Incident: On March 27, 2024, the company released its 2023 annual report. The company's revenue in 2023 was 7.951 billion yuan, or -33.96% YoY; net profit to mother was 702 million yuan, -87.35% YoY.

Comment: The decline in lithium prices and asset impairment losses dragged down performance, and lithium salt and lithium concentrate production both increased year on year. The main reason for the decline in lithium price performance is that by the end of 2023, the price of battery-grade lithium carbonate was 103,300 yuan/ton, down 79.8% from the beginning of 2023. In 2023, the company achieved production and sales of lithium salt products of 56,700 tons/52,900 tons, respectively, +19.03%/+11.45% year over year; achieved lithium concentrate production of 173,400 tons, +219.37% year over year. Due to falling lithium prices and concentrate prices, the company lost 197 million yuan in asset impairment in 2023. This value is a new high since the company went public, with inventory price losses of 184 million yuan.

The decline in lithium concentrate prices accelerated after the Australian mining pricing model was changed, and lithium prices rebounded in Q1 in '24. The pricing model for some Australian mines was changed from the original Q-1 pricing model to the M+1 month pricing model and began to be implemented. Take the Cattlin mine, which has an offtake agreement with the company. As of March 23, 2024, the price of lithium concentrate (CIF) was 5,702 US dollars/ton, 4297 US dollars/ton, 2625 US dollars/ton, and 763 US dollars/ton respectively. Prices declined significantly in the second half of the year. Due to the recovery in downstream demand and environmental disturbances in some regions, lithium prices rebounded in Q1 '24. As of March 23, 2024, the price of lithium carbonate and lithium hydroxide was 116,000 yuan/ton and 99,000 yuan/ton, respectively. rising 15.0% and 14.7%.

Yelonggou and Sabixing have been officially mass-produced, and the wood velvet mine will contribute to subsequent resource increases. Ore side: The Yelonggou spodumene mine was put into operation in November 2019. The raw ore production scale is 405,000 tons/year, equivalent to about 75,000 tons of lithium concentrate, and the company is actively promoting additional storage; Zimbabwe has the Sabistar lithium and tantalum project, which is equivalent to about 200,000 tons/year of lithium concentrate, and trial production began in May 2023. At the same time, the company continued to increase its investment in Huirong Mining (which has prospecting rights for woodwool mines), and its shareholding ratio rose to 48.06%. The total amount of proven metal oxide in the prospecting rights was 989,636 tons of Li2O, with an average grade of 1.62%.

The company's future lithium salt production capacity is planned to exceed 140,000 tons, and the lithium metal production line has a first-mover advantage. The company plans to produce more than 140,000 tons of lithium salt in the future: Zhiyuan Lithium has built a production capacity of 42,000 tons of lithium salt per year; Shengxin Metal has built a production capacity of 30,000 tons of lithium salt per year; Shengxin Metal plans to produce 10,000 tons of lithium salt per year, and the first phase of 5,000 tons of production capacity will be completed and put into operation in the fourth quarter of 2023; Indonesia Shengtuo's design capacity is 60,000 tons of lithium salt per year. It is expected to be completed and put into operation in the first half of 2024. Shengwei Lithium plans to produce 1,000 tons of lithium metal per year. Currently, it has built a production capacity of 500 tons, and the remaining production capacity is under active construction.

Profit forecast and valuation: Considering the decline in lithium prices, we lowered our profit forecast. We expect the company's net profit to be 11.3/1.57 billion yuan in 2024-2025, down 46.4%/43.3% respectively, adding the 2026 forecast that the company's net profit to mother will be 2.38 billion yuan, corresponding to PE 16X/11X/7X for 2024-2026. We recommend that you pay attention.

Risk warning: Downstream electric vehicle production falls short of expectations; risk of fluctuations in raw material prices; risk of increased market competition; supply-side production capacity in the industry is released too quickly; company project construction falls short of expectations; safety and environmental risks, etc.