Main points of investment:

Mica lithium technical transformation to reduce costs and increase output, enjoy the rising price dividend of lithium carbonate. The company is an early enterprise to realize the large-scale production of lithium extraction from lithium mica, with an output of 1018 tons last year and 680 tons from January to August 2017. The company has built a production line with an annual output of 3000 tons of lithium carbonate. in the first half of the year, the company carried out technical transformation of the production line according to the new process, and completed the technical transformation on September 7 to ignite the rotary kiln. The company said on the interactive platform that it expected that the product could be produced smoothly in September. Two years ago, the company's old process production grade of industrial grade and battery grade lithium carbonate had reached the standard, especially the industrial grade had reached the highest level of industrial grade lithium carbonate. The conversion quality is good. The main by-products of lithium mica ore, such as feldspar powder, are high-quality glass-ceramic raw materials, which have been comprehensively utilized. The new process uses roasting technology, and through technical transformation, the annual output can reach 5000 tons, the process is shortened, the cost is greatly reduced, and the recovery rate of lithium is greatly improved. After the application of the new technology, it is estimated that the cost of preparing lithium carbonate from lithium mica is about 70,000 yuan. On September 15, Baichuan News reported that the prices of battery-grade and industrial-grade lithium carbonate were 165,000 yuan and 145,000 yuan / ton, respectively.

The development of lithium extraction from mica + lithium ore. The company's annual production of 10,000 tons of lithium carbonate investment project and joint venture spodumene production of 15000 tons of lithium carbonate and lithium hydroxide project has started construction, is expected to be put into production in the first half of next year. The company's lithium mica concentrator is under construction, and it is difficult to meet the requirements of large-scale lithium carbonate for lithium mica raw materials in the short term. Through cooperation with Baowei Materials, the company ensures the supply of raw materials for lithium concentrate and has favorable prices. Build an annual production line with an annual output of 15000 tons of lithium carbonate and lithium hydroxide to ensure a rapid increase in lithium carbonate production. Baowei Materials has exclusive underwriting rights for spodumene in Canada and Australia.

There has been a steady growth in automobile plus intelligent machinery and electricity. The company mainly has three platforms for electric vehicles, namely, Kowloon Motor, Yichun bus Factory and Jiangte Electric vehicle. Kowloon Motor bus has certain advantages in the field of commercial vehicles. With the completion of the application for the catalogue and the gradual landing of large orders signed by Kowloon Motor bus with Zhuhai Guangtong and Shenzhen National Transport capacity, we expect that the performance of Kowloon Motor bus will be released gradually in the second half of the year. Intelligent mechanical and electrical industry is a traditional advantageous industry with decades of manufacturing experience. MIG Motor, acquired by the company in 2015, is the leading enterprise in the servo motor industry, maintaining rapid growth every year, and the market performance of traditional motors has recovered this year. Intelligent mechanical and electrical industry, especially new energy vehicle motors, servo motors will be the focus of the company's future development.

Maintain a "buy" rating. The company has the whole industry chain of lithium extraction of mica and upstream lithium mica resources, enjoying the rising price dividend of mica. With the completion of the technological transformation, the production capacity of lithium carbonate will increase to 5000 tons in 2017, the cost will drop, and the profit will increase significantly. The company also has two major business platforms, Kowloon Motor and MIG Motor. Assuming that the fixed increase is completed in 2018, the production capacity of lithium carbonate rights and interests will eventually increase to 22,500 tons / year. Per 10,000 tons of lithium carbonate production can increase the company's gross profit by about 900 million yuan (at a price of 160000 yuan / ton, 70,000 yuan / ton cost), resulting in a rapid decline in the company's valuation. We expect EPS to be 0.30 in 2017. assuming that the total share capital will increase to 1.762 billion shares after the completion of the fixed increase, and the EPS will be 0.40 yuan per share in 2018 and 0.53 yuan per share in 2019 after dilution. Taking into account the booming demand of the company's new energy industry, assuming that the fixed increase will be completed in 2018, it will be valued 70 times in 2018, corresponding to the target price of 28.00 yuan, maintaining the "buy" rating.

Uncertainty analysis. The risk that the project construction is not up to expectations and the market demand is not up to expectations.