Rongda Lithium Industry signed an agreement on the purchase and sale of lithium carbonate, and the inventory of lithium concentrate began to be processed.
Rongda Lithium Industry, a wholly owned subsidiary of the company, signed the Lithium Carbonate purchase and Sale Agreement with Panzhihua Seven Star Optoelectronics on December 24, 2017, with a contract amount of about 48.48 million yuan, for a period from December 24, 2017 to March 31, 2018. Rongda Lithium Industry disposes of the lithium concentrate in stock, which is commissioned to be processed into lithium carbonate and sold. The total quantity of battery-grade lithium carbonate is 300t, and the price per ton is 161600 yuan. The signing of this contract means that Rongda Lithium Industry began to dispose of the lithium concentrate before the suspension of production. Although the signing of the contract is not necessarily related to the resumption of production of Rongda Lithium Mine, the resumption of mine production is still uncertain; however, we believe that the company has continued to distribute its upstream lithium business in recent years, and the value of its resources needs to be paid attention to with the promotion of the project.
The general trend of new energy replacing traditional energy may be established, and local governments may take measures in accordance with local conditions.
The medium-and long-term trend of new energy vehicles replacing fuel vehicles has been basically established, and the scarcity of lithium and cobalt resources has become increasingly prominent. Because the salt lake is rich in resources, the Qinghai government has put forward a plan to build Qinghai into a 100 billion yuan lithium power industry base in China. Sichuan Province has high-quality lithium ore resources, and the plan of "Lithium Capital of China" has been put on the agenda. According to the Sichuan Ministry of Industry and Information Technology, Rongjie Group, the company's controlling shareholder, plans to spend 6 billion yuan to build a new energy automobile battery industrial park in Qionglai Industrial Park, which further confirms that the local government's support for the lithium industry has not been reduced, coupled with the promotion of high profit margins. We think that the road of resuming production of the company's lithium mine is still a long way off. In particular, on October 19, 2017, Ganzi Prefecture announced the impact of environmental assessment on the expansion project of 1.05 million-ton open-pit mining in Rongda Mining for the first time, which was a key first step for the mine to resume production as soon as possible.
Deep layout of lithium power industry chain, spring flowers are waiting for autumn.
In recent years, the company has not stopped its top-down layout along the lithium industry chain. The acquisition of Dongguan Derui (65% equity), acquisition of Changhe Huali (80% equity) and Rongjie Metal (20% equity) all demonstrate the company's strategic intention to expand deeply in the lithium power industry. The company currently has a mining and separation capacity of 450000 tons of lithium ore (to be resumed), which may be expanded to 1.05 million tons in the long term, with a planned annual output of 22000 tons of lithium salt plant. In addition, CK Hutchison Huali has an annual production capacity of 3000-5000 tons of lithium salt, Rongjie Metal has an annual production capacity of 700 tons of cobalt series main products (measured by cobalt metal), and is advancing the second phase of the construction project of lithium cathode materials with an annual output of 3000 tons (measured by cobalt metal). Lithium equipment business (Dongguan Derry) achieved a net profit of about 33.4349 million yuan in 2016, and the project of 3 million sets / year of electronic schoolbags is progressing steadily.
Regardless of whether the mine resumes production or not, we believe that the company is expected to see a substantial increase in performance in the next 2-3 years.
Pay attention to the follow-up progress of lithium mines and maintain the rating of "overweight"
Assuming that the output of lithium concentrate in 17-19 is 0,0.77 and 30600 tons respectively, and the output of lithium salt is 0, 1100 and 3300 tons respectively, due to the increase in profit due to the signing of the purchase and sale contract, the 18-year profit forecast is raised. The company's net profit for 17-19 is expected to be 0.04,1.78 and 343 million yuan respectively, corresponding to 0.02,0.69,1.32 yuan, of which the 18-year net profit is increased by 25%. Due to the recent decline of subsidies for new energy vehicles and other factors, the overall valuation of the lithium plate has fallen, and the market value of the standard Tianqi lithium industry ton reserves has declined, taking into account the consistency of the plate valuation level to reduce the reasonable market value range of the company's upstream lithium business to 99-10.8 billion yuan. Lithium power equipment business is expected to have a 17-year net equity profit of 16.25 million yuan, given 35 times PE, the reasonable market capitalization of the business is 570 million. The combined reasonable market capitalization range of the two businesses is 104.7-11.37 billion yuan, and the target price is reduced to 40.27-43.73 yuan accordingly, maintaining the "overweight" rating.
Risk tips: the progress of lithium mine resumption is not as expected, and the promotion of lithium equipment business is not as expected.