EB SECURITIES Lithium Battery Industry 2025 annual report and 2026 first quarter report summary: High prosperity cycle upwards, supply-demand relationship is improving.

EB SECURITIES released a research report stating that the investment opportunities in lithium minerals with significant supply variability and profits not yet supporting expanded production, such as diaphragms, copper foils, and aluminum foils, are as follows: lithium carbonate > aluminum foil > copper foil > solvents > diaphragms > high-voltage lithium iron. Positive outlook on copper and aluminum foils, lithium iron phosphate, electrolytes, structural components, and other inventory and contract liabilities with potential for high growth. Main points of EB SECURITIES: Revenue growth accelerating over multiple quarters, net profit significantly increasing. In the fourth quarter of 25, the operating income of sample companies in the lithium battery industry increased by 35% year-on-year, while net profit attributable to shareholders increased by 199%; in the first quarter of 26, operating income increased by 52% year-on-year, staying flat quarter-on-quarter, while net profit attributable to shareholders increased by 108% year-on-year and 23% quarter-on-quarter. Industry profits have been growing year-on-year for five consecutive quarters, with profit growth far exceeding revenue growth due to various factors such as low base effect, price increases, improved operating rates, and inventory gains resonating to bring about significant profit growth in the industry. Steady recovery in profit margins. In terms of profit margins, the gross profit margins were 21% and 22% in the fourth quarter of 25 and the first quarter of 26, respectively, showing continuous improvement over several quarters; net profit margins were 9% and 11% in the fourth quarter of 25 and the first quarter of 26, but still significantly below the highs of the previous cycle. High turnover + accelerated inventory growth, improving business conditions. Inventory turnover rates for lithium iron phosphate, diaphragms, structural components, copper, and aluminum foils in the third and fourth quarters of 25 have significantly improved; in the first quarter of 26, there was a slight decline due to the traditional off-season during the Spring Festival, but it still remains in the historical 90% high percentile. Inventory levels in all sectors of lithium battery materials have been increasing quarter-on-quarter for more than four quarters. In the first quarter of 26, the inventory levels of lithium iron phosphate, batteries, electrolytes, copper and aluminum foils showed accelerating growth both year-on-year and quarter-on-quarter. "Replenishing inventory on the basis of high turnover and low inventory" typically points to a more sustainable cyclical recovery with continued tight supply-demand relationship. Uneven capital expenditure. Capital expenditure/depreciation, and investment in progress/fixed assets for lithium batteries are still in the early stages of the upturn cycle. In the fourth quarter of 25 and the first quarter of 26, capital expenditures in the battery sector exceeded 22 billion yuan, increasing by 30%-40% year-on-year, with six consecutive quarters of positive year-on-year growth. Capital expenditure in the material sector remains at historically low levels, but in the first quarter of 26, capital expenditure in lithium iron phosphate, ternary positive electrodes, structural components, and copper and aluminum foils showed positive growth year-on-year. Contract liabilities lay the foundation for future growth certainty. Contract liabilities for lithium carbonate, copper and aluminum foils, lithium iron phosphate, electrolytes, structural components and other sectors significantly increased year-on-year in the first quarter of 26, with many companies experiencing significant year-on-year and quarter-on-quarter growth in contract liabilities in the fourth quarter of 25 and the first quarter of 26. Sample companies in lithium battery equipment had contract liabilities of 23.1 and 26.6 billion yuan in the fourth quarter of 25 and the first quarter of 26, respectively, both increasing by 25% year-on-year. Investment recommendations: (1) Structural opportunities in the material sector continue to be promising, focusing on the simultaneous increase in quantity and price of scarce materials in various sectors, recommended companies include: Jiangsu Lopal Tech. Group, Fulin Precision, Jiujiang Defu Technology, Beijing Easpring Material Technology, etc. (2) Focus on leading companies in various sectors: Contemporary Amperex Technology, Eve Energy Co., Ltd., CALB (H), Shenzhen Kedali Industry, Hunan Yuneng New Energy Battery Material, Jiangsu Dingsheng New Materials Joint-Stock, Yunnan Energy New Material, Guangzhou Tinci Materials Technology, etc. Risk factors: Improvements in the supply-demand situation for lithium batteries are not as expected; price increases of lithium battery materials are lower than expected; sales of new energy vehicles downstream are lower than expected; energy storage tender situation is lower than expected.