Event: the company announced semi-annual report that the income was 534 million yuan, an increase of 10.09% over the same period last year; the net profit was 56 million yuan, an increase of 174.31% over the same period last year; and the net profit was turned into a profit after deducting non-return.
The high performance growth is in line with expectations, and the operating net cash flow has improved significantly. According to the company's semi-annual report, 2022Q2 achieved an income of 283 million yuan in a single quarter, an increase of 14.15% over the same period last year, a net profit of 38 million yuan, an increase of 1597.23% over the same period last year, and a net profit of 34 million yuan, an increase of 219.11% over the same period last year. The growth mainly comes from two aspects:
1) the investment income is 29 million yuan, which is mainly obtained by the company's investment in Tiancheng lithium industry according to the equity method; 2) the financial expenses are-12 million yuan (16 million yuan in 2021), mainly because the exchange rate of RMB depreciated greatly against the US dollar in the current period, and the exchange income increased significantly compared with the previous year. The operating net cash flow of the company in the first half of the year was 113 million yuan, which was a significant improvement compared with 2021 (- 25 million yuan).
Cut into lithium salt: buy Tiancheng lithium industry layout mica to extract lithium, resource endowment + supply exceeds demand to ensure high gross profit. 1) layout: in 2021, the company entered into the areas of lithium carbonate and lithium hydroxide business through the acquisition of 33.33% stake in Tiancheng Lithium Industry (a framework agreement signed in March 2022 to further increase the shareholding ratio to 51%). 2) Endowment: in terms of resources, Tiancheng Lithium Industry ploughs the lithium capital of Yichun, Jiangxi Province, and ensures the effective supply of raw materials. It is the largest supplier of Jinhui Lithium Industry, one of the five major mica lithium extraction enterprises in Yichun. In terms of production capacity, after the construction of the second phase of the production line is completed (September 2022), the capacity of lithium sulfate solution will be increased from 3000 tons / year to 5712 tons / year. 3) Prospect: in terms of price, China will still maintain a tight balance of lithium carbonate in 2022, the gap between supply and demand will expand in 2023, the profitability of the industry will be further improved, and the price of lithium sulfate solution is expected to remain high. In terms of performance, according to the company's reply to the inquiry letter of the Shanghai Stock Exchange, it is estimated that from 2022 to 2026, the income of Tiancheng lithium industry will be 5.09,6.41,6.41,6.41 and 641 million yuan respectively, and the net profit will be 0.98,1.27,1.26,1.26 and 126 million yuan respectively.
Acquisition of lithium ore: hold a stake in the Marie spodumene project, open up the upper-middle reaches, and open up the growth space. 1) Industry: benefiting from the development of the lithium industry, the lithium industry has entered a period of rapid growth, and lithium has grown from "small metal" to "big metal". Upstream and downstream enterprises production and marketing binding + industrial vertical integration has become a trend. 2) Resources: in June 2022, the company and its wholly-owned subsidiaries acquired a 100% stake in Taian Xinchang and held a 7.23% stake in the Bougouni spodumene project in Mali after the acquisition, and indirectly had the right to underwrite not less than 80% of the lithium concentrate products of the mine for three consecutive years. Benefiting from the sharp increase in demand for lithium batteries, the average price of lithium mines rose 43 per cent, and the project IRR rose from 50.9 per cent to 91.2 per cent based on an annual output of 238000 tons. 3) extension: after the completion of the acquisition, the company has opened up all the links from upstream lithium mining to mid-stream lithium salt processing: on the one hand, it is imported from abroad through spodumene ore, and the overall planning target for lithium concentrate is 238,000 tons / year and 100,000 tons / year. It is expected to be put into production in the second quarter of 2023. On the other hand, through the procurement of local lithium mica + self-built concentrator, it is conservatively estimated according to the sales volume of lithium sulfate solution of Tiancheng lithium industry of 5712 tons / year, and the corresponding net profit is 571 million yuan / year.
Profit forecast and investment rating: we maintain the company's estimated EPS of 1.48,3.44,5.35 yuan in 22-24, respectively, corresponding to 33,14,9 times of PE, maintaining a "buy" rating.
Risk hints: slow production of Vietnam base, less-than-expected lithium mining, large fluctuations in lithium salt prices, etc.