Net profit attributable to the mother decreased by 75.87% year-on-year in '23, maintaining the operating income of the rated company with increased holdings of 32.972 billion yuan, yoy-21.16%, and net profit attributable to the parent company of 4.947 billion yuan, yoy-75.87%. The current supply and demand relationship in the lithium industry continues the pattern of excess, but we believe that the excess situation has converged, and lithium prices are expected to gradually stabilize after bottoming out. Based on the assumption of 9.8/10.5/120,000 yuan/ton in 24-26 (previous value of 20/150,000 yuan/ton in 24-25 years), the company's net profit for 24-26 is estimated to be 36.95/65.19/9.168 billion yuan, respectively (previous value of 109.01/11.712 billion yuan for 24-25, respectively). Comparatively, the company's 24-year Wind unanimously anticipated PB1.59X. Considering the company's rapid pace of future production expansion, the mining side is expected to usher in intensive production, giving the company 1.7XPB in 24, corresponding to a target price of 42.76 yuan (previous value of 51.39 yuan) for A-shares, maintaining the “gain” rating.

The company's lithium salt production capacity exceeded 200,000 tons, and the drop in lithium prices caused the company's 23Q4 net profit to turn negative. According to the annual report, the production/sales volume of the company's lithium series products was 10.43/101,800 tons of LCE, YOY +7.25%/+4.57%, respectively. With the completion of the 20,000 ton lithium carbonate project of the Fengcheng Ganfeng Phase I project, the company had a total lithium salt production capacity of over 200,000 tons by the end of '23, and the lithium salt project is under construction and planning. After the above projects are put into operation one after another, the company is expected to produce more than 300,000 tons of lithium salt in 25 years. In terms of profit, the decline in lithium prices affected the company's comprehensive gross margin of 23 falling to 13.88%, yoy-35.62pct, of which 23Q4 gross margin was 1.39%, down -3.55pct month-on-month. The company's net interest rate turned negative to -17.89% in the fourth quarter, and the month-on-month decline was 18.33pct.

The company's overseas lithium mines ushered in an intensive production period, and the self-sufficiency rate of lithium resources increased rapidly. The company's overseas lithium mine resources ushered in an intensive commissioning period. Among them, the Mt Marion production expansion project was completed last year. The total production capacity of the project will reach 600,000 tons of concentrate after production; the first phase of Argentina's Cauchari-Olaroz project with a LCE production capacity of 40,000 tons was put into operation last year and is scheduled to be put into operation in Q2 in 2012; in addition, the first phase of the 506,000 ton concentrate project at the Goulamina mine in Mali, Africa, where the company holds 100% of the shares, is expected to be put into operation in the middle of the year. According to our calculations, after the above project is delivered as scheduled, the company's overseas lithium resource equity is expected to exceed 140,000 tons of LCE in 25 years, and the self-sufficiency rate will rise to more than 60%.

Overseas lithium mines showed signs of production cuts. Lithium prices may have picked up after 24 years of bottoming out due to factors such as continued expansion of production on the mine side and a slowdown in demand growth. The relationship between supply and demand in the lithium industry has shown a clear pattern of excess since '23. However, under the influence of the continued decline in lithium prices, high-cost mines including Finnis have recently announced the cessation of production. Meanwhile, mines such as Greenbush and Mt Cattlin have lowered their production guidelines for 24 years. The progress of expansion of production in some mines has slowed, and the pattern of oversupply of lithium 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 is expected to usher in substantial improvements. Based on this judgment, we expect the excess ratio of lithium supply and demand in 24-25 to be 4.65%/3.80%, respectively, and lithium prices are expected to stabilize after bottoming out.

Risk warning: Downstream demand in the industry fell short of expectations, and lithium prices fell beyond expectations.