Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 10.47 billion yuan, or -38.5% year on year; net profit attributable to mother was 1.66 billion yuan, -74.8% year on year, after deducting non-net profit of 1.38 billion yuan, -79.0% year on year. 2024Q1 achieved revenue of 1.75 billion yuan, or -50.4%/+12.7% month-on-month; net profit to mother of 50,000,000 yuan, or -43.0% year-on-year, turning a month-on-month loss into a profit; deducting non-net profit of 260 million yuan, -69.8% year-on-year, turning a loss into a profit.
Weakening prosperity in the lithium industry put pressure on the company's 2023 performance, and Q1 performance improved markedly from month to month.
1) In 2023, the company's net profit to mother decreased by 4.93 billion yuan to 1.66 billion yuan, mainly due to serious damage to the profitability of the lithium sector: ① In 2023, the company's lithium sector revenue was -39.1% to 9.70 billion yuan, gross margin decreased 27.6% year over year, and gross profit decreased 7.96 billion yuan to 2.68 billion yuan year on year, mainly due to the rapid decline in lithium prices (smm lithium hydroxide's average price in 2023 plummeted 78% to 263,000 yuan/ton). We expect lithium salt sales to increase, offsetting some of the prices The negative impact of the decline. ② In addition, due to the low price of lithium at the end of the period, the company accrued an inventory price drop loss of about 300 million yuan in 2023, which further dragged down the performance. 2) 1Q24's net profit to mother increased by 670 million yuan month-on-month to 50 million yuan, mainly benefiting from a steady rebound in lithium prices and government subsidies.
Due to the slow off-season, lithium prices began to rebound at the end of February. As a result, the company's 1Q24 revenue was +12.7% month-on-month to 1.75 billion yuan, and the comprehensive gross margin was +4.2pct to 9.7% month-on-month. Meanwhile, in 1Q24, the company transferred back about 220 million yuan in asset impairment losses. In addition, the company received about 380 million yuan in government subsidies in 1Q24, which greatly increased 1Q24's net profit.
Smelting capacity is expanding rapidly, and the company's future volume will increase significantly. 1) On the smelting side, the company had developed a lithium salt production capacity of 165,000 tons by '23, which is three times higher than at the end of '22. In terms of lithium hydroxide, the company's subsidiary Tianhua Times 60,000 tons and Weineng Lithium's first phase 25,000 ton projects were put into operation in 2023, driving the total lithium hydroxide production capacity to increase from 50,000 tons at the end of 2022 to 135,000 tons. In terms of lithium carbonate, the company and the Fengxin Era Phase I 30,000 ton project, a joint venture subsidiary of Ningde Times, was also officially launched in July 2023, and successfully produced qualified products within the year, which is expected to expand further to 100,000 tons in the future; 2) On the resource side, the company strengthened its upstream layout and continued to consolidate raw material guarantees.
In 2023, the company successively invested in PREM, a company listed on the London Stock Exchange, and QXR. Among them, PREM's Zululu lithium tantalum mine in Zimbabwe entered the commissioning phase in April 2024 and is expected to provide the company with lithium raw materials soon; QXR controlled two lithium mine projects in Western Australia — Turner River and Western Shaw, which are currently in the exploration phase.
Profit forecast and valuation: The company's net profit for 2024-2026 is expected to be 13.43, 13.80, and 1,620 billion yuan. Considering that the company's volume will increase significantly over the next 2-3 years and that the rate of decline in lithium prices will slow significantly, it was covered for the first time and given a “gain” rating.
Risk warning: Profit forecasts and valuation models fall short of expectations, and the risk that commodity prices will fall beyond expectations