The following is a summary of the Enjie Q3 2022 earnings conference call. For a financial analysis by Dolphin Analyst, please read Enjie: "The fresh-keeping of the battery chain cannot be maintained".

Dolphin Analyst has roughly categorized the conference call into four sections: profit, revenue, production/shipping, and outlook.

1. Profit and Gross Margin:

1.1) Reasons for the slight decrease in Q3 gross margin:

The main reason is the coating that affects the gross margin.

1.2) How to consider traditional business revenue and profit?

Traditional business is relatively stable, with a profit of about 100 million yuan per year. BOPP will expand production, and more contribution will be made in the coming year. The sterile packaging base is still in the initial stage of construction. Traditional business is a peak season for inventory in Q4.

1.3) Difference in profit level between domestic and overseas customers? Breakdown of coating materials?

There is a relatively large difference in price between domestic and overseas customers. Domestic customers value cost-effectiveness, while overseas customers value quality. The production cost will be higher, and the price will be higher overseas, and the profit will be relatively better overseas. At present, there are more boehmite and alumina in China, mainly used for water systems. Customers now also add ceramics+PVDF to improve energy density.

2. Revenue Side:

2.1) Overseas Business

2.1.1) Are overseas production lines profitable?

The company mainly produces coating films and increases the selling price from the product structure aspect. Labor costs are high, so automated equipment is used. In terms of engineering, the experience of building factories in Europe is used to reduce construction costs. The expected profitability will be good. Adjustments will be made to the products. The company will supply semi-finished base film to European factories from China and then send them to the United States to avoid high tariffs until the US production capacity is released, and most of the supply still come from the US in the future. Materials procurement in European factory construction adopts local procurement, and infrastructure costs are relatively high, meeting local legal and regulatory requirements. In the future, local employees will mainly be used, and artificial intelligence will be increased in the United States, currently being manufactured in equipment factories, and in the future, costs will be reduced.

2.1.2) Recovery and growth of overseas customers? Overseas customer demand and expansion?

Currently, overseas customers have good growth, but domestic companies grow faster. Large overseas clients such as LG, Northvolt, and General Motors are growing at a relatively fast pace. Demand in the third quarter is still good, and it will continue to increase in the fourth quarter, consistent with the company's expectations. Discussions with clients like SK are still ongoing, and the company will start supplying as soon as the business negotiations are concluded.

2.1.3) Impact of IRA on domestic products?

The company is waiting for details and will respond accordingly after the details are announced. Currently, separators have not been included in the list.

2.1.4) Percentage of settlements in US dollars?

The company has settlements in both US dollars and euros. The automakers use dollars, while other overseas customers use euros. The proportion of US dollars is not significant and depends on customer demand. Detailed information will generally be disclosed in the annual report or half-year report. Three. Production and Shipping Status

4. How is the construction of Dry-process Diaphragm Production Line?

One Dry-process production line has started the commissioning process and is not fully connected yet. The remaining production lines will be installed in the first half of next year with named capacity expected to reach 1 billion square meters by the end of next year. However, the actual capacity depends on the progress of equipment installation. Additionally, the scale of dry-process technology joint venture with Ningde is 2 billion square meters. With regard to the cost, large-scale production has not taken place yet, and production technology uses blown film process which has some cost advantages.

4. What was the production and sales volume for the company in September and October?

Company's sales in October have increased and Q4 is expected to rise by 20% compared to the previous quarter, with sales of 1.2 billion square meters in July to September. The main contribution for Q4 is the start of operations at Chongqing plant, as well as the contribution from the Jiangxi and Wuxi production lines.

5. What is the proportion of 7um and below?

Consumer grade 3um and 4um have a small amount of usage, while power grade 7um and 9um are the main products, with 9um more than 7um.

6.What is the production Plan and Schedule in November and December?

In November, the production volume is expected to be 550 million, with a 20% increase over the third quarter, so reaching the target of 5 billion square meters for this year is no problem. The target for next year is 6.5-7 billion square meters. Next year, we will accelerate the construction of the Jintan and Jingmen bases, and speed up the start of construction of the Yuxi plant, while Xiamen will obtain more land. The overseas Hungary project can come out next year, and subsequent production lines will be put into operation. The installation time of the diaphragm production line will be longer in the first quarter of next year, with the start of diaphragm production in the second quarter. All 4 production lines in Hungary will be operational. In the United States, the land has been purchased and the construction will begin next year, with a production capacity of 1-1.2 billion square meters in Ohio after 2024.

7. What is the proportion of sales to Ningde? What is the situation with online coating?

Most of the shipments to Ningde are diaphragm products, while a small amount of online coating products are in line with the company's expectations. At present, the 20 production lines are not enough to supply other customers, and the value of coated films is much higher than that of diaphragms.

8. What is the proportion of online coating?

Currently, 20 production lines are equipped with online coating, while the remaining production lines will be equipped as soon as the equipment arrives. This year, the proportion of online coating to total coating is 50%. And more than 20 production lines will be equipped with online coating next year. The proportion of online coating will reach 50% next year, and most of them will be coated inline. One of the inline coating lines is being verified for overseas customers. At present, the coated volume of overseas customers accounts for the majority, but mainly using offline coating.

9. What is the progress update on self-developed equipment?

One production line in the company is currently being tested with self-developed equipment. The first sample line will be released next year, to be used in the new base in 2024 and 2025. Suzhou JS are relocating the equipment, and will begin trial production after relocation.

10. What is the main speed for domestic wet-process diaphragms?

The speed is determined by the technical requirements of the customer.

Three. Outlook and Planning

1. Will online coating be supplied for overseas customers? Overseas validation takes about one year and is currently in the process of validation. The bandwidth and speed for overseas are relatively low, and we will continue to negotiate with customers in the future. We also need to see the customer's acceptance of the change to online coating and validation time.

2. How does the company judge prices?

In the fourth quarter, the production is very good, and prices remain stable. There is currently no price reduction from customers, and prices will remain stable this year and next year. At present, Ningde has not conducted centralized procurement of membranes.

3. When will next year's orders land, and how will the orders be executed?

The majority of production capacity will be locked, and it is currently uncertain. Subsequently, contracts will be signed based on the supply agreement, and overseas customers will also sign 5-7 year long-term contracts.

4. Other

1. The company's pace of private placement

After the stability of the A-share market, arrangements will be made, and communication with the sponsoring agent will be conducted while waiting for the battery industry to warm up.

2. Private placement situation

Raised 21.8 billion yuan, and the number of issued shares will be determined based on the inquiry.

3. Revenue accounts receivable is 2 billion, cash flow performance is not very good, how to understand?

The company's scale is relatively large, and sales volume increases month by month. The account period happens to be at the end of the season with higher sales volume. The company will spend the acceptance bills on suppliers, and some of its inventory will increase cash flow expenditure. The collection is rolling, and sales in the fourth quarter will increase more, still within the account period, and revenue accounts receivable will increase. In history, bad debt control has been very good. Downstream are listed companies, and customers are of high quality, with basically within 1-year account period. In addition, the rapid establishment of production capacity incurs an annual payment of 30-40 billion.

Risk disclosure and statement of this article: Dolphin Analyst Disclaimer and General Disclosure

Minutes of Enjie's Telephone Meeting: "Currently, Ningde has not conducted centralized procurement of diaphragms."