\u3000\u30003 China Zhenhua (Group) Science & Technology Co.Ltd(000733) 00073)
Event: the company announced its annual report performance in 2021. In 2021, the company achieved an operating revenue of 8.258 billion yuan, a year-on-year increase of 159.4%; The net profit attributable to the parent company was 1.091 billion yuan, a year-on-year increase of 183.4%; Deduct non net profit of 824 million yuan, a year-on-year increase of 238.3%; The basic earnings per share is 2.38 yuan / share. Among them, the operating revenue in the fourth quarter of 2021 was 3.086 billion yuan, a year-on-year increase of 167.2%; The net profit attributable to the parent company was 364 million yuan, an increase of 202.2% year-on-year and 30% month on month; Deduct non net profit of RMB 310 million, with a year-on-year increase of 1762% and a month on month increase of 39%.
Both production and marketing are booming, and both volume and price rise. With the smooth production of 20000 tons of new high nickel capacity, the company achieved 49600 tons of production and 47000 tons of product sales, a year-on-year increase of 97%, a record high, of which the shipment of high nickel products continued to increase. With the cost plus pricing method, the company achieved a simultaneous increase in volume and price, and its revenue increased by 159% in 2021.
The cost is controlled properly and the expense rate during the period is reduced. The substantial increase in management expenses is mainly due to the expansion of business scale, the increase of management personnel and the increase of employee incentives. The financial expense rate of the company decreased by 96.3%, mainly due to the decrease of exchange loss. The overall period expense rate was 6.7%, a year-on-year decrease of 3.2pct. During the reporting period, the company completed a private placement of 4.645 billion yuan. The participating investors include Guoxin Investment, upstream and downstream industrial chain investors, as well as overseas well-known investment institutions such as J.P. Morgan and UBS, demonstrating the confidence of major well-known institutions in the future development of the company.
Record high profitability. Although the price of raw materials is mainly due to the soaring price of lithium carbonate, thanks to the smooth cost transfer, the company’s annual gross profit margin remained at 18.2%, only a year-on-year decrease of about 1PCT. It is estimated that the annual net profit per ton exceeds 16000 yuan / ton. If the accrued expenses are restored, especially after the bonus is accrued according to the excess profit distribution scheme, the profit per ton may be close to 19000 yuan / ton, with a record profitability and exceeding market expectations. In addition, the company’s inventory is expected to remain at a reasonable level, which is conducive to subsequent production.
Connect the upstream and downstream industrial chain and achieve far-reaching development. 1) The company plans to establish a joint venture with Finnish mining and its subsidiary Finnish battery to build the first phase of 100000 tons of high nickel power lithium battery cathode project in Finland, of which the first phase of 50000 tons is expected to be put into operation in 2024. Finnish mining mainly produces nickel sulfate and lithium hydroxide. 2) The company plans to establish a joint venture with sk for in-depth cooperation. Sk plans to participate in European projects and has the possibility to explore the Chinese and American markets together. 3) The company and Cngr Advanced Material Co.Ltd(300919) jointly develop lateritic nickel mine in Indonesia. The first phase of the project is a 60000 ton nickel product production line; Jointly build iron phosphate, lithium iron phosphate and related phosphorus resource development and phosphorus chemical supporting projects with a total capacity of no less than 300000 tons / year in Guizhou. 4) The company has established long-term close cooperation with Zhejiang Huayou Cobalt Co.Ltd(603799) in the comprehensive development and utilization of high-quality resources such as nickel, cobalt, manganese and lithium in the upstream. From 2022 to 2025, the company plans to purchase 30 China Tianying Inc(000035) 0000 tons of ternary precursor from Huayou.
Investment suggestion: as the global leader of lithium battery cathode, the company’s product positioning is high-end, with deep reserves of cutting-edge technologies such as high nickel solid state, and high-quality customer structure. The company has opened up the upstream and downstream industrial chain, accelerated the global layout, entered the harvest period of production capacity, operated steadily and achieved good performance in an all-round way. It is estimated that the net profit attributable to the parent company from 2022 to 2023 will be 1.62 billion yuan / 2.29 billion yuan, EPS will be 3.21 yuan / 4.53 yuan, and the corresponding PE will be 23.5 times / 16.6 times, maintaining the “recommended” rating.
Risk warning: the impact of covid-19 epidemic on the industry exceeded expectations; The sales volume of new energy vehicles is lower than expected; Risks of industrial policy changes; Customer expansion is less than expected; The risk that the upstream raw materials increase too much and cannot be transmitted to the downstream; The production capacity was lower than expected.
