Event: on November 25, the company plans to acquire the 85% equity of Dongguan Tengwei Electronic Materials Technology Co., Ltd., held by Mr. Xu Jinfu and other natural persons held by Shanghai Heyin Investment Management Co., Ltd., with a transaction consideration of 382.5 million yuan. After this transaction, the company holds an 85% stake in Dongguan Tengwei. At the same time, with the agreement of all parties, the other party promised that the net profit of Dongguan Tengwei will not be less than 49 million yuan in 2023, not less than 55 million yuan in 2024, and no less than 62 million yuan in 2025. On the basis of the over-fulfillment of the performance commitment, the company's management team can be rewarded in cash, and the reward amount shall not exceed 20% of the price of this transaction.

Acquisition of Dongguan Tengwei, power battery adhesive to add layout. Dongguan Tengwei was founded in 2006 and has been engaged in the subdivision field of power battery adhesive for many years. Its product characteristics include high bond strength, high flame retardant grade, high toughness, high thermal conductivity and so on. Now it has covered Ningde era, China Chuangxin Airlines and many other domestic power battery manufacturers. With the growth of the number of customers, the business growth of Dongguan Tengwei continues to rise, realizing operating income of 133 million yuan and net profit of 37.5787 million yuan (audited) in 2021 and 168 million yuan and 39.7321 million yuan (unaudited) from January to October 2022. The acquisition of Dongguan Tengwei equity will help the company to further realize the layout and integration of the relevant lithium materials industry chain. at the same time, Dongguan Tengwei adhesive belongs to the reactive adhesive type and has synergy with the company's silicone products. this acquisition can also supplement and enrich the company's product line and give play to industry synergy.

The new binder is expected to achieve mass production in 23 years, and the company will accelerate the transformation and upgrade to a platform enterprise of lithium materials. Adhesive is an important part of the strategic transformation of the company to build a platform enterprise of lithium electric materials. The company also launched four lithium electrobinders (TinctiveP124 for LCO/NCM systems, TinctiveT126 for PI positive binders for LFP systems, TictiveK112 for CMC replacement and TinctiveE124 for SBR+CMC substitution), an alternative to NMP and a new packaging adhesive for PACK. At present, the company's new binder has been in the iterative stage of customer verification and product development, and has been supplied to some customers in small batches, and some models are expected to be mass produced in 23 years.

Benefiting from the growth of demand in the new energy vehicle industry, the company performed well in the first three quarters of 22 years. In the first three quarters of 2022, benefiting from the high prosperity of the new energy automobile industry, the price of the company's lithium-ion battery material electrolyte and cathode materials rose. Although the price of raw materials was high, the company relied on the integrated layout of its industrial chain to continuously improve the self-production rate of its raw materials, thus significantly improving the profitability of its main products. In the first three quarters of 2022, the company achieved operating income of 16.429 billion yuan, an increase of 148.06% over the same period last year, and a net profit of 4.36 billion yuan, an increase of 180.65% over the same period last year. Of this total, Q3 achieved an operating income of 6.065 billion yuan in the single quarter, an increase of 107.46% over the same period last year and 16.32% over the same period last year. The net profit reached 1.454 billion yuan, an increase of 88.61% and 3.25%, respectively.

Continue to expand the overall layout of lithium materials recycling industry chain, the leading advantage is significant. The company continues to increase the layout of electrolyte, cathode materials, lithium recovery and other business, and based on the cycle of phosphorus, sulfur, fluorine and chlorine, self-supply of a variety of core raw materials as the core, constantly optimize the product structure and cost range. In terms of electrolyte, the proportion of self-supply of electrolyte electrolyte in the company is close to 100%, and the proportion of additive self-supply led by LiFSI has increased. In August 2022, the company announced a new annual output of 75,500 tons of lithium basic materials construction project, including 50,000 tons / year of lithium difluorosulfonimide, 10,000 tons / year of lithium difluorooxalate borate, 10,000 tons / year of sodium hexafluorophosphate, 5000 tons of solid lithium hexafluorophosphate and 5000 tons of potassium hexafluorophosphate. The construction cycle of the project is 18 months. It is expected to achieve an average annual operating income of 7.869 billion yuan and an average annual net profit of 554 million yuan. This project can effectively enhance the company's long-term competitiveness in the new battery electrolyte formula in the future. In terms of cathode materials, the company's annual output of 300000 tons of iron phosphate project (phase I) has been put into production in mid-October, iron phosphate production is an important part of the sulfur cycle in the company's integrated recycling industry layout, and the by-product ammonium sulfate can be sold as chemical fertilizer. therefore, the company's iron phosphate is in the industry leading position in capacity, process and cost control.

Profit forecast, valuation and rating: the company's acquisition has not been officially completed, and we do not consider the corresponding performance increment for the time being. We maintain the company's profit forecast for 2022-2024, and it is estimated that the company's return net profit for 2022-2024 will be 57.92 inch 65.76 billion yuan respectively. The company has large-scale production capacity planning in the fields of electrolyte and cathode materials. with the subsequent construction / planning capacity gradually put into production, the company as the leader of the new energy materials industry will maintain rapid growth and maintain the company's "buy" rating.

Risk tips: capacity construction risk, lower-than-expected demand, product price fluctuation risk.