Description of the event

German Nano released its 2023 annual report. For the full year, the company achieved operating income of 16.973 billion yuan, a year-on-year decline of 2,466 billion yuan, a year-on-year decrease of 168.74%, and realized non-net profit of 1,671 billion yuan, a year-on-year decrease of 172.06%; after splitting up to the fourth quarter, the company achieved operating income of 2,666 billion yuan, a year-on-year decrease of 67.26%, and attributable net profit of 640 million yuan, a year-on-year decrease of 215.85%. %. The performance fell within the forecast range.

Incident comments

Looking at the whole year, by business: 1) The company achieved sales volume of 214,000 tons of lithium iron phosphate in 2022, an increase of 24.15% over the previous year.

In terms of profit, it is estimated that the profit per ton of cathode materials declined year-on-year for the full year of 2023, mainly due to falling raw material prices and declining capacity utilization due to oversupply and demand in the industry. The company currently has a built production capacity of 295,000 tons, and the capacity utilization rate is 69.54%. The decline in operating rate and the rise in new production capacity are dragging down unit profits to a certain extent. 2) In terms of other business, lithium manganese iron phosphate has now achieved industrial mass production and passed downstream customer verification, and has passed batch certification by some car companies, taking the lead in getting on the bus; in terms of lithium supplements, the company has already passed the verification of core customers and is leading the industrialization process.

Split to 2023Q4, it is estimated that the company achieved a year-on-month decline in shipments of lithium iron materials; in terms of profit, it is estimated that the company's Q4 single-ton profit fell sharply month-on-month, mainly due to large fluctuations in lithium prices, which put pressure on single-ton profits due to mismatches between production costs and sales pricing; on the cost side, the company's Q4 single-ton costs were basically flat month-on-month. In addition, 2023Q4's assets depreciated by 220 million yuan, and fluctuations in raw material prices further affected profits. According to other financial indicators, net operating cash flow inflows of 5.993 billion yuan and 3.439 billion yuan were achieved for the full year of 2023 and the fourth quarter, respectively, and capital expenditure of 1,627 billion yuan and 448 million yuan respectively. Both increased significantly in 23Q4, confirming the continued expansion of production capacity.

Looking ahead, the profit level of the lithium iron industry is at the bottom. As demand recovers, prices stabilize, and supply slows, industry profits are expected to recover steadily and return to a reasonable level. The company's production schedule was significantly restored in March-April, leading to an increase in capacity utilization. Sales continued to improve, and profitability is expected to continue to improve. In terms of new technology, the company's lithium manganese iron phosphate products continue to advance, and lithium supplements are also expected to bring new profit flexibility and continue to be recommended.

Risk warning

1. Market competition increases risk;

2. The risk that demand in the power battery industry falls short of expectations.