Net profit soared by 2146% in 2021! Lithium battery material leader sells two major businesses

On the evening of January 26th, the leading lithium battery material Cunninghamia lanceolata (600884) issued the "Annual performance Forecast for 2021". According to the forecast, Shanshan is expected to make a net profit of 3.1 billion yuan to 3.39 billion yuan in 2021, an increase of 2146% to 2356% over the same period last year.

At the same time, Shanshan shares are expected to achieve a net profit of 1.72 billion yuan to 1.93 billion yuan after deducting non-recurring profits and losses, an increase of 1.88 billion yuan to 2.094 billion yuan compared with-164 million yuan in the same period last year.

According to the announcement, there are three main reasons for the increase in the annual performance of Cunninghamia lanceolata in 2021 compared with the same period last year:

1. The company fully seizes the market opportunity to accelerate the release of production capacity of the core business, and the overall sales and profitability of lithium materials business are significantly higher than the same period last year.

2. On February 1, 2021, the company completed the delivery of polarizer business in mainland China and incorporated it into the scope of merger. The new business developed steadily and brought high performance contribution.

3. Non-recurrent profits and losses during the reporting period have a great impact on performance, mainly during the period when the company completed the transfer and delivery of 19.6438% of the equity of Hunan Shanshan Energy Technology Co., Ltd. (hereinafter referred to as "Shanshan Energy"), and obtained investment income; and the company re-measured the fair value of holding the remaining equity to the date of loss of control in accordance with enterprise accounting standards, including the investment income in the current period of loss of control.

Vike Lithium noted that last year and this year, Shanshan shares have sold two major businesses.

Transfer of photovoltaic assets and services

On January 14, Hongrun Construction Group Co., Ltd. (hereinafter referred to as "Hongrun Construction") announced that the company signed a "Strategic Cooperation Framework Agreement" with Shanshan shares to acquire photovoltaic new energy assets and businesses that integrate Shanshan shares.

According to the agreement, the two sides intend to complete the cooperation of battery module assets and business by transferring the shares of Ningbo Eureka Solar Energy Co., Ltd. (hereinafter referred to as "Eureka") to Hongrun Construction through Shanshan shares. With the completion of the transfer of Eureka shares, Shanshan shares intend to acquire the shares of Hongrun Construction and become the strategic cooperative shareholder of Hongrun Construction, and it is proposed to recommend a director to each of the acquired Eureka of Hongrun Construction and Hongrun Construction, in order to further promote and support the stable development of Hongrun Construction in the field of photovoltaic new energy business.

It is worth noting that according to the agreement, the scope of Eureka transfer only includes component asset business, while the existing photovoltaic power station asset business is not included in the scope of transfer between the two parties to the agreement, Shanshan shares will be completed before the completion of the above-mentioned equity transfer, complete the divestiture of the power plant assets business from Eureka.

As the first listed clothing company in China, Shanshan shares transformed early, cut into the lithium battery industry in 1999 and entered the photovoltaic industry in 2016. Up to now, the business of Shanshan shares has covered lithium battery materials, photovoltaic, energy management services and other fields.

It has been 6 years since entering the photovoltaic industry, why did Shanshan choose to transfer photovoltaic assets and business this time?

Performance must be one of the reasons. According to the semi-annual report, in the first half of 2021, the net profit of Shanshan's photovoltaic business was 2.176 million yuan, down 87.40% from the same period last year. Shanshan shares explained that the main component products are affected by the sharp rise in the prices of upstream raw and auxiliary materials, the price increase of component terminals is less than that of raw and auxiliary materials, and the gross profit margin of component sales is 8.45 percentage points lower than that of the same period last year.

In addition, public data show that from 2018 to 2020 and the first three quarters of 2021, Eureka achieved revenue of 705 million yuan, 577 million yuan, 687 million yuan and 429 million yuan respectively, and net profit of 67.8404 million yuan, 17.675 million yuan, 1.5758 million yuan and-12.9371 million yuan respectively, declining year by year.

It is worth noting that after six years in the industry, the photovoltaic industry has not become the core business of Shanshan shares, and its performance is even more tepid, with revenue maintained at 600 million yuan to 700 million yuan, with a maximum of 850 million yuan. Net profit also fell from 6000-80 million yuan in 2018 and 2019 to about 32 million yuan in 2020.

It is worth noting that after the disclosure of the news, investors questioned Hongrun Construction on the third-party platform why it wanted to acquire loss-making companies, saying that Shanshan shares were "shedding their baggage". According to media reports, the reporter called the Secret Office of Shanshan shares as an investor, and the staff said: "the company will not do (photovoltaic) any more and will no longer (directly) invest in photovoltaic and energy storage business in the future."

The positive business has been "sold" twice.

If the transfer of photovoltaic assets business is understandable, it is quite puzzling for Cedar shares to sell the positive business one after another in 2021 and this year.

The first sale was in May 2021, when Shanshan announced that it had signed an "equity acquisition agreement" with BASF to agree on BASF's purchase of a 51 per cent stake in Shanshan Energy. After the completion of equity delivery in August of the same year, the shareholding ratio of Shanshan shares to Shanshan Energy decreased from 68.6438% to 49%, making it the second largest shareholder, no longer under control and no longer included in the consolidated statements of listed companies.

On January 6 this year, Shanshan shares announced that it agreed to transfer 100% of the shares of Hunan Yongshan, a wholly-owned subsidiary, to Jixiang, a related party of the company, with a transaction price of 480 million yuan.

It is worth mentioning that because Jixiang shares and Shanshan shares belong to the same actual controller Zheng Yonggang, this transaction constitutes a related party transaction.

From the point of view of the nature of the enterprise, Shanshan Energy was originally the main executor of the lithium battery positive business of Shanshan shares, and it is financially sound, not a loss-making enterprise. With regard to the sale of its stake in the main Shanshan Energy Company, Shanshan explained at the time that the deal was aimed at building the joint venture into a leading global supplier of cathode materials by complementing each other's strengths.

Hunan Yongshan mainly produces lithium carbonate and lithium hydroxide and other products, which are the main raw materials for lithium battery cathode materials. It was originally planned to supply lithium salt and other raw materials for the Chinese fir share cathode business and supporting construction and investment.

The sale of Hunan Yongshan, Shanshan shares said that given that Shanshan energy control has been transferred to BASF, its raw material procurement will also be included in BASF's global supply chain management system, the synergy of the industrial chain is limited. The sale of assets will further deepen the specialized development strategy, focusing on the development of polarizer and lithium battery anode materials.

Focus on negative electrode and polarizer business

In recent years, the profitability of Chinese fir shares has continued to decline. From 2018 to 2020, the company's net profit was 1.115 billion yuan, 270 million yuan and 138 million yuan respectively. After completing the business delivery and consolidation of LCD polarizer in mainland China, as well as the adjustment of non-core business structure, the net profit of Cunninghamia lanceolata shares reached 2.774 billion yuan in the first three quarters of 2021, a year-on-year increase of 899.29%.

In terms of business structure, Shanshan's lithium materials business achieved a net profit of 844 million yuan in the first three quarters of 2021, an increase of 464.97% over the same period last year. Among them, the negative materials business achieved a net profit of 384 million yuan, contributing nearly half.

In terms of negative electrode production capacity, Shanshan has a negative electrode production capacity of 120000 tons and graphitization capacity of 42000 tons, and is building a negative electrode integration base and expanding graphitization capacity. Inner Mongolia Baotou has started the second phase of the project with an annual output of 100000 tons of anode materials, and plans to invest about 8 billion yuan to build an integrated base of 200000 tons of lithium-ion battery anode materials in Meishan, Sichuan.

It is worth noting that Shanshan also has a production capacity of 40, 000 tons of electrolyte and 2000 tons of lithium hexafluorophosphate, and plans to build a new production capacity of 2000 tons of lithium hexafluorophosphate to ensure the safe supply of electrolyte raw materials.

In terms of polarizer business, Sequoia acquired 70 per cent of LG Chemical's LCD polarizer business and related assets, and merged in 2021. In the first three quarters, the polarizer business made a net profit of 886 million yuan.

For polarizer business, its operating company Shanjin Optoelectronics also has its own clear development path planning. The long-term goal is to hit the world number one in the polarizer field in 2024, develop the display related materials business, and achieve annual sales of 18 billion yuan and a market share of 40%.

This year, Shanshan shares of the polarizer business and negative material business have ushered in good news. First, it completed the fixed increase plan of 3.053 billion yuan, which was used to replace the previous acquisition funds of LG Chemical's LCD polarizer business assets, and then the Meishan annual output of 200000 tons of anode material project officially started.

These "good news" will once again boost Cedar shares negative materials, polarizer business together to improve, 2022 performance is expected to continue to grow.