Fulin Precision has received good news and has become a supplier for Huawei and CATL

After signing a supply agreement with Huawei and causing a sensation, Fulin Precision (300432) has teamed up with CATL and become the latter's supplier.

On September 30, Mianyang Fulin Precision Machinery Co., Ltd. (hereinafter referred to as "Fulin Precision", 300432.SZ) announced that its subsidiary Jiangxi Shenghua New Materials Co., Ltd. (hereinafter referred to as "Jiangxi Shenghua") and Jiangsu Times New Energy Technology Co., Ltd. (hereinafter referred to as "Jiangsu Times") signed a "Planning Agreement Form". Jiangxi Shenghua was determined to be the supplier of lithium battery positive electrode materials for Jiangsu Times, and the two parties officially entered the supply stage. This is another important order obtained by Fulin Precision after announcing the details of the cooperation agreement signed with Huawei in June this year.

As an enterprise mainly engaged in the research, development, production and sales of electromagnetic drive components, precision hydraulic components and lithium battery positive electrode materials, Fulin Precision's products have won the trust of many well-known vehicle manufacturers including SAIC-GM and Great Wall Motors.

In 2019, when the domestic automobile industry was facing adjustments, Fulin Precision still achieved excellent results, achieving a net profit of 514 million yuan and a non-net profit of 476 million yuan, both of which were the highest in the past 10 years, far higher than its peers in the industry, such as Derivative Technology, Precision Forging Technology, and Tianrun Industrial. As of the first half of 2020, Fulin Precision has achieved a net profit of 145 million yuan, an increase of 84.08% compared with the first half of 2019. Supported by strong performance, Fulin Precision's stock price has risen by nearly 70% since 2020.

After Huawei, it won another large order from CATL

The agreement signed by Jiangxi Shenghua and Jiangsu Times is mainly a supply contract for lithium battery positive electrode materials. According to the agreement, within the period agreed in the agreement, Jiangsu Times will purchase cathode active material lithium iron phosphate from Jiangxi Shenghua. Jiangsu Times will issue a supply notice to Jiangxi Shenghua at the end of the month in the form of an order based on its own needs for the specific purchase quantity. The purchase price involves commercial secrets and has been reported to the Shenzhen Stock Exchange. According to the "Plan Agreement Form" reached by both parties, during the implementation process, if the purchase price changes due to raw material price updates, parts technology changes or other reasons, the two parties can change the purchase price stipulated in this agreement by consensus with each other. Supply validity period: September 28, 2020 to October 28, 2021.

The purchaser Jiangsu Times was established in June 2016, and its main business is the production and sales of lithium-ion power batteries. According to Qichacha information, Jiangsu Times is a wholly-owned subsidiary of Contemporary Amperex Technology Co., Ltd. (hereinafter referred to as "CATL", 300750.SZ). As of the end of 2019, Jiangsu Times had total assets of 5.961 billion yuan and net assets of 1.486 billion yuan. In 2019, it achieved revenue of 4.867 billion yuan and operating profit of 606 million yuan, with a net profit of 548 million yuan.

According to data from the China Association of Automobile Manufacturers, as of September 2020, the production and sales of new energy vehicles have achieved consecutive months of growth. In September 2020, the production and sales of new energy vehicles were 136,000 and 138,000 respectively, up 48.0% and 67.7% year-on-year; from January to September, the production and sales of new energy vehicles were 738,000 and 734,000 respectively, down 18.7% and 17.7% year-on-year, which was a significant narrowing of the 26.2% and 26.4% in January to August. The automobile industry, especially the new energy vehicle industry, is recovering rapidly.

It is worth mentioning that with the growth of installed capacity of lithium batteries for new energy vehicles, the revenue of Fulin Precision's lithium battery positive electrode materials business is expected to grow rapidly. After the transformation and upgrading of its Jiangxi factory, it will have an annual production capacity of 12,000 tons of lithium iron phosphate positive electrode materials, and the Zhuzhou factory will have an annual production capacity of 2,000 tons of ternary positive electrode materials, which provides support for the growth of Fulin Precision's revenue in lithium battery positive electrode materials business.

In fact, long before Fulin Precision signed the supply agreement with Jiangsu Times, Fulin Precision announced a supply agreement with Huawei on new energy vehicle reducers and related components on May 22, and stated that the two parties will cooperate in the field of new energy electric drive assemblies in the future around core technology products and industrial resources.

Precision manufacturing + cathode materials "dual-wheel drive" profits hit new highs

Fulin Precision's main revenue-generating products are mainly used in the valve mechanism, one of the two major mechanisms of automobile engines. It currently has electromagnetic drive components, mainly engine variable valve systems (VVT); precision hydraulic components, mainly valve tappets (mechanical tappets, hydraulic tappets), rocker arms, hydraulic tensioners, nozzles, and other precision components.

Due to the long development cycle of engines and the fact that suppliers will not be easily replaced during the life cycle for safety reasons, the overall structure of the engine parts industry is stable. At present, the main customers of Fulin Precision's traditional products include: Dongfeng Peugeot Citroen Automobile, SAIC-GM, SAIC Volkswagen, JAC, BYD, GAC and other first-tier vehicle manufacturers. It goes without saying that, benefiting from the continuous increase in the proportion of self-owned brand passenger cars in the domestic automobile market, Fulin Precision's engine precision parts market still has a large room for growth.

In the field of new energy, in order to further optimize the industrial layout, in December 2016, Fulin Precision completed the acquisition of 100% equity of Hunan Shenghua Technology Co., Ltd. The company's main business involves the field of new energy materials, including the research and development, production and sales of two major types of lithium-ion battery positive electrode materials, lithium iron phosphate and ternary materials. It is a leading domestic professional supplier of lithium battery positive electrode materials.

From the industrial level, the "New Energy Vehicle Industry Development Plan" adopted by the State Council on October 9 pointed out the direction for the development of the new energy vehicle industry. The plan pointed out that by 2025, new energy vehicles will account for more than 20% of automobile production and sales. Assuming that China's automobile sales in 2025 are the same as in 2019, the national new energy vehicle sales compound growth rate from 2019 to 2025 will be more than 27.39%. At the same time, the plan also encourages the strengthening of infrastructure construction such as charging and swapping, hydrogen refueling, etc. The development of battery swapping technology will undoubtedly greatly increase the demand for lithium batteries for new energy vehicles, thereby driving the growth of Fulin Precision's performance.

In fact, thanks to the growth in sales of domestic independent brand passenger cars, Fulin Precision's net profit and non-net profit have repeatedly hit new highs. In 2019, Fulin Precision achieved a net profit of 514 million yuan and a non-net profit of 476 million yuan, both of which were the highest in the past 10 years. In the first half of 2020, Fulin Precision achieved a net profit of 145 million yuan and a non-net profit of 127 million yuan, an increase of 84.08% and 23.30% respectively compared with the same period in 2019. The net profit amount is second only to the period of rapid growth of Fulin Precision's new energy business in 2017.

It goes without saying that as the domestic new energy vehicle market enters a period of rapid growth and independent brand passenger cars are widely recognized by the market, Fulin Precision, which has continuously received orders from large enterprises under the "dual-wheel drive" of precision manufacturing + positive electrode materials, has promising future performance and its profits are expected to reach new highs.

In fact, for Yu Fulin Precision, the supply agreement signed with CATL's subsidiary Jiangsu Times is of great significance. After all, since the acquisition of Hunan Shenghua Technology Co., Ltd. (hereinafter referred to as "Shenghua Technology"), the company's lithium battery positive electrode material business has always been difficult.