Caixin Securities: Grimm focus Lithium Battery Materials Business performance increased in the first quarter

Main points of investment:

The company publishes its 2020 report and the first quarter report of 2021. The company achieved revenue of 12.466 billion yuan in 2020, down 13.15% from the same period last year, and net profit of 413 million yuan, down 43.90% from the same period last year. Of this total, Q4 achieved revenue of 3.822 billion yuan in 2020, down 15.46% from the same period last year, and net profit of 87 million yuan, down 33.96% from the same period last year. The company's 2020 performance is in line with its previous performance, KuaiBao, and the decline in 2020 is mainly due to the fact that its three-yuan precursor business is in the worst-hit areas of Hubei, which has been greatly affected. At the same time, the company's revenue in the first quarter of 2021 was 3.73 billion yuan, an increase of 62.71 percent over the same period last year, down 2.41 percent from a month earlier; and the net profit of returning to its mother was 276 million yuan, an increase of 150.42 percent over the same period last year and an increase of 217.24 percent over the previous year. The company's quarterly results for 2021 are in the median range of previous performance forecasts, in line with expectations, and the performance growth is due to strong orders for ternary precursors and cobalt tetroxide. In its quarterly report, the company expects to achieve a net profit of 471-578 million yuan in the first half of 2021, an increase of 120-170% over the same period last year, that is, it is expected to achieve a net profit of 1.95-302 million yuan in the second quarter of 2021.

Lithium battery materials business has entered a period of rapid development. The company's lithium battery materials mainly include ternary precursors, cobalt tetroxide and cathode materials, with sales of 93800 tons in 2020, down 25.25% from the same period last year. (1) the company's sales of ternary precursors were 41500 tons in 2020, down 30% from the same period last year. Among them, more than 8 series of high-nickel products account for more than 50% of shipments, which is one of the leading enterprises of high-nickel precursors. In terms of production capacity, the company has a production capacity of 130000 tons of ternary precursors by the end of 2020 and is expected to reach 180000 tons by the end of 2021. (2) in 2020, the company sold 15400 tons of cobalt tetroxide, an increase of 54% over the same period last year, of which high-voltage cobalt tetroxide shipments accounted for more than 50%. At the same time, the production capacity of cobalt tetroxide will be expanded to 25000 tons by the end of 2020 and is expected to expand to 30,000 tons by the end of 2021 The company plans to achieve 100000 tons of ternary precursors and 23000 tons of cobalt tetroxide in 2021.

Scramble for the supply of nickel and cobalt resources. As one of the most important precursor companies in the world, it is a top priority to ensure the supply of raw materials. (1) the company and Glencore signed a strategic agreement to extend the supply of cobalt raw materials to ten years, which can guarantee the consumption of cobalt resources (137800 tons of metal) from 2020 to 2029. (2) High nickel and low cobalt is the development trend of ternary precursors, the company and Liqin Resources signed an eight-year supply list (cumulative supply of not less than 74400 tons of nickel metal raw materials and 9300 tons of cobalt metal by-products). (3) at the same time, in March 2021, the company signed a formal agreement with partners to increase the equity stake in the Indonesian nickel resources project to 72%. The Indonesian nickel project is expected to be completed in 2021 and put into operation at the beginning of 2022. It can meet the strategic needs of the company's precursor materials business for nickel resources.

The comprehensive utilization of waste resources is expected to develop rapidly. In 2020, this sector sold 292000 tons of products, an increase of 3.73% over the same period last year. Among them, the comprehensive utilization of scrapped vehicles was 175000 tons (about 87500 vehicles), an increase of more than 16% over the same period last year. In 2021, the company plans to increase the recycling of electronic waste and waste plastics by more than 30%, and the disassembly business of scrapped cars by more than 50% to recover and disassemble more than 170000 vehicles, changing from loss to profit.

Profit forecast: we adjust the company's profit forecast according to the company's 2021 annual report and the first quarterly report of 2021. We predict that the company will achieve a revenue of 239.2 million yuan in 2023 and a net profit of 11.43 billion yuan, corresponding to an EPS of 0.24,0.33,0.43 yuan per share, respectively. Considering that the company is a first-tier ternary precursor material enterprise, and its performance has entered a period of rapid growth, With reference to the valuation level of the new energy vehicle materials industry, the company is given a valuation of 35-39 times PE in 2021, with a reasonable price range of 8.4-9.4 yuan, and downgraded to "cautious recommendation" considering that the company's current stock price is within the target range.

Risk hint: the development of new energy vehicles is not as expected; capacity expansion is not as expected.