Key points of investment

Q4 The price of lithium carbonate declined, and profitability declined month-on-month, which was basically in line with expectations. Net revenue of 41.4 billion yuan, -3% year on year, net profit of 1.6 billion yuan, net profit of 1.5 billion yuan, minus non-net profit of 1.5 billion yuan, gross profit margin of 7.7%, -4.8pct year on year, net profit margin 3.8% year on year, -3 pct year on year; of which Q4 revenue was 7 billion yuan, -57%/-37% year on month; net profit margin of 0.4 billion yuan, -96%/-87% year on month, net profit margin -3pct, net profit margin 0.6%, YoY -5/2pct, mostly in line with expectations.

Shipments increased 56% in '23, and the share continued to expand. The company's sales volume in '23 was 507,000 tons, up 56%, the capacity utilization rate was 90%, the market share was about 32%, and the market share increased by 3.6 pct, bucking the trend; of these, Q4 sales volume was 140,000 tons, +27%/-7% year-on-month, in line with expectations. Looking at the product structure, the share of energy storage rapidly increased to 28% in '23, +13pct compared to the previous year. The company binds major customers. In '23, Ningde and BYD accounted for 77% of total revenue, and the remaining second-tier customers began to expand. At the end of 23, the company's lithium iron production capacity was 700,000 tons, and it was the first to achieve full production in April. We expect to ship 700,000 tons in '24, an increase of 38%, and continue to maintain our share. Subsequent companies will expand production in Yunnan and overseas.

Q4 The profit per ton is better than the industry average, and processing costs have bottomed out and the profit inflection point can be expected. In '23, the price of lithium iron sold for 92,000 yuan (tax included), down 38%. The gross profit per ton was 60,000 yuan, down 10,000 yuan from '22, and the net profit per ton was 30,000 yuan. The average price of lithium iron in Q4 was 57,000 yuan/ton, the gross profit per ton was 0.17 million yuan, the net profit per ton was 0.17 million yuan, and the ring fell 86%. This was due to a drop in Q4 processing costs for some customers, and the price of lithium fell from 180,000 yuan to 100,000 yuan/ton. Losses due to pricing delays. The Q4 industry generally lost a lot, and the company's profit was still far better than the industry average. Processing costs have bottomed out in 24Q1, and the steady rise in lithium prices has weakened the impact on profits. The company's net profit per ton in Q1 is expected to pick up, and the net profit per ton will be around 0.15 million yuan in 24. In 25 years, the industry's production capacity has cleared up, the supply and demand pattern has improved, and the net profit of leading tons is expected to recover to nearly 30,000 yuan/ton.

The company issued an equity incentive plan, and the goals are easy to achieve to enhance the company's cohesion. It is proposed to grant 15.14 million restricted shares, accounting for 2% of the total share capital, to 288 people, covering directors, executives and core executives. The grant price is 17.43 yuan (50% closing price), the incentive target is 630,000 tons+, and the net profit for 25/26 exceeds $15/20 billion. It is estimated that expenses will need to be shared between 24-27 and 0.4/0.1 billion yuan.

Due to the scale effect, the cost of ordering a ton was significantly reduced, and operating cash flow increased significantly over the same period last year. The company's expenses for the 23-year period were 940 million yuan, the cost rate was 2.3%, the cost per ton was 20,000 yuan, a decrease of 42%. The cost was significantly diluted due to the scale effect. Among them, the Q4 cost ratio was 2.9%, the environmental increase was 1.2 pct, the cost per ton was 0.14 million yuan, and the same ring was -51%/+14%. Inventory at the end of 23 billion yuan, down 45% from the end of Q3; net operating cash flow of 500 million yuan (receivables financing of 4.3 billion yuan, up 1.3 billion yuan from the beginning of the year), increased 118%, capital expenditure of 2.7 billion yuan, increased 29%, and cash in hand was 1.9 billion yuan, up 81% from the beginning of the year. Projects under construction in Q4 amounted to 660 million yuan, down 50% from the end of Q3.

Profit forecast and investment rating: Considering the decline in iron and lithium cathode processing fees, we adjusted the net profit forecast for 24-25 to 10.25 billion yuan (the original forecast for 24-25 billion yuan). We expect net profit to be 3 billion yuan for 26 years, -35%/+147%/20%. The corresponding PE is 26/10/9x, with a target price of 50.1 yuan for 25 years, maintaining a “buy” rating.

Risk warning: Electric vehicle sales fall short of expectations, industry competition intensifies.