Net loss of 73.28 million yuan, a year-on-year plunge of 112.8%! What's wrong with the leading anode material company Shanshan Co., Ltd. (SSEC:600884)?

The new energy vehicle industry has entered the elimination phase, and the upstream of the supply chain has also begun to experience growing pains.

Recently, lithium mining giant Tianqi Lithium released a quarterly financial report showing massive losses, drawing market attention to the industry. Standing at the turning point of the cycle, how long it will take to emerge from the bottom is a concern for every company in the supply chain.

On the evening of April 25, global anode leader Shanshan Corporation released its 2023 financial report and Q1 2024 report. According to the report, the company's revenue in 2023 was 19 billion yuan, a year-on-year decrease of 12.13%; net profit was 700 million yuan, down 71.56% year-on-year.

This financial report, showing declines in both revenue and net profit, is a microcosm of the industry's current state.

Regarding the annual performance decline, Shanshan Corporation explained that the drop in product prices and profitability of its anode materials business and its equity-based cathode materials business, affected by industry changes, was one of the main reasons for the performance decline.

The company also noted in its report that in 2023, against the backdrop of slowing terminal demand growth and lithium battery industry destocking, midstream lithium battery materials faced significant challenges such as temporary supply-demand imbalances and declining product prices.

After entering 2024, Shanshan Corporation's performance did not improve but continued to "deteriorate."

According to its Q1 report, the company's revenue was 3.752 billion yuan, a year-on-year decrease of 15.67%; net loss was 73.2818 million yuan, down 112.80% year-on-year; adjusted net loss was 73.3539 million yuan, down 144.07% year-on-year.

Shanshan Corporation explained the Q1 performance decline as follows:

First, the prices of anode and polarizer business products fell year-on-year due to changes in the industry's market environment.

Second, the company recognized gains from the transfer of equity in Xin Ya Shanshan New Materials Technology (Quzhou) Co., Ltd. in the same period last year, leading to a year-on-year decline in net profit.

From the above financial reports, it is clear that competition in the lithium battery industry is intensifying, and price wars due to capacity expansion are also a major reason for the sharp decline in profits of leading companies.

So, when will the industry bottom out? When will the lithium battery industry return to an upward cycle?

Kan Jian Finance believes that the lithium battery industry has obvious cyclicality. This round of explosive growth was driven by the rise in demand for new energy vehicles and energy storage, with every segment from upstream lithium mining to cathode and anode manufacturers making huge profits. However, after entering 2022, the cliff-like drop in battery-grade lithium carbonate prices significantly impacted cathode and anode material producers.

Additionally, capacity expansion is the root cause of price declines in the lithium battery and photovoltaic industries. For material manufacturers, the overcapacity resulting from aggressive expansion is already a fact. Under intense competition, the prices of cathode and anode materials are now at relatively low levels, with some low-end anode prices even falling to cost levels, leaving second-tier companies generally unprofitable.

According to previous reports by Caixin, due to excessively low bidding prices for anode materials before the new year, many companies faced losses in production, making it difficult to fulfill most orders.

Thus, even as an industry leader, Shanshan Corporation cannot escape the impact of the cycle. In the long run, as extreme competition from overcapacity leads to industry consolidation, the survivors will dominate, naturally ushering in a new cycle. However, short-term pain remains unavoidable.

In terms of market share, Shanshan Corporation accounted for 19% of China's artificial anode material production in 2023, maintaining its position as the global leader.

Notably, in February last year, Shanshan Corporation's founder Zheng Yonggang suddenly passed away due to heart disease. His eldest son, Zheng Ju, was elected chairman of Shanshan Corporation, followed by a "succession drama" with his stepmother, but Zheng Ju ultimately became the chairman of the listed company.

By the disclosure of the 2023 annual report, Zheng Ju will have been at the helm of Shanshan Corporation for a full year. Judging from the company's financial reports, the pressure he faces remains significant.

Overall, for material manufacturers, although the lithium battery materials sector may recover as competition in the new energy vehicle industry intensifies and demand rises, the industry's fundamentals are unlikely to improve completely in the short term. Thus, it can be inferred that the performance of material industry companies will continue to face pressure in 2024.