The company forecast for 23 to achieve net profit of 16.5-1.75 billion yuan. According to the company's announcement, net profit due to mother is expected to be 16.5-1.75 billion yuan in 2023, a year-on-year decrease of 73.43%-74.95%. The sharp decline in profits was mainly due to a drop in lithium hydroxide prices in '23. We determine that lithium prices in 24/25 will gradually stabilize after bottoming out. Therefore, assuming that the average price of lithium hydroxide (tax included) in 23-25 is 26.89/8.60/10,000 yuan/ton, respectively, the company's net profit to mother for 23-25 is 16.54/9.70/16.44 yuan, respectively. The company's net assets per share are estimated to be 14.44/15.20/16.93 yuan for the same period. Comparatively, the company's 24-year Wind unanimously expected an average PB (24E) value of 1.46X. Considering the company's recent rapid pace of production capacity release and significant customer resource advantages, the company was given 1.50X PB (24E). It is estimated that the company's total market capitalization target is 19.096 billion yuan, and the target price is 22.80 yuan, giving it an “increase in wealth” rating.
The 23-year performance was under pressure, and many management measures promoted an increase in the company's quality and return. Affected by the rapid expansion of upstream production capacity and the slowdown in demand growth in downstream NEVs, the price of lithium hydroxide dropped significantly in 23 years. The company's current lithium battery business is mainly based on purchasing concentrates and then smelting and processing them into battery-grade lithium hydroxide materials. The company's gross profit in this sector reached 97% in '22. The drop in lithium prices has had a significant impact on the company's performance. In the downward cycle of the industry, in order to enhance investor confidence and improve the quality of the company, the company announced an action plan to promote “double improvement in quality and return” on February 26. The main measures include focusing on the main business, driving innovation, increasing repurchases, cash dividends, and improving the quality of credit disclosure.
The company accelerated the integrated layout of lithium batteries and formed a multi-faceted strategic partnership with the Ningde Era. Weineng Lithium plans the second phase of lithium hydroxide production capacity of 25,000 tons. After production is put into operation, the company's total lithium hydroxide production capacity will reach 160,000 tons. On the resource side, the company is actively seeking mine layout. As of 23Q3, it has 6.73% of AVZ's shares. The company holds 75% of the Manono project, which currently has the largest reserves and the best quality hard rock lithium deposits in the world. The project is expected to become the company's largest source of lithium concentrate after mass production. At the same time, the company's spodumene ore selection project with an annual output of 900,000 tons is close to being put into operation, and raw material security will be further strengthened. Furthermore, as a leader in the global lithium battery industry, the company has formed a multi-faceted cooperative relationship with it, including product supply, strategic shareholding, and joint venture construction. Among them, Tianyi Lithium, a joint venture subsidiary of the company and Ningde Era, currently has 75,000 tons of lithium hydroxide production capacity and 30,000 tons of lithium carbonate production capacity, and plans to build 100,000 tons of lithium carbonate in the future.
Overseas lithium mines showed signs of production cuts, and lithium prices may have recovered after bottoming out in 24/25. The pattern of oversupply in the lithium industry continues. However, under the influence of the continued decline in lithium prices, some high-cost mines, including Finnis, recently announced the cessation of production. At the same time, low-cost mines such as Greenbush and Mt Cattlin have lowered their production guidelines for 24 years, and the lithium oversupply pattern has shown signs of narrowing to a certain extent. If lithium prices continue to fall in the future, it may trigger production cuts in more mines, and the lithium supply and demand pattern may usher in substantial improvements.
Based on this judgment, we expect the excess supply and demand ratio of lithium to be 5.76%/1.96% in 24/25, respectively, and lithium prices are expected to stabilize after bottoming out.
Risk warning: Overseas mine production expansion exceeds expectations, downstream demand falls short of expectations, etc.