On May 20, Gem Co.Ltd(002340) ( Gem Co.Ltd(002340) , SZ) held the annual general meeting of shareholders. Xu Kaihua, chairman of the company, said that Gem Co.Ltd(002340) mainly relies on ternary precursors to make money, and the gross profit margin is significantly higher than that of peers, because the company has a long (industrial) chain, starting from recycling.
Xu Kaihua also said that the waste recycling business can not earn a lot of money. With the same investment, the output value created by the “manufacturing end” is much more than that of the “scrap end” (referring to the waste recycling end). However, Xu Kaihua also said that the waste recycling industry is not a cyclical industry, but an industry with sustained and stable growth, “with a solid chassis”.
At present, many retired batteries still flow into small workshops, and many power battery recycling enterprises have the problem of idle production capacity. How long will this problem last? Xu Kaihua told the daily economic news at the shareholders’ meeting that the company believes that this “disorder” will last for up to one year.
It is understood that in the first quarter of this year Gem Co.Ltd(002340) recovered 3407 tons of power batteries, with a year-on-year increase of 341%, and the echelon utilization was 0.42gwh, with a year-on-year increase of 111%.
Recycling business is not profitable enough, but the “chassis is solid”
“Excluding waste (recycling) assets, you will find that our ROE (return on net assets) is very good.” Xu Kaihua said at the annual general meeting of shareholders.
In 2021, Gem Co.Ltd(002340) roe was 6.72%, which was at a relatively low level among listed companies. Why did this happen? Xu Kaihua said that this is because half of the company’s assets are “scrapped”.
According to Xu Kaihua, the waste recycling industry can’t make a lot of money. For example, a 35 inch TV may be worth 2000 yuan at the manufacturing end and only 25 yuan at the scrap end. For another example, in the manufacturing end, the price of a computer may be 5000 yuan, and in the scrap end, it is only 25 yuan.
The PPT displayed by Xu Kaihua shows that the manufacturing end is “value recovery, is increment”, and the scrap end is “residual value recovery, is decrement”. The value of TV sets, mobile phones, computers and automobiles in the PPT is 345 times that in the scrap end on average. In other words, the scrap end will generate 20 billion sales and may have to deal with 7 trillion industrial consumer goods.
At the same time, Xu Kaihua said that the investment in disposing of computers (production lines) will not be smaller than that in installing computers (production lines). With the same investment, the output value created by the manufacturing end is much more than that of the scrapped end.
However, although the input-output of the waste recycling industry (scrap end) is relatively low, Xu Kaihua still believes that it is the “chassis” of the company. In his opinion, the company’s waste recycling business is “body”, while the battery material business is “head”, “if you can’t leave your body, leave your head, it won’t live”.
Xu Kaihua also said that the waste recycling industry is not a cyclical industry, but an industry with continuous stability and growth, “solid chassis”.
According to Xu Kaihua’s introduction at the shareholders’ meeting, in the first quarter of 2022, Gem Co.Ltd(002340) ‘s waste power battery recycling business has seen a large increase in revenue, with revenue reaching 87.055 million yuan, a year-on-year increase of 288%, power battery echelon utilization of 0.42 GWH, a year-on-year increase of 111%, and revenue recovery of 3407 tons, a year-on-year increase of 341%.
However, the flow of retired power batteries into small workshops still exists at present, which is also a great challenge for power battery recycling enterprises.
Because the disposal right of retired power batteries is in the hands of vehicle owners, and small workshops often do not pay enough attention to environmental protection and safety, and the related costs are lower, they can “steal” retired batteries at a higher price. Therefore, the capacity utilization rate of many power battery recycling “regular army” is low. How long will this state of “disorderly competition” last?
Xu Kaihua replied to the reporter of the daily economic news that when the company disposed of (waste) household appliances ten years ago, electronic waste was also “disorderly” and collected everywhere. Later, after ten years of development, household appliances (recycling) were completely standardized.
“We believe that this disorder can last up to one year. When it finally returns to the responsibility of the depot (referring to the depot’s responsibility for the recovery of retired power batteries), it has a strict certification system.” Xu Kaihua said.
Rely on precursors to make money, layout high nickel, and improve gross profit margin
What does Gem Co.Ltd(002340) rely on to make money at present? Mainly rely on ternary precursor business. In 2021, Gem Co.Ltd(002340) ternary precursor products achieved a revenue of 9.424 billion yuan, a year-on-year increase of 205.39%, and the proportion in the total revenue increased from 24.75% in 2020 to 48.83%.
Behind this is the upgrading of Gem Co.Ltd(002340) from waste recycling to new energy material manufacturing. In 2016, Gem Co.Ltd(002340) waste recycling business accounted for 73.48% of revenue, and battery materials business accounted for only 26.52%. However, by 2021, the two major businesses will “switch between primary and secondary”. The proportion of battery material business revenue has reached 70.84%, while the proportion of waste recycling business has fallen to 29.16%.
Xu Kaihua said at the shareholders’ meeting that now the company has realized “whole industry chain connectivity”. Gem Co.Ltd(002340) is an indispensable material supplier for global car factories and battery factories.
It is understood that in 2021, the Gem Co.Ltd(002340) ternary precursor business achieved a revenue of 9.424 billion yuan and a gross profit margin of 20.52%, which is at a high level in the same industry. In 2021, the gross profit margin of Zhejiang Huayou Cobalt Co.Ltd(603799) ( Zhejiang Huayou Cobalt Co.Ltd(603799) , SH) ternary precursor products was 15.19%, and that of Cngr Advanced Material Co.Ltd(300919) ( Cngr Advanced Material Co.Ltd(300919) , SZ) ternary precursor products was 12.26%.
Why is the gross profit margin relatively high? Xu Kaihua said that Gem Co.Ltd(002340) has a long (industrial) chain. Starting from recycling, the gross profit margin also includes the profits of the chemical system (referring to the production and manufacture of ternary precursor raw materials through the chemical system).
At the same time, in order to further improve profitability, Gem Co.Ltd(002340) ternary precursor business is also developing towards “high nickel”. Xu Kaihua said: “( Gem Co.Ltd(002340) ) it mainly makes high nickel, not compared with scale, technology and quality. In the future, we should not compare with others. Second, we should compare the core of products and make high-grade products.”
It is understood that according to the different proportion of nickel, cobalt and manganese, the ternary precursors are divided into ncm622 (the proportion of nickel, cobalt and manganese is 6:2:2), ncm811 and other different types. Ncm622 is called “6 Series”, NCM “811” is called “8 series”, and so on.
In the previous online performance briefing, Xu Kaihua said that in 2019, the shipment of Gem Co.Ltd(002340) 8 series and 9 series ternary precursors was 15351 tons, accounting for 25.56% of the company’s total shipment of ternary precursors. In 2021, the shipment of the above products was 54885 tons, accounting for 60.29%.
By 2022, the trend of “high nickel” will continue. At the annual general meeting of shareholders, Xu Kaihua said that the shipment of Gem Co.Ltd(002340) ternary precursors in the first quarter of 2022 was 30681 tons, including 17513 tons of products of 8 series and above, accounting for more than 57%. According to Gem Co.Ltd(002340) estimates, the annual shipments of 8 series and above products will account for more than 73% in 2022.
It will not “over” make nickel in order to ensure the safety of resources
At this shareholders’ meeting, Gem Co.Ltd(002340) also disclosed the initial purpose and future planning of the company’s layout of Indonesia nickel resources project.
In 2018, Jingmen Gem Co.Ltd(002340) new materials Co., Ltd., a subsidiary of Gem Co.Ltd(002340) and Guangdong Bangpu Recycling Technology Co., Ltd., which is controlled by Contemporary Amperex Technology Co.Limited(300750) signed relevant agreements and established a joint venture qingmeibang new energy materials Co., Ltd. (hereinafter referred to as “qingmeibang”) to distribute nickel resources in Indonesia. The financial report of 2021 shows that Gem Co.Ltd(002340) has an indirect shareholding of 72% in qingmeibang.
Why layout Indonesia’s nickel resources?
Xu Kaihua said that in the past, the company made nickel because (the company) did not have nickel, “nickel is for the safety of resources”, so it is not impossible to buy nickel.
At the same time, he also said that the downstream (customers) of the company can see the security of the company in nickel resources and feel that the supply of precursors of the company is stable.
So, how far will Gem Co.Ltd(002340) the layout of nickel resources reach?
“Whether we earn money for nickel or (battery) materials, we must earn money for materials. If we earn money for nickel, we will become a mining company, not a new material manufacturing company,” Xu Kaihua said
Therefore, Xu Kaihua said that the company will not take nickel as a “value embodiment”, will not “do too much nickel”, and will do some and buy some. The company will expand the recycling (business), which is the competitiveness. The annual output of nickel is 60000 to 80000 tons.
Xu Kaihua said that the “high nickel” is irreversible. In the next few years, there must be a shortage of primary nickel. The price is between 16000 US dollars and 18000 US dollars / ton, but it will not be too high. If it exceeds 20000 US dollars / ton, it will be abnormal, which is speculation.
“Don’t take this price seriously now. It’s true if it’s less than 20000 US dollars / ton. Look at it like this.” Xu Kaihua said.
