[Anatomy Board]

Today's Hong Kong stock market is very enthusiastic, and more importantly, capital has begun to show positive feedback on the benefits of some individual stocks. Unlike the past year, even with big benefits and no financial attention, it indicates that the activity of the entire market has increased markedly, while the increase in the index is secondary.

For example, a report by Damo raised the stock price of the Ningde era (300750.SZ) by more than 14%. Changes in photovoltaic consumption policies and the beginning of exploratory module price increases all had a positive impact on the sector's stock price, indicating that foreign investors are beginning to pay attention to China's capital market and have invested in real money. According to some media reports, more and more buyers and sellers who can see foreign capital are beginning to think that Chinese assets are relatively cost-effective.

[Sector Focus]

lithium battery

In addition to the adjustment of the rating of the Ningde era mentioned above, market rumors say that Tianci stopped production and contracted supply. If the price of lithium carbonate exceeds 110,000, the value of lithium ore in the Ningde era recovers. There is a short essay showing that Ningde Era's Q1 profit was 13 billion yuan (previously estimated at 9 to 10 billion yuan). Although the truth or falsehood of the rumor is hard to say, the market gave a positive response.

Fundamental aspects:

(1) Judging from downstream demand, BYD took the lead in starting strong price cuts after the holiday season, and orders for the Qin Plus Honor Edition reached 23,590 vehicles in the first week of its launch. In terms of energy storage, the country added 2.1 GW/5.2 GWh of tenders in February. February was a typical low season, but the performance was very strong. Even though some tenders were suspended due to the Spring Festival holiday, there was still an increase of over 400% over the same period last year.

(2) On the policy side, the fourth meeting of the Central Committee on Finance and Economics proposed “promoting trade-in of consumer goods”. On March 2, the Shanghai government announced a subsidy of 10,000 yuan for trade-in purchases of pure electric vehicles in 2024. Follow-up with other provinces and cities is also worth looking forward to.

(3) Judging from the production schedule, the downstream battery industry is booming. The March production schedule is +50% month-on-month, and the April production schedule is still improving after learning from the industry chain. In addition, the industry was previously in a state of low inventory, and during the Spring Festival, some manufacturers also overhauled and cut production and stopped production. Therefore, as downstream demand picked up, demand for inventory replenishment was strong in the short term.

(4) The price of lithium carbonate has stabilized. Since the beginning of this year, it has remained stable at around 100,000 for the past two months. Recently, with the recovery in downstream demand, lithium prices have risen slightly to 110,000 yuan, and the bottom of the overall trend has stabilized. Furthermore, the lithium carbonate industry chain is in a non-deflationary direction and has an allocation advantage in industry comparisons.

(5) Recently, Tianci stopped production of the 30,000 ton hexafluoride production line, which may affect the supply and demand of hexafluoride in the short term, and hexafluoride manufacturers are willing to raise prices, and electrolytes and lithium hexafluorophosphate are expected to rebound.

The fundamentals are indeed improving. Although it is relatively early, at least the bottom area is still quite clear.

Related targets: Ganfeng Lithium (01772), Tianqi Lithium (09696), BYD Co., Ltd. (01211), etc.

photovoltaics:

There have indeed been some benefits in the sector recently. Apart from the photovoltaic consumption policy changes that were hotly discussed over the weekend, expectations for new energy power construction have reopened, and some parts of the industrial chain, including silicon materials and components, have begun exploratory price increases. Little short-term pressure on the upper side to secure chips has given the market a chance to rebound. In particular, the valuation of some PV stocks in Hong Kong stocks is more compressed than that of A-shares, which is relatively more flexible.

On the side of the message, the demand side has indeed recovered:

In January, the State Grid regional PV installed 18.2 GW, a year-on-year increase of 52%; according to expert research, the year-on-year growth rate of new PV installations in January-February may reach about 50%. According to this trend, domestic PV installations are conservatively estimated at 260 GW+ in 24, which does not rule out the possibility of 300 GW, far exceeding the expectations of some institutions that there will be no growth this year! The domestic tender data is impressive: from January to February '24, a total of 66.6 GW of domestic PV modules were determined, an increase of 91% over the previous year. In January-February, the cumulative EPC (terrestrial power station+distributed) standard was 24.5GW, up 42% year on year, and the January-February EPC standard increased 42% year on year.

The latest policy shows that in 2025, distributed will have 500 GW of access capacity, and currently a total of 254 GW, so there will be more than 100 GW of new distributed PV space every year from 24-25. The red line of consumption may be liberalized: Senior management recently proposed to promote the development of new energy sources with greater vigor. Against the backdrop of a sharp drop in the price of photovoltaic modules and a sharp drop in investment costs in power plants, the current abandonment rate of 5% is too low. Even if the abandonment rate is liberalized to 30%, it will not affect the yield. This is an important way to solve the current consumption problem, opening up space for new PV installations in the future.

Module production schedule increased dramatically, and verification demand exceeded expectations: in March, battery production was about 62 GW, which was affected by a recovery in terminal demand, a sharp increase of 32% month-on-month, and the N-type penetration rate was 65%. In March, the total global module production schedule was about 55 GW, and the domestic production schedule was about 49-50 GW, a sharp increase of about 50% over the previous month.

The supply side continues to clear up, and the relationship between supply and demand has improved: Recently, many overseas manufacturers, including European PV module leader Mayerberg, have announced layoffs or plans to close their factories. Domestic PERC production capacity continues to be cleared, shutdown or production capacity is expected to be 1-200GW, European inventories are bottoming out, and demand is expected to reach 500-550 GW in 24, and module demand is expected to break through 700 GW. Under this estimate, related links may be in short supply. It is not ruled out that subsequent price increases and profit repairs, including batteries, glass, film, etc.

From the expert interviews we have seen so far, the supply and demand structure of auxiliary materials may be more flexible in increasing prices.

Related targets: Xinyi Solar (00968), Xinyi Glass (00868), Jinyang New Energy (01121), GCL Technology (03800), etc.

[Individual Stock Nuggets]

Bilibili (09626) achieved a positive operating cash flow of 640/267 million yuan in 4Q23 and 2023, respectively

According to the company's quarterly report, the company's total revenue for the fourth quarter was 6.35 billion yuan, up 3% year on year, basically in line with expectations. Adjusted (non-GAAP) net loss was 556 million yuan, a decrease of 58% year on year, and the loss margin was lower than agreed. Total revenue for the year was 22.5 billion yuan, up 3% year on year. Adjusted net loss was 3.4 billion yuan, down 49% year on year.

Quarterly losses have narrowed further, and advertising revenue continues to grow rapidly. In '23, Q4 achieved revenue of 6.35 billion yuan, an increase of 3% year on year. Among them, advertising and value-added service business revenue increased by 28% and 22% year on year respectively, and operating costs were 4.7 billion yuan, a decrease of 4% year on year. Q4 gross profit reached 1.7 billion yuan, up 33% year on year, gross profit margin 26.1%, up 5.8 pct year on year, up 1.1 pct month on month, and increased month on month for six consecutive quarters. Operating expenses were 3 billion yuan, a year-on-year decrease of 17%, and the cost control effect was obvious. Q4 achieved operating cash inflow of 640 million yuan, or 270 million yuan for the whole year, a year-on-year correction.

1) The game business revenue was 1.01 billion yuan, +2% month-on-month, and -12% year-on-year, lower than agreed expectations (1.08 billion yuan). The launch base of “Space Hunter 2” in the second half of '22 was high. The performance of old games such as “Azure Line” and “FGO” was relatively stable, but “Shine! The launch of new games such as “The Handsome Girl” fell short of expectations. Looking ahead to this year, “Three Kingdoms: Determining the World”, “Blazing Sky”, and “Everything Is So New” has been released in the company's proxy game reserves, and is expected to be launched in the next few quarters.

2) Revenue from the value-added services business was 2.86 billion yuan, +22% year-on-year, +10% month-on-month, higher than agreed expectations (2.77 billion yuan), and revenue from live streaming and value-added services increased.

3) The advertising business revenue was 1.93 billion yuan, +28% year-on-year, and +18% month-on-month, higher than agreed expectations (1.89 billion yuan). The share of revenue rose to 30%, mainly due to optimization of advertising products and delivery efficiency. In January '24, the company released marketing plans for four major scenarios, including “new product launch, rejuvenation, transaction transformation, and big nodes”, which are expected to drive continued rapid growth in advertising revenue. 4) Revenue from IP derivatives and other businesses was 550 million yuan, -51% year-on-year, and -4% month-on-month. E-sports copyright licensing revenue decreased.

4) Cost reduction and efficiency improvements continue to be realized, and the company expects to reverse losses in 3Q24. 4q23 gross margin increased by 1.1 ppt to 26.1%, and the sales/management/R&D expense ratio increased 0.6/0.5/increased 2.5 ppt to 17.7%/8.1%/20.9%. We determine that the increase in R&D expenses was mainly due to the termination of some game project expenses. The company achieved a positive operating cash flow of 640/267 million yuan in 4Q23 and 2023, respectively. At the performance meeting, the company expected non-GAAP operating profit to be corrected in 3Q24, and maintain the high-quality development of the content ecosystem.

5) The company's 4Q23 DAU and MAU are 100 million people/336 million people respectively. In 2023, more than 3 million UP owners received revenue at Station B, and commercialization deepened to consolidate their community ecology. We believe that active, highly engaged, and youthful communities and users form the foundation of the company's advertising business. The core competitiveness may be to provide advertisers with incremental user and transaction conversion, and continuous product iteration is expected to further stimulate users' commercial value.