Key points of investment:
Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 5.01 billion yuan, -8.8%; net profit of 2.07 billion yuan, +0.9%; net profit after deduction of 2.03 billion yuan, +1.3% year-on-year. On a quarterly basis, the 2023Q3 company achieved revenue of 1.40 billion yuan, -32.4%/-8.2% over the same period; net profit of 570 million yuan, -22.1%/+39.6% over the same period; net profit after deducting net profit of 530 million yuan, -26.2%/+38.2% over the same period.
Increased resource self-sufficiency has led to increased profitability. 1) Price: According to Baichuan data, the average price of electricity and carbon 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. 2) Profit: With the commissioning of two 2 million ton mineral processing projects in Zimbabwe, the company's lithium resource self-sufficiency rate increased dramatically. With lithium prices declining month-on-month, Q3 sales margin increased to 59.78%, +10.0 pct over the previous month; net sales margin was 40.39%, +13.6 pct month-on-month, and profitability increased significantly.
The Bikita project has reached production, and resource advantages have created a moat. (1) Resource side: Two 2 million ton beneficiation projects in Bikita, Zimbabwe were put into operation in July 2023. They are expected to produce 300,000 tons of spodumene concentrate and 300,000 tons of lepidocite concentrate per year, respectively. The expansion and transformation project was completed on November 9, further enhancing the company's lithium concentrate supply capacity. At the same time, the use of high-grade spodumene concentrate and scale effects will significantly reduce production costs, and resource advantages will create a moat. The Canadian Tanco project currently has a beneficiation capacity of 180,000 tons, and plans to build an additional 1 million tons of beneficiation capacity. It aims to be completed and put into operation by the end of 2024. Raw materials produced using Tanco mineral products can enjoy subsidies under the US IRA Act. (2) Smelting end:
The company's smelting capacity construction strictly follows the resource production capacity construction progress plan. The current lithium salt production capacity is 31,000 tons, and the 35,000-ton high-purity lithium salt project under construction was put into trial operation on November 17. The long-term plan is 66,000 tons domestic+40,000 tons overseas for a total of 106,000 tons of lithium salt, and the resource self-sufficiency rate is as high as 100%.
Profit forecast and investment advice: Taking into account recent lithium price fluctuations and the company's project progress, we have revised the lithium price and sales assumptions for 2023. The estimated net profit of the company from 2023-2025 is 25.42/26.95/3,010 billion yuan (original value: 29.97/39.41/3,942 billion yuan), giving a PE valuation 11.6 times in 2023, corresponding to the target price of 40.80 yuan, maintaining the “buy” rating.
Risk warning: Risk of lithium price fluctuations, risk of overseas policy changes, projects under construction falling short of expectations.