Incident: On March 28, 2024, Polyfluoride released its 2023 annual report. The company's revenue for 2023 was 11.937 billion yuan, down 3.41% year on year; net profit to mother was 510 million yuan, down 73.83% year on year; net profit after deducting non-net profit was 471 million yuan, down 74.42% year on year. Corresponding 4Q23 revenue was 3.151 billion yuan, down 10.50% from the previous month; net profit to mother was 47 million yuan, down 75.69% from the previous month.
Comment: Due to changes in the pattern of supply and demand in the NEV industry chain, the company's profit declined year-on-year in 2023.
In 2023, the company's net profit fell 73.83% year on year, and the net interest rate was 5.37%, down 11.00 pcts from the same period last year. The main reason was that the NEV industry chain's supply-demand relationship pattern changed in 2023, competition in middle and upstream materials intensified, and prices of raw materials such as lithium carbonate fluctuated greatly, leading to a decline in the overall gross margin of the product and a decrease in profitability. The company's overall gross sales margin in 2023 was 16.25%, down 14.27pcts from the same period last year. In 2023, the company's financial expenses fell 72.26% year on year, mainly due to an increase in interest income; sales expenses rose 31.90% year on year, mainly due to the expansion of product sales scale with product quality assurance responsibilities, increase in after-sales service fees, and increase in employee remuneration; R&D expenses increased 9.26% year on year.
The company's cash flow changed significantly in 2023. The net cash flow from the company's operating activities in 2023 was $330 million, a year-on-year decrease of 81.17%, mainly due to an increase in deposit to recover due payment of notes payable. Net cash flow from investment activities was -1,570 billion yuan, up 36.69% year on year, mainly due to a decrease in investment in production capacity construction. Net cash flow from financing activities was $3,641 million, up 82.28% year over year, mainly due to increased absorption of investment. The balance of cash and cash equivalents at the end of the period was $4.299 billion, up 127.08% year over year. Accounts receivable increased 60.85% year over year, and the accounts receivable turnover decreased from 10.62 to 7.07 in the same period last year. Inventory turnover increased from 4.81 to 5.72 in the same period last year.
The price of lithium hexafluorophosphate is stabilizing, gradually increasing the production capacity of new energy materials. In terms of new energy materials, the company will ship about 40,000 tons of lithium hexafluorophosphate in 2023, and the company expects to increase by 30% in 2024.
The company expects the current lithium hexafluorophosphate market price to have bottomed out in a phased manner, and is expected to rise steadily throughout 2024. Of the 40,000 tons of lithium hexafluorophosphate production line being built by the company, 10,000 tons of production capacity are expected to be completed and put into operation in 2024; for the new lithium salt LiFSi, the company plans to build a production capacity of 2,000 tons in 2024, and is expected to ship about 1,000 tons.
According to EVtank data, the average price of lithium hexafluorophosphate began to fluctuate downward after its peak in 2022 was close to 600,000 yuan. The large fluctuation in lithium hexafluorophosphate prices was mainly driven by upstream costs and affected by the supply-demand relationship. However, as the downstream new energy industry gradually changed from explosive growth in the past to steady growth, the company expects lithium hexafluorophosphate prices to gradually break up and fall and enter a new stage of steady development. We believe that the competitiveness of industry leaders with cost control capabilities and scale effects may be further strengthened, and industry concentration may further increase, which is beneficial to the long-term development of the company.
The company expands overseas markets and further enhances the competitiveness of the new energy materials business. HFR NEW ENERGY PTE.LTD, a subsidiary of polyfluoride, and Soulbrain Holdings Co., Ltd. jointly invested in the establishment of a joint venture S6F NEW ENERGY Co., Ltd., whose business scope is to manufacture and sell lithium hexafluorophosphate, a global electrolyte plant mainly aimed at SBH. After completion, the project will help the company improve its overseas production capacity layout, effectively meet the supporting needs of downstream customers and overseas market expansion needs, help the company expand the international market, continuously increase its global market share, and further consolidate the company's leading position in the industry.
In terms of electronic information materials, the market share of the subsidiary Zhongning Silicon has increased significantly. In terms of electronic information materials, silane products from Zhejiang Zhongning Silicon Co., Ltd., a subsidiary of polyfluoride, have been mass-supplied in the photovoltaic, panel and semiconductor industries. According to the company's “March 29, 2024 Investor Relations Activity Record”, Zhongning Silicon achieved full production and sales of electronic grade silane in 2023, and plans to increase production capacity by 5,000 tons. The company expects part of its production capacity to be put on the market by the end of 2024. As one of the few domestic silane manufacturers currently entering the four industries of photovoltaics, LCD, semiconductor and coated glass at the same time, Zhongning Silicon has significantly increased its market share in various application segments. Currently, its electronic grade silane accounts for more than 50% of the market in the LCD field, and has established cooperative relationships with leading companies in the integrated circuit industry such as BOE and TSMC in the semiconductor field. At the same time, Zhongning Silicon has gradually introduced specialty gas products such as silicon tetrafluoride and laughing gas to downstream customers, and has also laid out third-generation semiconductor materials such as silicon carbide powder and high-purity fluorine nitrogen mixtures. In the future, it will continue to raise industry barriers and further strengthen its market position.
Furthermore, in the 2023 annual report, the company proposed that in the future, it will focus on overcoming the development of electronic information materials such as high-abundance boron isotope separation. Currently, the company has leading technology. The boron isotope project at the Shandong base continues to advance, fully prepare for the full localization of boron isotope products, promote the development of semiconductor manufacturing, nuclear power industry, and life and health fields, and lead the development trend of the industry. At this stage, customer development and market capacity of this business are in the initial stages of growth, and the impact on the company's performance in the short term is limited.
Investment advice: The company is expected to achieve operating income of 139.13/182.41/23.104 billion yuan respectively in 2024-2026, and realized net profit of 7.64/11.84/1,593 billion yuan respectively, corresponding EPS of 0.64/0.99/1.33 yuan, respectively. The PE multiples corresponding to the current stock price are 22.6X, 14.6X, and 10.8X, respectively. Based on the following aspects, 1) the price of lithium hexafluorophosphate bottomed out in stages, and the company's production capacity of new energy materials such as lithium hexafluorophosphate and lithium difluorosulfonimide increased steadily, which is beneficial to future performance; 2) the competitiveness of the new energy materials sector is expected to be further strengthened; 3) the market share of the subsidiary Zhongning Silicon in various application segments has increased significantly, and the market position will be strengthened in various aspects in the future. We are optimistic that the company's lithium hexafluorophosphate profitability will increase steadily and the market share of silane products will increase, and maintain a “buy” rating.
Risk warning: risk of raw material price fluctuations; downstream demand falling short of expectations; risk of macroeconomic fluctuations; progress of projects under construction falling short of expectations; risk of product and technology updates, etc.