Key points of investment

In 2023, the company achieved net profit of 702 million yuan, a year-on-year decrease of 87.35%. The performance was basically in line with expectations. In 2023, the company's revenue was 7.951 billion yuan, down 33.96% year on year; net profit to mother was 702 million yuan, down 87.35% year on year; deducted non-net profit of 126 million yuan, down 97.72% year on year; gross margin for year 23 was 12.49%, down 47.57pct year on year. The company previously predicted net profit of 700-800 million yuan for 23 years, which is at the lower limit of the forecast, which is basically in line with market expectations. In 2023, Q4 achieved revenue of 1,323 billion yuan, down 66.09% year on year and 29.29% month on month; net profit to mother - 393 million yuan, down 132.65% year on year, down 181.21% month on month, after deducting net profit from non-return to mother - 349 million yuan, down 129.15% year on year and 3066.77% month on month.

Q4 Production and sales declined month-on-month due to downstream demand and maintenance, and is expected to increase by about 60% in '24. In '23, the company produced 56,700 tons of lithium products, up 19.03% year on year, with sales volume of 52,900 tons, up 11.45% year on year. Its Q4 production and sales volume was more than 10,000 tons, a decrease of about 25%, mainly due to maintenance and suspension of production at the Sichuan plant. In terms of production capacity, the company has built 77,000 tons of lithium salt and 500 tons of lithium metal; 60,000 tons of lithium salt in Indonesia (50,000 tons of lithium hydroxide+1 10,000 tons of lithium carbonate) are expected to be completed and put into operation in the first half of '24; Suining plans a 10,000 ton project. The first phase of 5,000 tons was put into operation in 23Q4, contributing to the increase in production capacity in 24 years. In terms of price, the average price without tax in 23 years was 148,000 yuan/ton, and the average price without tax for the non-OEM portion was 200,000 yuan+, of which the average price for Q4 was 110,000 yuan+. We expect a 92-94% price discount for 24Q1, and a transaction price of 80,000 yuan+ in January-January, which is lower than the cost of purchasing mineral lithium salt. In terms of cost, the cost of self-supply of mineral lithium salt in '23 was around 60,000 yuan. The proportion of self-supply increased in '24, and we expect profits to gradually improve.

Sabistar's production capacity climbed smoothly, and wood velvet ore is expected to contribute more over 25 years. In '23, the company's lithium concentrate production was 173,000 tons, an increase of 219%, inventory was 106,000 tons, and the same increase was 15045%. It mainly came from Sabistar lithium and tantalum ore, which took a long time to arrive in Sichuan from Africa. The Yelonggou spodumene mine was put into operation in '19, with a production scale of 405,000 tons of raw ore and 75,000 tons of lithium concentrate. We expect the output to remain around 70,000 tons in 24; the production scale of the five Sabixing lithium and tantalum ore ore ore is 900,000 tons, and the lithium concentrate was put into operation in May '23. We expect production to be around 100,000 tons in '23 and 200,000 tons+ in '24; we expect to start production in '25. Overall, we expect to ship nearly 300,000 tons of concentrate at the mine end in '24, minus 35,000 tons of LCE+, and the mine side's self-supply rate will reach 40-50%.

Profit forecast and investment rating: Considering the conversion of lithium concentrate stocks into lithium carbonate sales in 24 at the end of '23, we raised our profit forecast for 2024-2025. We expect the company's net profit to be 7.2/8.7/1.11 billion yuan in 2024-2026 (originally estimated to be 47/61 billion yuan in 24-25), an increase of 2%/21%/28%, corresponding to 26x/22x/17xPE in 24-26, maintaining the “buy” rating.

Risk warning: Production capacity release falls short of expectations, demand falls short of expectations.