2023&1Q24 results are in line with market expectations
The company announced its 2023&1Q24 results. In 2023, it achieved revenue of 6.013 billion yuan, -25% of the year on year, and net profit of 2,208 billion yuan, or -33%; 1Q24 achieved revenue of 1,127 billion yuan, -46% year-on-year, +12% month-on-month, and realized net profit of 256 million yuan, -77% year-on-year and +86% month-on-month, in line with market expectations.
The decline in lithium prices in 2023 led to a year-on-year decline in the company's performance. First, domestic lithium salt prices fell sharply in 2023. According to the Asian Metal Network, the average price of electric carbon was 252,000 yuan/ton, -48% over the same period, causing the company's lithium salt sales price to drop sharply. Second, during the reporting period, lithium salt raw materials shifted mainly from outsourcing and processing to self-owned resources. On the one hand, this led to a decline in lithium salt production and sales. In 2023, the company's lithium salt production and sales volume were 1.84 and 17,400 tons, respectively, -20% and -28%. On the other hand, it also led to a reduction in production costs. The operating cost of the company's lithium business in 2023 was about 1.79 billion yuan, -39% over the same period last year.
1Q24 Sales recovery and lower costs led to a month-on-month increase in performance. First, although the average price in the 1Q24 lithium salt market continued to decline month-on-month, according to the Asian Metal Network, the 1Q24 lithium salt price was 101,000 yuan/ton, -26% month-on-month, but the company achieved a month-on-month increase, mainly benefiting from the recovery in sales; second, the company reduced the production costs of the Bikita mine by adjusting the raw material structure and constructing photovoltaic power plants. Third, the company's financial expenses increased dramatically in the first quarter. Financial expenses for 1Q24 were 136 million yuan, +541% month-on-month. Mainly due to exchange losses caused by Zimbabwean inflation, Zimbabwe issued a new currency linked to gold in April to replace the original Tianjin yuan. We should pay attention to the evolution of subsequent currency depreciation issues.
Development trends
The development of lithium resources continues to advance, and the acquisition of copper mines opens up room for growth. Currently, the company has achieved an integrated lithium salt production capacity layout of 60,000 tons with Bikita and Tanco mines. During the reporting period, the Bikita lithium mine further increased storage, and the amount of lithium resources increased by 1.047 million tons of LCE to 2,885 million tons of LCE, an increase of 57%. In the future, the company plans to increase its mine supply capacity to 100,000 tons/year through the Tanco mine 1 million tons/year and the African Mining and Metallurgical Integrated Mining and Metallurgy Project. In March 2024, the company plans to acquire 65% of the shares in the Kitumba copper project in Zambia. The project holds 614,000 tons of copper resources, 490,000 tons of copper reserves, and an average grade of 2.20%. The company plans to achieve an integrated layout of 50,000 tons/year of copper metal extraction, selection and metallurgy by 2025, and continue to obtain high-quality copper resources. We believe that the copper business is expected to become the third largest business after the rubidium and lithium business, opening up room for profit growth.
Profit forecasting and valuation
Due to the accelerated decline in lithium prices, we lowered our 2024/2025 net profit by 50%/55% to 1.08 billion yuan and 1.17 billion yuan. The current stock price corresponds to 23.2 times and 21.5 times P/E in 2024/2025. Considering that the company's acquisition of copper ore is expected to open up room for growth, we maintained an industry rating. Due to the decline in lithium prices and the expansion of the company's integrated production capacity, we lowered our target price by 18% to 43.94 yuan, which corresponds to 29.6 times the price-earnings ratio of 2024 and 27.5 times the price-earnings ratio of 2025, with 28% upside compared to the current stock price.
risks
The decline in lithium prices exceeded expectations; progress in copper projects fell short of expectations; policy risks for overseas resources.