Main points of investment

Performance summary: the company released the three-quarter report of 2023, with operating income of 6.628 billion yuan in the first three quarters of 2023, down 18.55% from the same period last year; net profit of 1.095 billion yuan, down 74.83% from the same period last year; and net profit of 475 million yuan after deduction, down 89.07% from the same period last year. Among them, the company's operating income in the third quarter was 1.87 billion yuan, down 37.77% from the same period last year; the net profit was 483 million yuan, down 63.68% from the same period last year; and the net profit after deducting non-return was 12 million yuan, down 99.12% from the same period last year.

The production cost of purchased concentrate is high, and the net profit of Q3 company has dropped sharply.

For 2022Q4-2023Q3, the non-parent net profit deducted by the company was 1.196 billion yuan, 313 million yuan, 151 million yuan and 12 million yuan respectively, while the non-parent net profit deducted by 2023Q3 Company decreased by 92.05% month-on-month. The company's Q3 profit fell sharply compared with the previous month, mainly due to the high price of lithium concentrate and the loss of lithium carbonate production from external mining concentrate.

According to SMM data, 2023Q3, the average profit of purchasing spodumene concentrate to produce lithium carbonate is about-35500 yuan / ton; from May to June 2023, the average profit of purchasing spodumene concentrate to produce lithium carbonate is about-282 million yuan / ton (the domestic lithium salt market turnover is less in April 2023, so it is more accurate to use May-June profit to express Q2 profit). The loss of Q3 purchasing spodumene concentrate production lithium carbonate ton is further enlarged. Considering the sluggish downstream demand season since September, Q3 is expected to ship the same amount of lithium salt as Q2. Overall, the high price of spodumene concentrate led to a significant decline in Q3 earnings compared with the previous month. In addition, the creditor's rights of Chengdu Xingneng New material Co., Ltd. Held by 2023Q3 Company were paid off (Chengdu Xingneng originally owned 54.29% equity of Yajiang County Snowway Mining Development Co., Ltd., which was transferred by the reorganization investor to 100% equity of Snowway Company due to bankruptcy and restructuring), the confirmed investment income was 538 million yuan, which significantly increased the company's profit (the net profit of 2023Q3 company was 483 million yuan. A month-on-month increase of 226.35%).

The production capacity of the resource end and smelting end continues to expand, and the low-cost raw materials expand the company's profit space. The company makes efforts in the main business of lithium salt, and its production capacity is constantly expanding. Resource side: the Oyino mine increases storage and climbing production (with a design capacity of 75000 tons of lithium concentrate / year); five mining rights projects with proven reserves at Sabixing Lithium-Tantalum Mine in Zimbabwe have entered the pilot production phase in May 2023 (with a design capacity of 200000 tons of lithium concentrate / year); the technical renovation work of the SDLA Salt Lake project in Argentina and the construction of a pilot production line with an annual production capacity of 2000 tons of lithium carbonate equivalent in Pocitos Salt Lake continue to progress. With the continuous release of the company's resource-side production capacity, the company's lithium salt raw material cost is expected to be further reduced. In addition, the company has signed off-take agreements with Jinxin Mining, Galaxy Lithium, ABY, AVZ Mining and DMCC to strengthen resource protection. Smelting end: the company's existing lithium salt production capacity exceeds 70,000 tons / year, metal lithium production capacity is 500t / year, Indonesia Shengtuo 60,000 tons / year lithium salt production capacity is under active construction, in addition, the company plans to have another 10,000 tons / year lithium salt production capacity in Suining (of which the first phase of 5000 tons capacity is expected to be completed in the second half of 2023). In the medium-and long-term dimension, the company's lithium salt production is expected to exceed 140,000 tons / year.

Lithium salt resource end and smelting end go hand in hand, accumulating strength for the company's performance growth.

The supply is gradually oversupplied and the price of lithium salt is expected to remain under pressure. Since the end of August 2023, the demand for lithium salt in the traditional peak season is cold, and the price fluctuation of lithium salt decreases. Taking into account the successive release of new production capacity at the resource side, the overall supply and demand of lithium salt in the medium-term dimension will be oversupply, and we expect that the price of lithium salt will continue to be under pressure.

Profit forecast and investment advice: considering the current supply and demand pattern of lithium salt is gradually excessive, the medium-term dimension of lithium prices will continue to be under pressure. Therefore, we make adjustments to the company's profit forecast. It is estimated that the return net profit of the company from 2023 to 2025 is 14.88,21.52,3.269 billion yuan respectively, the EPS is 1.61,2.33,3.55 yuan respectively, and the closing price on October 30 is 14.9,10.3,6.8 times respectively.

Risk tips: lithium salt prices have fallen sharply, production capacity construction projects are not as expected, overseas project operation risks, and so on.