Maintain an “Overweight” rating. Shengxin Lithium Energy announced that it is expected to achieve net profit of 70 to 80 million yuan in 2023 (-85.59% to -87.39% year-on-year), of which net profit for the fourth quarter is expected to be -4.0 to -30 billion yuan. Results fell short of expectations. Based on judging the medium- to long-term supply and demand pattern of the lithium industry, the company's EPS forecast for 2023-2025 was lowered to 0.81/1.75/2.13 yuan, respectively (originally 2.37/2.51/3.24 yuan). Referring to the industry average and the valuation premium brought about by the company's long-term growth in production expansion, the company was given 15 times the PE valuation in 2024, the target price was lowered to 26.25 yuan, and the “gain” rating was maintained.

Lithium prices declined in 2023, and the decline accelerated in the fourth quarter. According to SMM, the average price of battery-grade lithium carbonate for the whole year was 258,000 yuan/ton (-46% year over year), of which the price of lithium in the fourth quarter was 140,000 yuan/ton (-42% month-on-month, -75% year over year). Lithium prices continued to decline due to industrial chain inventory removal and oversupply throughout the year, which had a downward impact on the company's performance and market expectations.

The price of lithium salt has declined rapidly, and Australian mineral prices have lagged behind the decline, cutting profits. According to Mysteel, the pricing mechanism for lithium ore did not gradually change from Q-1 (the average price of electricity in the previous quarter) to the M+1 (current price after delivery) model until the fourth quarter, and the price drop was slow. The company relies heavily on outsourced lithium ore as a raw material for production. Product prices are falling faster than raw material prices. Cost pressure is one of the reasons for the month-on-month decline in performance.

Huirong Mining's share share has increased, and it has the largest lithium mine in Asia: Shengtun Lithium, a wholly-owned subsidiary of the company, plans to increase the capital of Qicheng Mining by 500 million yuan to increase its prospecting rights in the Sichuan Muxiang Mine. According to First Financial News, the mine is the largest pegmatite-type monomer lithium mine ever discovered in Asia.

Risk warning. Sales of new energy vehicles fell short of expectations. The commissioning progress of the company's new project fell short of expectations.