Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved operating income of 6.63 billion yuan, -18.6% year-on-year; realized net profit of 1.1 billion yuan, -74.8%; and realized net profit after deduction of 480 million yuan, -89.1% year-on-year. On a quarterly basis, 23Q3 achieved operating income of 1.87 billion yuan, or -37.8%; realized net profit of 480 million yuan, -63.7% year-on-year; and realized net profit after deduction of 12 million yuan, a year-on-year decrease of 99.1%. In addition, Chengdu Xingneng's claims held by 2023Q3 were settled (Chengdu Xingneng originally held 54.29% of the shares in Snover Mining, and Snover Company was restructured due to bankruptcy), confirming investment income of 538 million yuan, which boosted the company's profits.
Mineral prices are still high, and the company's performance is under pressure. According to Baichuan data, the average price of electricity in 23Q3 was 240,000 yuan/ton, -51.4/ -6.1% over the same period; the average price of electric hydrogen in Q3 was 232,000 yuan/ton, -52.6%/-15.1% over the same period, and lithium salt prices continued to decline. Some of the company's outsourced concentrates come from Mt Cattlin. The mine's Q3 underwriting price was 2,625 US dollars, -39% over the previous year. The decline in mineral prices was less than the reduction in lithium salt, but it was still relatively high, and the performance of companies with high mineral prices was under pressure.
The release of mining capacity in Africa has injected new impetus into the company's development. The company currently has two active production mines:
1) Yelonggou, Sichuan: The production scale of raw ore is 405,000 tons, equivalent to about 75,000 tons of lithium concentrate. Production was put into operation in November 2019, with an output of 54,000 tons of concentrate in '22. Through supplementary exploration in recent years, the amount of lithium resources in the Yelonggou mining area has doubled compared to when the mining license was obtained. By the end of 2022, 169,500 tons of Li2O resources had been discovered, and there is still room for further resource improvement. 2) Sabixing, Zimbabwe: Five of these mineral rights are equivalent to about 200,000 tons/year of high-grade lithium concentrate, equivalent to about 30,000 tons of LCE, and entered trial production in May of this year. Currently, production capacity is climbing well and is close to full production. The first batch of lithium concentrates has been shipped domestically from African ports in September, and will arrive at domestic ports one after another in the near future. As a single type of spodumene mine, the management and technical team is experienced. It is close to Harare, the capital of Zimbabwe, and the port of Beira in Mozambique, and the production cost is low. The company currently owns 51% of the shares in the mine. According to the agreement, all lithium concentrate can be underwritten, injecting new impetus into the company's smelting capacity.
Profit forecast and investment suggestions: Combining the decline in lithium prices and mineral prices, and the company's production situation, we revised our lithium price and production assumptions. The estimated net profit of the company in 23-25 was 16.34/19.68/2,024 billion yuan (original value 23.02/33.36/3.357 billion yuan), giving the 2024 13.6 times PE valuation, corresponding to the target price of 29.06 yuan, maintaining the “buy” rating.
Risk warning: Risk of lithium price fluctuations, risk of overseas policy changes, projects under construction falling short of expectations.