2023 results are in line with our expectations
Salt Lake Co., Ltd. announced its 2023 results: achieved revenue of 21.58 billion yuan, a year-on-year decrease of 29.8%; net profit to mother was 7.91 billion yuan, corresponding to profit of 1.46 yuan per share, a year-on-year decrease of 49.2%, in line with our expectations. The company's net cash flow from operating activities during the reporting period was 12.10 billion yuan, a year-on-year decrease of 30.8%.
The decline in the company's profit in 2023 was mainly due to a decline in the potassium chloride and lithium carbonate boom and a decline in gross margin of 23.7ppt to 50.3% due to the payment of mining rights concessions. In 2023, the company achieved operating revenue of 14.62 billion yuan, a year-on-year decrease of 15.5%; a total year-on-year production/sales volume of 493/5.6 million tons of potassium chloride was achieved, with a year-on-year change of -15.1%/+13.3% in production and sales. Lithium carbonate achieved operating revenue of 6.36 billion yuan, a year-on-year decrease of 44.5%; total lithium carbonate production/sales volume of 36,600 tons was achieved throughout the year, and production/sales increased 16.3%/24.6% year over year.
4Q23 achieved operating income of 5.79 billion yuan, a year-on-month decrease of 19.7%/0.8%; net profit to mother was 2.31 billion yuan, a year-on-month change of -33.6%/+361%. According to the announcement, the company achieved a production and sales volume of 1.5 million tons/1.84 million tons of potassium chloride and a production/sales volume of about 1.03/102 million tons of lithium carbonate in 4Q23.
Development trends
Cash flow is abundant, and the balance ratio continues to improve. Cash flow improved dramatically as the company completed the divestment of non-performing assets in 2021 and potash entered a boom period. Net cash flows from operating activities in 2021-23 were $48/175/121 billion, respectively, and the balance ratio improved significantly from 73.8 in 2020 to 48.6ppt to 25.3% in 2023. Looking ahead, we believe that the company relies on salt lake resources, and the costs of its main products, potassium chloride and lithium carbonate, are still at a relatively low level in the industry, and abundant cash flow is expected to continue to be maintained, laying the foundation for the company to pay dividends after meeting the necessary dividend conditions.
Potash prices may have bottomed out in the short term, and the construction of lithium carbonate production capacity is progressing steadily. According to Baichuan information, the current average price of potassium chloride market is 2,178 yuan/ton, down 659 yuan/ton from 4Q23 at 2,837 yuan/ton. This is mainly due to low season demand and high port inventories. Looking ahead, we believe that the low season for fertilizer demand has passed and port inventories have begun to be digested at the same time, and there is limited room for further decline. In terms of lithium salt, the company's subsidiary Lanke Lithium has a production capacity of 30,000 tons of lithium carbonate. The company will launch its own integrated basic lithium salt project of 40,000 tons/year on this basis. The company is expected to start production in 2024. We are optimistic about the increase in profits brought to the company by the expansion of lithium salt production capacity.
Profit forecasting and valuation
We have basically kept our 2024/25 profit forecast unchanged. The current stock price corresponds to the 2024/25 price-earnings ratio of 10.3/10.1 times. Maintain the “outperform the industry” rating and target price of 18.5 yuan, corresponding to the 2024/25 price-earnings ratio of 11.9/11.6 times and an upward margin of 15.3%.
risks
The global price of potash has dropped sharply, and the price of lithium salt has dropped sharply.