Electrolytic manganese dioxide industry leader, manganese battery materials and sewage treatment double main industry development. The company is the cradle of domestic electrolytic manganese dioxide, the predecessor of the state-owned Xiangtan Electrochemical Plant was established in 1958. At present, the company's annual production capacity of electrolytic manganese dioxide is 122000 tons, and its production capacity is in the forefront of the industry. it accounts for more than 40% of the major domestic battery customers, and the market share of mercury-free alkaline manganese products is the first. The company expands resources in the upper reaches of the industrial chain, has manganese mining rights in Hunan, is currently resuming production, and Guangxi manganese exploration rights are promoting the conversion of mining; in the field of downstream products, the company's holding subsidiary, Guangxi Lijin, has an annual production capacity of 20,000 tons of lithium manganate products; the company has an annual production capacity of 10,000 tons of manganese tetroxide and high purity nickel sulfate, forming an industrial chain of electrolytic manganese dioxide, manganese tetroxide and lithium manganate. The company has obtained the sewage treatment franchise granted by the Xiangtan Municipal Government, through the subsidiary Xiangtan sewage treatment Co., Ltd., centralized treatment of urban sewage for Xiangtan City, and collected sewage treatment service fees from the government, the business profit is relatively stable.

Electrolytic manganese dioxide and lithium manganate constitute the company's main source of revenue, lithium manganate business growth rate is eye-catching.

The main products of the company's battery materials business include P-type EMD, alkaline manganese type EMD, high performance type EMD, primary lithium manganese type EMD for primary battery production, as well as lithium manganate special EMD, spinel lithium manganate and high purity nickel sulfate for secondary batteries. 2021-2023H1 Lithium manganate shipments are 0.13 hectare 0.43 million tons respectively. The main downstream customers are BYD, Yiwei Lithium Energy, Boliwei and Xingheng Power supply. Guangxi Lijin 2022Q4 has completed the installation of the second 10,000-ton lithium manganate production line with a design capacity of 20,000 tons.

Raw material price fluctuations, lithium manganate business profit pressure, is expected to improve significantly in the second half of the year. The company's 2023Q2 realized revenue of 540 million yuan, yoy + 12.69%, month-on-month + 16.31%; return to the mother net profit of 107 million yuan, yoy-34.74%, month-on-month + 165.33%. The company participates in Hunan Yuneng (with a shareholding ratio of 6.35%), and the investment income contributes a large part of the company's profits. The price of lithium carbonate, the raw material for 2023H1's lithium manganate products, fell sharply, superimposed by a downturn in downstream demand from January to April, resulting in a loss in the company's business. We expect that as the price of lithium carbonate raw materials stabilizes and consumer market demand picks up, the profitability of lithium manganate business is expected to be repaired gradually.

Manganese-based cathode materials such as lithium ferromanganese phosphate, lithium-rich manganese-based cathode materials, sodium electric layered oxides / Prussian blue materials and other manganese-based cathode materials are expected to be used on a large scale to increase the demand for manganese sources. Manganese-based materials have the characteristics of rich manganese source, low cost and high voltage, so it is worth looking forward to in the iterative cost reduction process of battery technology.

Profit forecast and investment suggestion: the company is the leader of electrolytic manganese dioxide and is expected to benefit from the iterative technology of manganese-based cathode materials. We estimate that the company's homing net profit from 2023 to 2025 will be 2.96x4.02 / 522 million yuan respectively, a year-on-year increase of-24.95%, 36.03%, 29.63%, 0.47, 0.64 and 0.83 yuan respectively, corresponding to the PE of 24-17-13, which will be covered for the first time and given a "buy" rating.

Risk hint: the progress of lithium ferromanganese phosphate industrialization falls short of the expected risk, and the performance prediction and valuation judgment fall short of the expected risk.