Ping An Securities: Shanshan Co., Ltd. (600884.SH) uses BASF to achieve a breakthrough in the positive position business and maintain a “Highly Recommended” rating

The Zhitong Finance App learned that Ping An Securities released a research report saying that Shanshan Co., Ltd. (600884.SH) used BASF to achieve a breakthrough in the cathode business. Maintain the company's net profit forecast for 21-23 at 17.8/24.0/3.05 billion yuan, respectively. The PE corresponding to the closing price of May 20 was 15.7/11.6/9.2 times, respectively, maintaining the “Highly Recommended” rating.

Ping An Securities pointed out that BASF is one of the world's largest chemical companies and has experience in the production and development of cathodes and electrolytes in lithium battery materials. The transaction consideration for Shanshan's total transfer of 19.64% of the shares was 1.7 billion yuan, corresponding to the overall valuation of the cathode business reaching 8.7 billion yuan, corresponding to net profit of 200 million yuan in 20 years, and PE 43 times. The cathode business is the company's largest business. The revenue scale reached 3.85 billion yuan in 2020, an increase of 5% over the previous year, accounting for 47%.

Ping An Securities's main views are as follows:

Incident: The company issued an announcement. The wholly-owned subsidiaries Ningbo Renewable Energy and Yongxiang Investment intend to sign an “Equity Acquisition Agreement” with BASFSE to reach an agreement on BASF's purchase of part of Shanshan Energy's shares. After the transaction is completed, the company's shareholding ratio of Shanshan Energy will be reduced from 68.6% to 49%. The company will no longer control Shanshan Energy, Shanshan Energy will no longer be included in the scope of the company's consolidated statements; BASF holds the remaining 51% of the shares.

With the introduction of strategic partners, the Zenji business ushered in a breakthrough: the transaction consideration for Shanshan's total transfer of 19.64% of the shares was 1.7 billion yuan, corresponding to the overall valuation of Cathode's business reaching 8.7 billion yuan, corresponding to net profit of 200 million yuan in 20 years, and PE 43 times. The cathode business is the company's largest business. The revenue scale reached 3.85 billion yuan in 2020, an increase of 5% over the previous year, accounting for 47%. After this equity transfer, the entire Cathode business was announced. The profit portion was included in investment income, and the profit ratio to mother decreased by 19.6%. Although the company's overall revenue and profit scale have shrunk in the short term, in the long run, the positive pole business ushered in breakthroughs and long-term development. The delivery date is initially scheduled for August 31, 21, at the latest on December 31. We expect the cathode business to be announced in the fourth quarter of this year.

BASF's cathode has a global layout, and Shisan is expected to use its strength to go overseas: BASF is one of the world's largest chemical companies and has experience in the production and development of cathodes and electrolytes in lithium battery materials. The company sold an electrolyte patent in 2017 and withdrew from the electrolyte business, but it has a strong layout in terms of ternary cathodes. The company promoted the layout of the entire industry chain for cathode materials, precursors, and resources in China, the United States, Japan, Finland, etc., and established joint venture plants with Japan's Toda Kogyo in 2015 and 2017; in terms of technology, the company has a three-yuan patent license from the US Argon Laboratory, and actively develops and reserves cutting-edge technologies such as high nickel ternary, lithium-rich manganese-based, and all-solid-state battery materials, and has established battery material R&D centers in major regions around the world. We believe that in a context where European car companies want to get rid of their dependence on Asian suppliers, local battery and battery materials companies are expected to receive strong support. Through cooperation with BASF, Shanshan is expected to promote the development of overseas markets, especially in Europe, and the optimization of their customer structure, and increase their profitability and market share.

Cathode business recovered, integration improved profitability: in 20 years, the company sold 30,000 tons of cathode materials, up 38.44% year on year, with a market share of 5.8%; net profit per ton was 0.67 million yuan, of which 0.86 million yuan/ton in the second half of the year, a sharp recovery from the first half of the year. In the first quarter of '21, the company shipped more than 10,000 tons of cathodes, and net profit per ton further increased to 0.9-10,000 yuan. The decentralization of the cathode finished product business did not affect the company's upstream layout. In the second half of '21, Yongshan Lithium put into operation the first phase of 25,000 tons of lithium salt production capacity and will sell 800 million yuan worth of lithium carbonate and lithium hydroxide products to Shanshan Energy within a year; in addition, the company and Geely and Zijin Mining established Changqing New Energy to build cobalt-nickel smelting, ternary precursor and waste battery utilization production lines, and participate in high-quality cobalt-lithium resources such as Luoyang Molybdenum Industry and Altura. The company's integrated layout in the cathode business is expected to drive continued improvement in profitability.

Risk warning: 1) The risk that NEV sales growth will fall short of expectations. If policy support falls short of expectations, product upgrades and battery technology development fall short of expectations, it will have a negative impact on the promotion of new energy vehicles and demand for power batteries. 2) The risk of a sharp rise in raw material prices. If the price of upstream raw materials rises beyond expectations, it will cause costs to rise, which may adversely affect the company's profitability. 3) The risk of a sharp drop in product prices due to increased competition in the industry. The rapid development of the NEV market has attracted many suppliers to expand production capacity, and the price war brought about by increased competition in the industry will significantly affect the profitability of enterprises. 4) The risk that business restructuring falls short of expectations. If other businesses are released later than expected, it will affect the release of the company's profits.