Incident: The company released its annual report for 2012, achieving revenue of 1,211 million yuan, or -59.5%; net profit to mother of 380 million yuan, -84.4% year-on-year, after deducting non-net profit of 335 million yuan, or -86.3% year-on-year. Among them, Q4 revenue was 373 million yuan, -71.6%/+83.5%; net profit to mother was 0.22 million yuan, -98.1%/-59.8% YoY; after deducting non-net profit of RMB11 million, -99.1%/-77.4% YoY.
The prosperity of the lithium industry is weakening, and the company's performance is under pressure. 1) Lithium concentrate business: Production and sales increased slightly, but a sharp drop in sales prices affected profits. ① In terms of volume, the company achieved 64,900 tons of lithium concentrate output in 2023 (6% grade), +18.0% year on year; sales volume of 58,900 tons, +6.4% year over year; inventory volume by the end of 2023 was 8,650 tons, +228% year on year; ② in terms of price, the average sales price of the company's lithium concentrate in 2023 was only 12,000 yuan/ton, -50% year over year. As a result, gross profit per ton of lithium concentrate fell by 11,500 yuan to 106,000 yuan, and gross profit decreased by 598 million yuan to 622 million yuan compared to 2023; 2) Lithium salt business: volume and price fell sharply, and gross margin turned negative. ① In terms of volume, the company achieved lithium salt production of 2524.2 tons in 2023, -11.35% year on year; sales volume of 2634.7 tons, -25.3% year on year; inventory by the end of 2023 was 60.55 tons, -25.29% year over year. The decline in production and sales was mainly due to the decline in lithium prices, and the company adjusted its sales strategy to reduce risk; ② In terms of price, the average sales price of the company's lithium salt in 2023 was only 112,000 yuan/ton, -68.5% compared to the same period last year. At the same time, due to the decline in concentrate prices (cost item) lagging behind lithium salt (revenue item), the gross margin of the lithium salt business was -17.53pct to -0.96% year on year, and gross profit was drastically reduced by 210 million yuan to -2.825 million yuan; 3) Lithium battery equipment business: The decline in production and sales led to a decline in revenue and profit. The company produced 383 special equipment units in 2023, 43.51% year on year, sold 378 units, 44.66% year on year, and gross profit shrunk by 87 million yuan to 41 million yuan. The decline in production and sales was mainly due to a slowdown in investment in lithium battery manufacturers and weakening demand for lithium battery equipment; 4) The sharp decline in investment income and inventory depreciation further dragged down profits. The net profit of Chengdu Rongjie, a joint venture of the company, also shrunk sharply in 2023 due to a drop in lithium prices, resulting in the company's investment income falling from 1,404 billion yuan in 2022 to 66 million yuan, a year-on-year decrease of 95.3%. In addition, due to the lower price of lithium salt at the end of the period, the company accrued inventory impairment losses of about 156 million yuan in 2023.
Medium- to long-term resource-side capacity planning has tripled, pending project site selection and implementation. 1) Resource side: The current lithium concentrate production capacity is 70,000 tons, and the plan is to expand to 200,000 tons. The company currently has a mining production capacity of 1.05 million tons/year and a mineral processing capacity of 450,000 tons/year, corresponding to an effective production capacity of 70,000 tons/year for lithium concentrate. The company plans to expand the beneficiation terminal to 2.5 million tons/year in the future, and the effective production capacity of lithium concentrate will also be expanded to 200,000 tons/year. Since the EIA was not approved in 2023, the company is currently re-verifying the project site selection; 2) Smelting side: production capacity is expected to double. The company currently has a total lithium salt production capacity of 24,800 tons, including 0.48,000 tons for Changhehua Lithium and 20,000 tons for Chengdu Rongjie. In the future, Chengdu Rongjie's production capacity will expand to 40,000 tons.
Profit forecast and valuation: The company is expected to have net profit of 3.48, 3.67, and 440 million yuan in 2024-2026. Considering the company's high resource self-sufficiency rate and significant cost advantage, it is rated as “increase in wealth”.
Risk warning: Profit forecasts and valuation models fall short of expectations, and the risk that commodity prices will fall beyond expectations