\u3000\u3000 Guizhou Zhenhua E-Chem Inc(688707) (688707)
Event:
Guizhou Zhenhua E-Chem Inc(688707) released the performance express of 2021. The company achieved a revenue of 5.515 billion yuan in 2021, a year-on-year increase of + 432.07%; The net profit attributable to the parent company was 413 million yuan, and the net profit deducted from non attributable to the parent company was 403 million yuan, of which Q4 achieved a revenue of 1.971 billion yuan, a month on month increase of + 35.05%; The net profit attributable to the parent company was 152 million yuan, a month on month increase of + 38.91%. In 2021, the performance exceeded expectations and turned losses into profits, mainly due to the simultaneous increase of the company’s three positive maximum prices.
The product structure was optimized, and the amount of high nickel increased to boost profitability. In 2021, high nickel series 8 was supplied in large quantities, and the sales volume of series 8 with relatively high gross profit margin increased, which improved the profitability of the company while increasing the revenue. In the first three quarters of 2021, the company’s sales revenue of high nickel 8 series NCM was RMB 2.0/4.7/610 million respectively, accounting for 20%, 43% and 42% of the current revenue respectively.
Prepare goods in advance, control the cost of raw materials, and significantly improve the gross profit margin. Ternary pricing is a cost plus model, and the sales price changes with the price of raw materials. The gross profit margin rose rapidly in the first three quarters of 2021. In addition to the pulling effect of high nickel 8 series NCM mass supply, the company also benefited from the rising market price of raw materials. The company prepared goods in advance, and the increase of unit material cost of products was less than that of unit material price. In the future, with the expansion of the scale of raw materials provided by the joint-stock company Hongxing electronics, it is expected to further reduce the cost.
The scale effect is released and the cost rate decreases during the period. From January 2018 to March 2021, the company’s ternary cathode cost composition accounted for more than 80% of the original materials. Manufacturing depreciation and labor usually account for 10% – 15%, and the manufacturing expenses are mainly electricity, etc. The capacity utilization rate and production and sales volume in 2021 are significantly higher than those in 2020, driving the cost reduction and efficiency increase of production and manufacturing links. The period cost rate decreased from 7.9% and 18.7% in 2019 and 2020 to 5.5% in Q3 in 2021.
Profit forecast and investment rating: the increased penetration rate of new energy vehicles drives the rapid growth of cathode demand. As a single crystal leading enterprise, the company’s capacity expansion is expected to drive the improvement of performance. Therefore, we raised its profit. It is estimated that the operating revenue of the company from 2022 to 2023 will be 13.538 billion yuan and 19.943 billion yuan, and the net profit attributable to the parent company will be 765 million yuan and 1.128 billion yuan. The current stock price corresponds to PE of 31.04x and 21.05x, which is rated as “buy”.
Risk tip: the capacity expansion is less than expected, the sales volume of new energy vehicles is less than expected, the price of raw materials continues to rise, the iteration of product technology is less than expected, and there is a great risk of dependence on Contemporary Amperex Technology Co.Limited(300750)
