2022&1Q23 results are slightly lower than our expectations
On April 27, the company announced 2022 & 1Q23 results, achieving revenue of 2,209 million yuan in 2022, +243.0% year on year, net profit of 795 million yuan, +467.5% year on year, net profit of 775 million yuan after deduction, +594.2% year on year. The company achieved operating income of 9.04 million yuan in 1Q23, -74.5% year on year, -90.0% month on month, net profit of 17.4 million yuan, -86.8% year on year, -94.5% month on month, net profit of 8.67 million yuan after deduction, -93.1% year on year, -97.2% month on month.
In terms of price, the decline in lithium salt market prices affects the sales price of concentrate. Looking at market prices, maintaining a high lithium carbonate price in 2022 led to an increase in the price of the company's lithium concentrate. According to Asia Metal Network, the average price of battery-grade lithium carbonate including tax in 2022 was 487,000 yuan/ton, +306% year on year. We estimate that the price of the company's lithium concentrate per ton in 2022 was 178,000 yuan/ton. In 1Q23, the average price of domestic battery-grade lithium carbonate was 399,000 yuan/ton, -29% from the previous month. Continued decline in lithium salt prices may lead to a decrease in the price of lithium concentrate products during the year.
In terms of production and sales, sales of lithium concentrate have been delayed, and the incremental production capacity of the first phase of technical reform has been gradually released. Shipments of the company's lithium concentrate in 3Q22 were affected by the epidemic and were delayed, focusing on 4Q22 sales. In 2022, the company produced 9937 tons of lithium concentrate overall, +10% over the previous month. The 1Q23 company was affected by weak market demand to reduce lithium concentrate sales. We expect that the technical reform of the first phase of Zabouye will bring about a continuous increase in production in 2023.
In terms of cost, the company's production cost per ton of lithium concentrate remains low. The first phase of the technical improvement project in Zabye led to an improvement in the quality and cost reduction of the company's lithium concentrate products. We estimate that the company's production cost per ton of lithium concentrate in 2022 will be about 9110 yuan/ton.
Development trends
The 10,000-ton lithium salt project has been slightly postponed, and the production capacity growth plan is clear. Affected by the epidemic, the company signed a supplementary agreement with Donghua Technology to adjust the completion time of the project machinery to March 30, 2024. In terms of power supply, Baowu Qingneng was selected as the winning bidder for the company's 10,000-ton lithium salt power supply project in July 2022, and a service contract was signed to plan the power supply project to be put into operation simultaneously with the main project. The company's production capacity growth plan is clear. In 2023-2025, the company plans to build a 10,000-ton lithium hydroxide project and a second 10,000-ton battery-grade lithium carbonate project to further increase the company's total lithium salt production capacity to 3-5 million tons/year. Basic construction of the 100-ton lithium hydroxide pilot plant has already begun, and the project is scheduled to be completed by the end of December 2023.
Profit forecasting and valuation
Since the decline in lithium prices exceeded expectations and the development progress of Zabye Salt Lake fell short of expectations, we lowered net profit in 2023 by 53% to 580 million yuan and introduced net profit of 800 million yuan in 2024. The current stock price corresponds to 29.4/21.4 times P/E in 2023/2024. Maintaining a rating that outperforms the industry, since the development progress of Zabye Salt Lake is lower than expected, but it is already reflected in the valuation, we lowered our target by 31.9% to 39.42 yuan based on the P/E valuation method, corresponding to 35.2 times the 2023 price-earnings ratio and 25.6 times the 2024 price-earnings ratio. There is 19.6% room for improvement compared to the current stock price.
risks
The development of Zabye salt lake fell short of expectations; integration of salt lakes in Tibet fell short of expectations; and the decline in lithium prices exceeded expectations.