Introduction to this report:
The company's performance was drastically reduced due to falling product prices, and plans to expand production were temporarily suspended due to environmental restrictions.
Key points of investment:
Maintain the “increase in holdings” rating. The company released its semi-annual report for 2023. In the first half of the year, the company achieved operating income of 635 million yuan (-35.63% YoY) and net profit of 302 million yuan (-47.53% YoY). The results fell slightly short of expectations. According to the downward trend in lithium prices in 2023 and the company's project schedule adjustments, it is predicted that the company's EPS for 2023/2024 will be 3.02/2.09 yuan (originally 8.64/14.43 yuan), respectively, and the 2025 EPS will be 2.67 yuan. Considering that the safety premium and reserves of the company's own mines in China are the largest spodumene mining area in Asia, the company was given a valuation 20 times higher than that of its peers in 2023. The target price was lowered to 60.4 yuan to maintain the “increase in holdings” rating.
The company's performance forecast is greatly affected by lithium prices and the progress of production expansion projects. According to Wind, the average change rate of profit forecasts for comparable companies and companies over the past 180 days was -34% and -48%, respectively. The lithium ore index and the company's stock price have changed at -35% and -50%, respectively, in the past 180 days. Industry profit forecasts and stock price declines are mostly due to the fact that lithium prices are falling faster than market expectations, and central expectations for future lithium prices have been lowered.
23H1 lithium prices are declining rapidly, and falling product prices have affected the company's performance. According to the SMM website, the rate of change in lithium prices in the last year was about -49%. The company's main product is lithium carbonate, and the drop in product prices has had a great impact on the company's performance. Furthermore, based on the medium- to long-term supply and demand relationship in the lithium industry, we believe there is still room for lithium prices to decline, so the company's performance forecast has been lowered.
The 2.5 million ton concentrate selection project has been put on hold due to environmental review issues. According to the company's announcement, a “Review Opinion Letter” was received, which stated that due to potential environmental safety hazards, “it is recommended that the base abolish the lithium ore beneficiation and tailings processing industries and optimize and adjust the industrial positioning.” Based on this, we believe that the assumptions for the advance of the project need to be lowered, so the company's performance forecast was lowered.
Risk warning: Production expansion projects have been delayed for a long time, and demand for electric vehicles has fallen short of expectations.