Key points of investment
Q1 performance was slightly lower than expected: 24Q1 revenue of 1.9 billion yuan, -62%/-29% of the same period; net profit to mother - 185 million yuan, +74%/+71% year over month, net profit of non-return to mother - 192 million yuan, +74%/70% year on month.
Q1 gross margin was 0.03%, up 0.02/10.5pct; net profit margin to mother -9.8%, +4.8/14pct month-on-month; net interest rate without return to mother -10%, +4.7/13.8pct month-on-month, slightly lower than expected.
Q1 Shipments fell by 18%, and we expect shipments to increase by 38% in '24. We expect the company to ship 45,000 tons in Q1, an increase of 13%, a decrease of 18%, and equity shipments of about 40,000 tons. We expect Q2 to ship about 60,000 tons, an increase of about 30%. The company reached production capacity of 370,000 tons, and another 80,000 tons of 1H24 were put into operation, totaling 450,000 tons. The company has a high concentration of customers, mainly leading companies in Ningde, BYD, and Everweft, and accounts for a high share of energy storage. We expect shipments to increase 38% to about 300,000 tons in 24 years, of which manganese, iron, and lithium mixtures have already been loaded, and tens of thousands of tons can be shipped in 24 years.
Q1 Unit losses have narrowed month-on-month, and processing costs have bottomed out, which is expected to gradually reverse losses. The price of lithium iron in Q1 was 47,500 yuan/ton, the gross profit per ton was 0, and the net profit per ton was 0.48,000 yuan/ton. The unit loss narrowed month-on-month. The impact of weakening fluctuations in lithium prices in Q1 on profit decreased, but the decline in lithium iron processing costs at the beginning of the year, lower operating rates caused losses. We judge that Q1 processing fees have bottomed out. The company has a certain cost advantage and is expected to reverse losses in 24 years. The industry's production capacity was cleared in 25 years, and the net profit of the leading unit is expected to return to nearly 20,000 yuan/ton, and lithium supplements are expected to increase profits starting in 24 years.
Q1 Expense rates increased month-on-month, and capital expenditure decreased significantly year-on-year. Expenses for the 24Q1 period were 240 million yuan, -27%/-13% YoY, 13% cost ratio, +6.1/2.3pct YoY. Q1 Inventory was $1.1 billion, up 31% from the beginning of the year; accounts receivable were $1.7 billion, -26% from the beginning of the year; contract liabilities were $80 million, or -2% from the beginning of the year. Q1 Net operating cash flow was $72 billion, up 8.4%; net cash flow from investment was 760 million yuan, up 203 percent; capital expenditure was 210 million yuan, down 71% year on year; and monetary capital was 2.4 billion yuan, down 17.2% from the beginning of the year.
Profit forecast and investment rating: Considering the decline in iron and lithium processing fees, we maintained the 2024-2026 net profit forecast of 1.8/5/900 million yuan, +111%/182%/86% year over year, corresponding to PE of 50/18/10x. The company's performance at the bottom of the cycle was under pressure, but as a lithium iron leader, the company remained competitive for a long time and maintained a “buy” rating.
Risk warning: Fluctuating raw material prices and market competition increase risk.