pure electric models on a large scale, we believe that as more iron lithium passenger models appear on the market, the company's iron lithium cathode material will continue to release, profitability will enter a period of stable growth.
Financial forecasts and investment suggestions
Affected by price fluctuations, we downgrade the price forecast of the company's lithium materials products, and estimate that from 2020 to 2022, the operating income will be 1.235 billion yuan (the original forecast value is 1.61 billion yuan), and the net profit will be 0.78 billion yuan (170 million yuan). (the original forecast value is 170 million yuan). We believe that the impact of the epidemic on the company is only reflected in the short term, and the company's profitability is expected to continue to recover next year and the year after next. According to the company's average valuation of 43 times in 2021, we will adjust the company's target price to 9.03 yuan and maintain the buy rating.
Risk hint
The investment of new production capacity is not up to expectations; the downside risk of product prices; and the risk that the demand for lithium manganate does not meet expectations.