The company released its annual report for 2017. During the reporting period, the company achieved an operating income of 3.365 billion yuan, an increase of 12.75% over the same period last year, and a net profit of 281 million yuan, an increase of 42.6% over the same period last year. EPS is 0.19 yuan per share, in line with market expectations.

The performance of all sectors of new energy is growing rapidly. The company's layout in new energy is relatively complete (resources-lithium salt-cathode-motor-vehicle). During the reporting period, the company's new energy-related business performance increased significantly, and the gross profit of lithium carbonate, automobile and motor plate increased by 36 million yuan, 31 million yuan and 22 million yuan respectively. This is the main source of the company's performance growth.

Lithium carbonate business has entered the harvest period. During the reporting period, the company's lithium carbonate business achieved an operating income of 163 million yuan and a gross profit of 58 million yuan (an increase of 161% over the same period last year). During the reporting period, the technical transformation of the mica lithium extraction production line was completed, with a current production capacity of 5000 tons per LCE/ year. The expansion project of 25000 tons of lithium salt being built by the company is expected to be completed in the middle of 18 years, and the output of lithium carbonate for the whole year is expected to increase greatly.

Since the production of self-produced concentrate, the extraction of lithium from mica is more secure. The company selects 600000 tons of lithium porcelain stone project to start trial production. After the completion of the project, it is estimated that the annual output of lithium mica is about 60,000 tons. Taichang Mining, a subsidiary of the company, has a mineral processing capacity of about 450000 tons in 16 years. According to the mineral processing situation of mines with the same vein, the output of lithium mica is expected to reach 45000 tons. The company's total production of lithium mica is expected to reach about 105000 tons, equivalent to 6600 tons of lithium carbonate. Future production capacity is expected to be further increased, coupled with the purchase of lithium mica, is expected to meet the company's 15000 tons of mica lithium capacity needs.

The cost of extracting lithium from self-produced mica is low, and the profit margin is expected to exceed market expectations. The company disclosed that the cost of extracting lithium from mica is about 70,000 yuan / ton. We estimate that the cost of producing lithium carbonate from self-produced raw materials is about 50,000 yuan / ton (see September 17 depth). According to the proportion of self-production and outsourcing at 2:1, the price of lithium carbonate is conservatively calculated. The company's 15000 tons of mica lithium production line is expected to bring a gross profit of about 1 billion yuan.

Bald Hill begins to mine, and the raw materials of lithium production line from spodumene are expected to be guaranteed. The company announced on March 15 that the construction of Bald Hill spodumene mine was completed and successfully put into production. The company's subsidiary owns 11.32% of Bald Hill project shareholder Tawana (Tawana holds 50% of Bald Hill). According to the underwriting agreement, Bald Hill spodumene will provide 200000 tons of spodumene concentrate to Baojiang Lithium Industry, a joint venture between the company and Baowei (50% each) in 18-19 years, which can basically meet the 15000 tons of spodumene lithium production line under construction at 8:1. According to the data of the underwriting agreement, the cost of lithium extraction from spodumene is about 81000 yuan. according to the conservative estimate of the price of lithium carbonate of 145,000 yuan per ton, the 15000 ton spodumene lithium production line is expected to bring a gross profit of about 820 million yuan (equity 410 million yuan) to the company.

Earnings forecast and rating: taking into account the smooth progress of the company's lithium salt project and lithium carbonate prices in line with expectations, maintaining the 2018-2019 EPS expectations of 0.54 yuan and 0.79 yuan, corresponding to the April 18 closing price of 10.57 yuan, 18-year and 19-year corresponding Pmax E is 20 times and 13 times, respectively. The raw material guarantee of the company is becoming more and more mature, and the possibility of successfully reaching production of the 25000-ton expansion project is getting higher and higher, so the company's "buy" rating is maintained.

Risk tips: the risk of falling lithium prices, the risk of declining sales of new energy vehicles, and the risk that production expansion projects do not meet expectations.