Shenyin Wanguo: give Shanshan shares a target market capitalization of 48.9 billion yuan to upgrade to "buy" rating

The world's leading integrated supplier of lithium-ion battery materials, and polarizer assets to help turn losses into profits. The company takes the new energy business as the core, the layout of the upstream and downstream industrial chain, lithium battery materials are now the company's main source of revenue, its cathode materials, anode materials and electrolytes are in a leading position in the industry. In 2020, the company achieved a total operating income of 8.216 billion yuan, down 5.35% from the same period last year, and a net profit of 138 million yuan, down 48.85% from the same period last year. In the first quarter of 2021, the company achieved an operating income of 3.999 billion yuan, an increase of 227.17% over the same period last year, and a net profit of 302 million yuan, compared with-84 million yuan in the same period last year. The rapid growth in performance was mainly due to the increase in production and sales of lithium materials during the reporting period, and the contribution of the LCD polarizer business to a net profit of 193 million yuan.

Acquisition of LGC polarizer assets, outstanding technical and customer advantages. Polarizer is one of the core materials of liquid crystal display module, which can control the polarization direction of specific light beam, and the cost in TFT-LCD is about 7%. In recent years, with the gradual promotion of large-size applications of LCD, the demand for polarizers has further increased. It is estimated that the global polarizer market will reach US $15.3 billion in 2023, an increase of 26% compared with 2019. At the technical level, the polarizer industry in mainland China is still in its early stage of development, but with the promotion of panel localization, global polarizer production is gradually transferred to China. The company started the asset acquisition of LG chemical polarizer in 2020 and completed the delivery of the transaction in mainland China in February 2021. The assets acquired by the company have a number of 2300 mm and 1490 mm production lines, which have higher cutting efficiency and are more suitable for the production of 65-inch and 75-inch panels on the 10.5th generation line, in line with the trend of large panel size. At the same time, the underlying assets have established long-term and in-depth cooperative relationships with LG display, the world's leading LCD manufacturer, BOE, Huaxing Optoelectronics, Xia Pu Qunchuang Optoelectronics, etc., and strengthen customer stickiness by setting up nearby factories to supply goods.

The new energy car maintains a high boom, and the company's negative materials deepen the integration of the industry. With the rapid growth of production and sales of new energy vehicles in China, the increase in the carrying capacity of bicycles helps to increase the installed capacity of power batteries, leading to an increase in the demand for lithium-ion materials. The company's artificial graphite and mesophase carbon microsphere technology is in the leading position in the industry, and the domestic negative electrode production accounts for 16.5% in 2020, ranking first in the echelon.

The company has six production bases in Shanghai, Ningbo, Huzhou, Chenzhou, Ningde and Inner Mongolia, with a production capacity of 120000 tons and a total planned production capacity of nearly 200000 tons by the end of 2020. at the same time, efficiency and cost reduction was achieved through the Baotou integration project; sales of negative materials reached 58977 tons in 2020, an increase of 24.47% over the same period last year, and sales in overseas markets increased by 53% over the same period last year with high-capacity fast-filling materials with leading performance.

The positive electrode strengthens the overseas layout, and the performance of the electrolyte is excellent. The company's cathode materials cover all kinds of lithium cobalt, ternary materials, lithium manganate, ternary precursors, etc., single crystal ternary materials and 811 high nickel ternary materials are shipped in bulk, and the security of upstream key raw materials supply is improved by buying shares in Altura and Luoyang molybdenum industry. Sales of cathode materials reached 30048 tons in 2020, an increase of 38.44 percent over the same period last year. Ningbo New Energy, a wholly owned subsidiary of the company, and Yongxiang Investment, a wholly owned subsidiary of the company, intend to sign an "equity acquisition agreement" with BASF to accelerate the integration of positive business and seize the global market through joint ventures and cooperation, so as to promote its overseas market development and customer structure optimization. The company's electrolyte products have excellent performance, further optimize the customer structure, and achieve sales of 19905 tons in 2020, an increase of-4.77% over the same period last year.

Maintain profit forecast, upgrade to "buy" rating: the company is the leader of positive and negative lithium materials, the acquisition of LGC the world's first polarizer assets. For the valuation of Cunninghamia lanceolata shares, we split the polarizer, lithium materials plate to give analysis. Polarizer plate is expected to contribute to the net profit of 888 million yuan in 2021, reference industry comparable company 2021 average PE valuation of 28 times, the corresponding company polarizer plate to give 2021 market value of about 24.9 billion yuan; lithium material plate is expected to contribute to home net profit of 358 million yuan, reference industry comparable company 2021 average PE valuation of 67 times, the corresponding company lithium material plate to give 2021 market capitalization of about 24 billion yuan. In total, we give the company a target market capitalization of 48.9 billion yuan, which is 41% higher than the total market capitalization of 34.7 billion yuan on June 25, 2021. Upgrade to "buy" rating.

Risk hint: the demand for consumer electronics products is lower than expected; global sales of new energy vehicles are not as expected; the integration of polarizer assets is not as expected; the company has received a feedback notice from the Securities and Futures Commission a few days ago and has replied, but the fixed increase has not yet been completed. still need to be approved by the relevant authorities.