The Zhitong Finance App learned that Guolian Securities released a research report saying that there was no increase in revenue for lithium battery equipment in 2023, and the phased slowdown in domestic lithium battery production expansion. From the revenue side, the lithium battery equipment industry achieved revenue of 52.6 billion yuan in 2023, +14% year over year; in 2024Q1, revenue of 10.3 billion yuan, or -5% year-on-year. On the profit side, the lithium battery equipment industry achieved net profit of 4.2 billion yuan in 2023, -14% year-on-year; in 2024Q1, it achieved net profit of 920 million yuan, -14% year-on-year. In 2023, the lithium battery equipment industry experienced no increase in revenue and profit. The main reason is that the domestic lithium battery industry experienced rapid expansion of production from 2020 to 2022, and there are signs of a slowdown in production expansion in 2023. After the domestic market is phased out, the equipment industry is expected to usher in an upward boom. Overseas demand for lithium battery equipment is recovering, and I am optimistic that the equipment will go overseas.

After the impact of the overseas epidemic abated, Japanese and South Korean battery manufacturers such as LG, SK, and Samsung SDI accelerated production expansion to consolidate their market share; European and American battery manufacturers such as ABF, Northvolt, ACC, and PowerCo began to expand production to improve the local supply chain. China's lithium battery equipment has global competitiveness and is expected to benefit from this round of overseas production expansion.

Profitability declined slightly, and the industry's cash flow was under pressure in the short term. In 2023, the gross margin of the lithium battery equipment industry was 32.3%, +0.9pct year on year; the net margin of the industry was 8.0%, -2.6 pct year on year. 2024Q1, industry gross margin was 31.6%, -2.3 pct year on year; industry net margin was 9.0%, -1.0 pct year on year. Guolian Securities believes that with the acceptance of overseas orders, the profitability of the lithium battery equipment industry is expected to recover. Since 2023, 2023Q1, 2023Q3, and 2024Q1, the lithium battery equipment industry's net operating cash flow has been negative. The main reasons are: (1) the increase in in-process orders in the industry requires preparation and misalignment with the profit cycle; (2) delays in downstream customer project progress will affect the equipment company's repayment speed.

Contract debt/inventory have both increased, and the industry is full of on-hand orders. By the end of 2023, the total contract liabilities of the lithium battery equipment industry were 25.3 billion yuan, +14% year on year, and total inventory was 34.2 billion yuan, +12% year on year; as of the end of 2024Q1, total industry contract liabilities were 26.3 billion yuan, +11% year on year, and total inventory was 35 billion yuan, +3% year over year. Both contract debt and inventory have grown, the industry is full of on-hand orders, and the momentum for short-term performance growth is still strong.

In the short term, we look at lithium battery equipment going overseas; in the long term, we look at the recovery of the domestic industrial chain. After the overseas epidemic abated, Japanese and South Korean companies accelerated production expansion, European and American countries began to promote the localization of the battery industry chain, and demand for overseas equipment was strong. Major domestic industry chain companies are currently fiercely competitive, and their intention to expand production in the short term is not strong, but Guolian Securities believes that it is currently at the bottom of the lithium battery main industry chain. After experiencing this round of industry adjustments, advanced market production capacity is still insufficient. Against the backdrop of continued growth in terminal demand, leading domestic lithium battery companies may restart and expand production in order to consolidate their market share. Optimistic about the prospects of the lithium battery equipment industry, giving it a “better than the market” rating.

Risk warning: the risk of lithium battery installations falling short of expectations, the risk of the new technology iteration process falling short of expectations, and the risk of the competitive landscape deteriorating.