Hunan Yuneng New Energy Battery Material (.SZ)_ 2024 Net Profit Down 62% YoY, 4Q24 Unit GP +1% QoQ, Maintain Buy

Summary of Hunan Yuneng New Energy Battery Material (301358.SZ) Conference Call Company Overview - Company: Hunan Yuneng New Energy Battery Material - Ticker: 301358.SZ - Date of Report: March 17, 2025 Key Financial Metrics - 2024 Net Profit: Rmb594 million, down 62% YoY [1] - 4Q24 Net Income: Rmb103 million, up 2% QoQ and 165% YoY [1] - Unit Gross Profit (GP) for LFP Cathode: - 2024: Rmb2,372/t, down 60% YoY [1] - 4Q24: Rmb2,122/t, up 1% QoQ and 50% YoY [1][3] - Final Cash Dividend: Rmb0.157/share, down from Rmb0.418/share in 2023, maintaining a 20% payout ratio [1] Sales and Production - LFP Cathode Sales Volume: - 2024: 711kt, up 40% YoY [2] - 4Q24: 233kt, up 40% QoQ and 67% YoY [2] - Output Volume: 735kt in 2024, up 46% YoY [2] - Utilization Ratio: 101% in 2024, compared to 90% in 2023 [2] - High Energy Density Products Sales Volume: - 2024: 159.3kt, 22% of total sales [2] - 4Q24: 105kt, 45% of total sales [2] Expenses and Impairments - Impairment Loss: Rmb117 million in 4Q24, up from Rmb8 million in 3Q24 [4] - SG&A Expenses: Rmb151 million in 4Q24, up 36% QoQ and 49% YoY [4] - R&D Expenses: Rmb85 million in 4Q24, up 12% QoQ and 30% YoY [4] Cash Flow and Gearing - Net Gearing: 52% in 2024, up from 24% in YE2023 [9] - Operating Cash Flow (OCF): -Rmb1,042 million in 2024, compared to Rmb501 million in 2023 [9] - Free Cash Flow (FCF): -Rmb3,414 million in 2024, worse than -Rmb2,188 million in 2023 [9] - 4Q24 OCF: -Rmb796 million, compared to -Rmb499 million in 4Q23 [9] Valuation and Investment Outlook - Target Price: Rmb66.3, implying a 65.2% expected share price return [7][10] - Expected Total Return: 65.7% [7] - Current Trading P/E: 16.0x for 2025E [10] Risks - High Risk Rating: Despite a high risk rating, the company is believed to be at the trough of the cycle with an improving competitive landscape expected in 2025E [14] - Key Downside Risks: - Lower-than-expected LFP cathode shipments [14] - Worse-than-expected unit GP for LFP cathode [14] - Higher-than-expected expenses [14] Conclusion - Hunan Yuneng's financial performance in 2024 reflects significant challenges, particularly in profitability and cash flow. However, the company shows potential for recovery with increased sales volume and a positive outlook for unit gross profit in 2025. The investment recommendation remains a "Buy" based on expected improvements in the competitive landscape and financial metrics.