Event: The company released its 2023 three-quarter report. 2023Q1-Q3 achieved revenue of 5.01 billion yuan, -8.8% year-on-year, net profit of 2.07 billion yuan, +0.9% year-on-year, net profit of 2.03 billion yuan after deduction of non-return net profit of 2.03 billion yuan, +1.3% year-on-year. Looking at a single quarter, 2023Q3 achieved revenue of 1.40 billion yuan, -32.4%, -8.2% month-on-month, net profit of 570 million yuan, -22.1% year-on-year, +39.6%, net profit of 570 million yuan, minus net profit of 530 million yuan, -26.2% year-on-year, and +38.2% month-on-month.

Lithium ore began to be completely self-supplied, and Bikita's first batch of spodumene concentrate was shipped back to China. 1) Price: According to data from the Asian Metal Network, the average price of 23Q3 electric hydrogen without tax was 210,000 yuan/ton, -20.5%, and the average price of electricity and carbon tax was 221,000 yuan/ton, -0.4%. The company's lithium salt sales price fell month-on-month; 2) The lithium mine began to be completely self-supplied: In July 2023, the 2 million tons/year lithium penetrating feldspar transformation and expansion project of the Bikita lithium mine in Zimbabwe was completed and put into operation one after another, and the 23Q3 lithium mine began to be completely self-sufficient. The lithium-permeable feldspar concentrate produced by Bikita's renovation and expansion project continues to be shipped domestically. At the beginning of September 2023, the first batch of 10,000 tons of spodumene concentrate produced by Bikita's new construction project began to be shipped back to China.

Production costs are declining as scheduled, and there is still room for cost reduction in the future. The production cost of a single ton of 2023H1 lithium salt is 95,000, and the self-sufficiency rate of 23Q3 lithium mine has increased to 100%. We expect the cost per ton to drop as scheduled. Currently, the company's lithium ore raw materials mainly come from the lithium-penetrating feldspar concentrate produced by the Bikita mine, and a small portion comes from the spodumene concentrate produced by the Tanco mine. As the Bikita mine builds a new spodumene production line and starts production, the share of spodumene concentrate raw materials will gradually increase in the future, so we expect that the company's production cost of one ton of lithium salt still has room for further decline.

Expenses: Management expenses declined month-on-month, and sales and financial expenses remained stable. 23Q1-Q3, sales expenses of 68 million yuan, +99.7% year-on-year, are mainly due to an increase in lithium concentrate sales; management expenses of 290 million yuan, +72.8% year-on-year, mainly due to the company's merger with Bikita starting in May 2022; and financial expenses of 145 million yuan, +252.6% year-on-year, mainly due to an increase in exchange losses. Looking at a single quarter, 23Q3 sales/management/finance expenses were 0.19/0.71/51 million yuan, or -0.03 billion yuan month-on-month.

Core highlights: 1) Mining side: The Bikita mine was gradually released, and the lithium mine began to be completely self-supplied. In July 2023, the Bikita mine's 2 million tons/year lithium penetrating feldspar transformation and expansion project and 2 million tons/year spodumene construction project were put into trial production one after another, reaching 300,000 tons of chemical-grade lithium penetrating feldspar concentrate and 300,000 tons of spodumene concentrate per year after delivery; Tanco mine currently has a production capacity of 180,000 tons/year, and the new 1 million tons/year beneficiation project is expected to be put into operation by the end of 2024; the 2023Q3 lithium mine has begun to be fully self-sufficient; 2) Smelting end: production expansion is smooth, and integrated lithium salt production capacity continues to expand Zhang. The company currently has 25,000 tons of electric hydrogen/electric carbon plus 6,000 tons of lithium fluoride production capacity. Chunpeng Lithium's 35,000-ton lithium salt construction project is expected to be put into operation in 2023Q4. In 2024, the company's lithium salt production capacity will increase to 66,000 tons. At the same time, 40,000 tons of production capacity are planned overseas, and the lithium salt production capacity will increase to 106,000 tons in 2025.

Investment suggestions: Lithium mining is starting to be completely self-supplied, lithium salt production capacity continues to expand, and costs are expected to gradually improve. We expect the company to return net profit of 24.9, 21.4, and 2.22 billion yuan in 2023-2025. The PE corresponding to the closing price on November 1 is 10, 12, and 12 times, maintaining the “recommended” rating.

Risk warning: The price of lithium fell more than expected, and the progress of the expansion project fell short of expectations.