Event: On April 25, the company released its report for the first quarter of 2024. 24Q1 achieved revenue of 1,517 billion yuan, -67.67% year-on-year, net profit of 110 million yuan, -74.36% year-on-year, deducting non-net profit of 104 million yuan, -75.49% year-on-year, and EPS 0.22 yuan.

Revenue and gross profit declined due to falling prices in the industrial chain. In 2023, upstream lithium carbonate prices entered a downward cycle, driving cathode material prices to continue to decline. 24Q1 continued to operate at a low level. According to Xinyi Lithium, the average prices of 24Q1 battery-grade lithium carbonate and NCM811 fell 75.12% and 56.05% year-on-year respectively. The company's performance was clearly suppressed by industry trends. Considering that lithium carbonate accounts for about 50% of the cost, the price drop on the product side exceeds that of the cost side, and gross profit is under pressure; at the same time, we expect the company's 24Q1 shipments to remain stable, but due to the current weak demand in high-value overseas markets, the sales share is declining and the competitive situation is becoming increasingly intense. Overall, the company's 24Q1 gross margin fell to the bottom of history by 14.89%, -1.54pcts/-2.11pcts, respectively. Looking ahead, we believe that the company's global customer advantage is still obvious. The capacity utilization rate in the first quarter remained at the TOP3 level. As overseas demand improved and new projects were launched, profitability was still supported. In terms of lithium iron, the company is actively developing domestic and foreign power battery customers. The Panzhihua project will be put into operation in March '24, and is expected to scale up in '24.

Expenses have risen, and profits have bottomed out. The company's 24Q1 four-rate rate was 7.2%, and the R&D rate was +2.7pcts/month-on-month, of which: R&D rate was +2.5pcts/+7.0pcts month-on-month, mainly because the company continued to have high R&D investment and strong rigidity, the decline in revenue was greater and could not be diluted, and there was a significant month-on-month change due to a rebound in R&D expenses in 23Q4. The management rate is the same, +1.9pcts/-0.5pcts month-on-month, mainly due to the official operation of the subsidiary Dangsheng Shudao and payment of consulting fees related to European projects. Furthermore, the company was contributed by exchange earnings, and the financial rate was reduced by 2.23pcts to -2.2%. The company's 24Q1 net profit/ROE fell to the historical bottom of 7.0%/0.84%.

Technology has blossomed more and occupied the high ground of technology. 1) The company continues to make breakthroughs in the research and development of multi-materials such as ultra-high nickel NCM/NCA and NCMA. Through custom design and development of special structural precursors and the application of novel composite doping technology, the product performance is ahead of peers. 2) Lithium iron phosphate (manganese) iron materials are available from low manganese to high manganese products, waiting for production capacity to be implemented. 3) The company is advanced in research and development in the field of solid-state batteries. Dual-phase composite solid-state lithium battery cathode materials and solid-state electrolyte products solve the problem of the solid interface between cathode and electrolyte, leading the industry in technical indicators. It cooperates closely with leading domestic solid state batteries such as Weilan, Qingtao, and Ganfeng Lithium Point. The industry has taken the lead in achieving small-scale shipments and on-board verification in 24 years. 4) The company has also made breakthroughs in the field of battery materials such as sodium electrodes and lithium-rich manganese bases, and is actively seizing the technological high ground for next-generation battery materials.

Accelerate overseas market development layout. In 2023, the company announced plans to build a 500,000 ton new materials industrial base project in Finland in the form of a joint venture. The base has a total plan of 500,000 tons, including 200,000 tons of diverse materials and 300,000 tons of lithium iron phosphate (manganese). The first phase of the 60,000 tons of high-nickel project is expected to be put into operation in 25 years. The implementation of the Finnish project will further accelerate the implementation of the company's globalization strategy and lay a solid foundation for the company to supply global new energy markets such as Europe and America.

Shareholders will increase their confidence and insist on showing responsibility for dividends. On February 8, 2024, the company issued a fixed increase plan. Shareholder Mining and Metallurgy Group pre-increased capital of 800 to 10 billion yuan to support the company's long-term development, which will effectively enhance the company's financial strength and make reserves for accelerating product upgrades and expanding market share. Since its listing, the company has insisted on cash dividends sharing development results with investors, and the dividend distribution rate has stabilized at 14% +, effectively guaranteeing investors' returns.

Investment advice: As the global lithium battery ternary cathode leader, the company is positioned as a high-end product, adheres to a business model of leading technology development, highly collaborative and bidirectional driving innovation with customers, has deep reserves of cutting-edge technologies such as high nickel and solid state, and has actively deployed the lithium iron phosphate market for 23 years. Overseas customers account for a high proportion, leading the industry in profitability and cyclical resistance. The company's global layout is speeding up, and production capacity is gradually entering the harvest period. Considering the risk that the global electrification trend is slowing down and demand falling short of expectations, we have lowered some of our forecasts. We expect the company's 2024/2025 revenue to be 10.820 billion yuan/12.032 billion yuan, net profit to mother of 1,104 billion yuan/1,393 billion yuan, EPS is 2.18 yuan/2.75 yuan, corresponding PE is 22.06 times/17.49 times, maintaining the “recommended” rating.

Risk warning: the risk of policy changes in the NEV industry; the risk that demand for lithium batteries falls short of expectations; the risk that the company's new production capacity falls short of expectations; the risk that new business and customer expansion will fall short of expectations; the risk that upstream raw materials will increase too much and cannot be transmitted downstream; the risk of declining market share due to increased competition in the industry.