Incident: The company released its 2023 annual report, achieving revenue of 7.95 billion yuan, or -34.0% year on year; net profit to mother of 70 million yuan, -87.4% year-on-year, after deducting non-net profit of 130 million yuan, -97.7% year-on-year. Among them, Q4 revenue was 1.32 billion yuan, -66.1%/-29.3%; net profit to mother was -390 million yuan, which changed profit from month to month; after deducting non-net profit of -350 million yuan, profit changed from month to month.

The increase in volume makes it difficult to make up for the price drop, putting pressure on the company's performance. 1) The company's lithium salt production and sales increased slightly year-on-year in 2023. ① In terms of lithium salt, the company achieved output of 56,700 tons in 2023, +19.0% year on year; sales volume was 52,900 tons, +11.5% year over year; inventory volume as of the end of 2023 was 5,450 tons, +234.3% year over year; ② In terms of lithium concentrate, the output was 173,000 tons in 2023, a significant increase of 219% year on year, mainly due to the successful start of operation of the 200,000 ton lithium mine project in Zimbabwe; 2) However, the rapid decline in sales prices led to profit Decline in ability. In 2023, the company sold 147,000 yuan/ton without tax, a sharp drop of 41.9% over the previous year. At the same time, due to the decline in concentrate prices (cost item) lagging behind lithium salt (revenue item) (average price of SMM lithium carbonate was -46.7% year over year, average price of lithium concentrate was only -17.3% year over year), the company's gross margin was -48.2 pct year on year to 11.9%, and gross profit shrank by 6.29 billion yuan to 950 million yuan. 3) Inventory depreciation further dragged down performance, but investment returns increased significantly. The company's asset impairment losses reached 200 million yuan in 2023, due to the low price of lithium salt at the end of the period, and the company prepared to reduce the price of some of its inventory. In terms of investment income, Snowway went bankrupt and restructured, and the company's debt investment confirmed a profit of 540 million yuan, which greatly increased profits.

The commissioning of the SabiStar project led to an increase in resource ownership, and the company's ability to withstand risks was significantly enhanced 1) Resource side: ① Owned mine: The company's own mineral production capacity increased dramatically by 200,000 tons to 275,000 tons in 2023. The 200,000-ton lithium mine project in Zimbabwe was put into operation in May 2023, and production has now been achieved; in addition, the company continued to increase its stake in wood velvet lithium ore to 48% during the reporting period.

The woodwool mine has proven to have 99,000 tons of Li2O resources. It is the largest hard rock monomer lithium mine discovered in Asia so far. The company is proceeding with exploration and remining procedures in an orderly manner, which may further increase production capacity by 200,000 tons after production is put into operation; ② Outsourced mining: Deeply bound to Pilbara to strengthen raw material security. The company reached a lithium contract agreement with Pilbara in February '24 to purchase 85,000 tons, 150,000 tons, and 150,000 tons of spodumene concentrate between 2024-2026, for a total of 380,000 tons. 2) Smelting side: The current production capacity is 77,000 tons, which will be further expanded to 137,000 tons in 24 years. ① Shengxin Metal's first phase of production capacity of 5,000 tons was successfully put into operation in 4Q23, driving the total smelting capacity to 77,000 tons; ② Indonesia's 60,000-ton lithium salt project is expected to be put into operation in 1H24. At that time, the company's lithium salt production capacity will reach 137,000 tons.

Profit forecast and valuation: The company is expected to achieve net profit of 6.86, 7.44, and 1,425 billion yuan in 2024-2026. Considering the continuous increase in the company's resource self-sufficiency rate and strengthening cost advantages, it was covered and given an “increase in wealth” rating for the first time.

Risk warning: Profit forecasts and valuation models fall short of expectations, and the risk that commodity prices will fall beyond expectations