Event: The company released its report for the third quarter of 2022. Revenue for the first three quarters of 2022 was 24.646 billion yuan, or +536.40%, of which Q3 revenue was 10.350 billion yuan, +580.19% year-on-year and +14.52% month-on-month. Net profit for the first three quarters of 2022 was 15.981 billion yuan, +2916.44% year-on-year, of which Q3 net profit was 5.654 billion yuan, +1173.35% year-on-year, and -19.23% month-on-month.
The industry is leading in its own mineral production capacity, and its smelting performance is impressive. (1) Prices: The average prices of battery-grade lithium carbonate and lithium hydroxide in the first three quarters of 2022 were 458,000 yuan/ton and 441,000 yuan/ton, respectively, +403.5% and +403.4%. Among them, the average prices in Q3 were 482,000 yuan/ton and 475,000 yuan/ton, respectively, +339%, +306.8%, and +0.4%. (2) Production and sales: According to the announcement, the company has a total production capacity of about 44,800 tons/year of lithium chemical products, including 34,500 tons/year of lithium carbonate production capacity, 50,000 tons/year of lithium hydroxide production capacity, 0.45 million tons of lithium chloride production capacity, and 800 tons of lithium metal production capacity. Since the undersold production capacity of Tellison concentrate is greater than that of back-end smelting production capacity, the part with insufficient smelting capacity will be outsourced processing. Due to the Q3 epidemic in Sichuan, production and marketing may have a certain impact.
SQM's production capacity continues to expand, and investment returns are flexible. In September 2022, SQM raised its production guidelines twice, from 140,000 tons of lithium carbonate at the beginning of the year to 150,000 tons of lithium carbonate. In terms of production capacity planning, 210,000 tons of lithium salt production capacity will be formed in 2023 (180,000 tons of lithium carbonate in Chile plus 30,000 tons of lithium sulfate in China). At the same time, in 2023, Q3 lithium hydroxide caustic production capacity will increase from 22,000 tons to 37,000 tons. In Q4, 2023, the Australian joint venture mine Mt Holland will also begin producing lithium concentrate. The corresponding smelter Co50,000 tons of hydrogen oxidation will be formed Lithium production capacity will also be put into operation in Q4 2024. With lithium prices remaining high, it is expected to contribute considerable investment returns.
The capital structure continues to be optimized, and domestic and foreign projects are progressing simultaneously. The company has used the funds raised from this H-share issuance to repay all SQM mergers and acquisitions syndicated loans and domestic loans of approximately RMB 1,481 billion. By the end of the third quarter, the company's balance ratio was 25.53%, down 20.02 pct from the previous month.
In terms of project promotion, the 20,000-ton battery-grade lithium carbonate project in Anju, Suining is currently gradually returning to the pace of construction and is expected to be completed in the second half of 2023; the Chongqing Tongliang production base plans to expand the 2,000-ton lithium metal project in two phases. It is expected that the first phase of 800 tons will be completed, operated and put into operation in 2023, and the second phase of 1,200 tons will be completed and put into operation and put into operation in 2025; Quinnana phase I is expected to achieve first sales of 24,000 tons of lithium hydroxide production capacity in 2022 Construction works were restarted in H2.
Strengthen industrial chain cooperation and build long-term competitive advantages through integration. The company has deepened cooperation with downstream companies in the industrial chain. At the equity level, China Innovation Aviation, LG Chemical, and German Nano participate in the company's Hong Kong stock placement. In addition, the company has obvious resources and smelting advantages, and is also actively participating in downstream companies such as China Innovation Aviation (accounting for 1.12% of its share capital after the issuance of Hong Kong shares), Xiamen Tungsten New Energy, SES, Beijing Weilan, and Aerospace Power. At the production and operation level, the company's subsidiaries have signed long-term contracts for the supply of lithium products with many customers such as China Innovation Aviation, German Nano, and LG Chemical, etc., which helps the company establish long-term strategic partnerships with core customers, or enhance the stability and sustainability of the company's future operations.
Investment suggestions: We expect the company to achieve operating income of 467.91, 479.01 and 49.591 billion yuan respectively in 2022-2024, net profit of 244.29, 247.79, and 25.107 billion yuan, corresponding to EPS of 14.88, 15.1, and 15.3 yuan/share, respectively. The current stock price corresponds to PE 6.2, 6.1, and 6 times. Maintain the “buy-A” rating, with a target price of 120 yuan/share for 6 months.
Risk warning: lithium prices fluctuate greatly, demand falls short of expectations, project progress falls short of expectations