\u3000\u30 Chongqing Baiya Sanitary Products Co.Ltd(003006) 47 Shenzhen Fluence Technology Plc(300647) )
Event: the company released the first quarter report of 2022 on April 28. During the reporting period, the operating revenue was 335 million yuan, a year-on-year increase of 161.12%; The operating profit was 402967 million yuan, a year-on-year increase of 1393075%, and the net profit attributable to the parent company was 264074 million yuan, a year-on-year increase of 103582%; Deduct non net profit of 247204 million yuan, with a year-on-year increase of 188518%.
The sharp growth of Q1 profit shows that the inflection point of the company’s growth has come. The company’s Q1 profit attributable to the parent company increased significantly, whether it is the increase of operating profit of nearly 139 times, or the increase of profit attributable to the parent company and non deduction profit of more than 10 times. In fact, it has clearly demonstrated the strong driving force of the inflection point of the company’s performance. Although last year’s base was relatively low, looking at the company’s annual reports over the past three years, the profit in the first quarter has been higher than the total in any one of the past three years. Obviously, the Growth Logic of the company mentioned in our previous report has begun to be realized. The main driving force for the rapid growth of profits is undoubtedly the consolidation of the subsidiary shengbihe and the rotation of the traditional LED and heat dissipation business.
Waste lithium battery recycling and cathode materials have become the main line of the company’s growth. According to the five billion four-year investment plan, annual report, first quarter report and other reports released on the last day before the Chinese new year, waste lithium battery recycling and cathode materials have become the clear main line of the company’s future development. From the exchange with institutions after the release of our in-depth report, the biggest discussion point of Shenzhen Fluence Technology Plc(300647) in the market actually focuses on this: first, some investors do not know much about the operating ability and industrial competitiveness of the subsidiary shengbihe in the field of lithium battery recycling; Second, some investors still have doubts about whether shengbihe can realize the rapid landing and growth of profits in this year’s market environment.
The data performance of the company’s first quarterly report is undoubtedly the best answer to these two questions: Although the report does not clearly disclose the sales and profit details of shengbihe, the company clearly pointed out in the explanation of the reasons for the change of operating revenue growth that “the lithium battery cathode material business was newly added in the reporting period compared with the same period of last year, and the corresponding revenue increased”. Obviously, the consolidation of shengbihe has become the main driving source of the company’s rapid growth. Moreover, from the perspective of order cycle, the material orders in the first quarter were signed in the fourth quarter of last year, and the material prices were also implemented according to the fourth quarter of last year. Since this year, the prices of lithium carbonate, ternary cathode and other materials have increased significantly by more than 50%. It is believed that shengbihe’s profit contribution will be more prominent in the next second quarter.
In addition, it is worth noting that the current shareholding ratio of listed companies to shengbihe is 50.14%. In the parent profit in the first quarter, shengbihe only consolidated half. With the company gradually increasing its shareholding ratio in shengbihe, shengbihe will contribute more to the profits of Listed Companies in the future.
The integration of traditional businesses has achieved initial results and will continue to be promoted this year. The company’s annual report last year provided 117 million yuan for credit and asset impairment, mainly aimed at the goodwill of traditional LED engineering channel business and overdue bad debts. According to the data in the first quarter of this year, the company’s gross profit margin increased to 27.87% and net profit margin increased to 10.70%, which is almost the best performance in a single quarter since the end of 2018. We judge that this is not just driven by shengbihe alone, The contribution of traditional business should also account for a certain proportion. The integration effect of the company in traditional business, especially LED engineering channel end, can be seen in the past two quarters.
In the first quarterly report: “according to the actual operation needs of the company, in order to reduce management costs and fully integrate resources, the company cancelled the secondary subsidiary Hubei Shenzhen Fluence Technology Plc(300647) Intelligent Technology Co., Ltd.” which is obviously a further promotion of integration. We expect that this year, the company will continue to shrink the business scale of LED engineering channel end, spin off and close the subsidiaries with poor performance, which are expected to be unable to create revenue for the company, as well as those small-scale subsidiaries with low resource utilization, integrate personnel, business, channels and other resources, concentrate advantageous resources and reduce operating costs.
The fixed increase in the simple procedure is completed, the first phase of production expansion is on the line, and the capacity increment is just around the corner. In late April, the company completed the bidding issuance of 220 million simple procedure fixed increase, and has announced the relevant results of the issuance inquiry. The 220 million funds raised this time will be used for the production expansion of the phase I sub project of the company’s lithium battery cathode key material production base. If the progress is successful, the phase I project is expected to reach production at the end of this year and the beginning of next year. After reaching the production capacity, it will form an incremental capacity of “processing 11000 tons of waste lithium batteries and electrode materials with an annual output of 15000 tons of precursors, 5000 tons of lithium carbonate and 10000 tons of cathode materials”. Under this incremental production assumption, the company’s sales will more than double that at present, which will become a very important growth support point for the company next year.
Profit forecast and rating: maintain the buy rating. The high growth of the first quarterly report data further verified the step growth hypothesis proposed by our previous in-depth report for the company. The company is a relatively scarce and pure company in China’s A-share market, covering the whole industry chain with the mode of “comprehensive recycling of waste lithium battery materials → precursor / lithium carbonate → cathode materials”. The key advantage of the whole industrial chain coverage mode is that the company can achieve stronger profitability than other enterprises in the industrial chain, especially single processing and manufacturing enterprises, regardless of the rise and fall of upstream mineral material prices. There is no doubt that the treatment of waste batteries and the supply of key cathode materials will have better growth potential in the next few years; In the traditional business field, based on the gradual contraction of LED engineering channel business, the company’s business such as consumer electronics cooling accessories will move towards an expanded development path of multi-dimensional and multi fields. Next, the company has clearly entered the boom year of rapid growth, and raised the company’s profit forecast from 2022 to 2024 to 85 million, 296 million and 632 million yuan (assuming that the company will complete the consolidation of Saint bee and 100% by the end of 2023), The corresponding valuations of the company’s current market value are 37.72, 10.82 and 5.08 times respectively, maintaining the company’s buy rating.
Risk tips: (1) the company’s waste lithium battery recycling and cathode material expansion are not as expected; (2) The price of upstream and downstream materials fluctuated sharply, resulting in changes in the company’s growth assumptions; (3) Traditional LED lighting business dragged down more than expected, resulting in continued losses in local businesses; (4) The development of downstream customers in the heat dissipation industry is not smooth, and the industry competition intensifies.
