Incident: On April 23, the company disclosed the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved revenue of 10.5 billion yuan, -39% year-on-year, gross profit margin of 28%; net profit to mother of 1.7 billion yuan, -75% year-on-year, and 16% net profit. On a quarterly basis, Q1-Q4 achieved revenue of 3.5/31/23/1.6 billion yuan, Q4 -65%/-31% YoY; net profit to mother of 8.8/4.9/4.5/-160 million yuan, respectively. In 2024Q1, the company achieved revenue of 1.75 billion yuan, -50%/+13% month-on-month, gross profit margin 17%; net profit to mother of 500 million yuan, net interest rate of 29%; deducted non-return of 260 million yuan and 15% non-net interest rate, reversing losses from month to month.
The decline in lithium prices and the rigidity of mine-side costs are the main reasons for the sharp decline in the company's performance. Judging from the gross profit structure, the company's main profit sources are lithium salt, anti-static ultra-clean products, and medical devices. The gross profit in 2023 was 27/1/140 million yuan, respectively. The price of lithium salt fell sharply in 2023, while the price adjustment cycle for ore raw materials was relatively lagging behind. Under cost rigidity, the profit margin of the company's lithium salt section narrowed drastically, and asset impairment losses of 300 million yuan occurred.
Thanks to the deep bundling relationship with the Ningde era, the company partially used the incoming material processing model to earn stable processing fees, which guaranteed a relatively stable net interest rate level. At the same time, due to the liberalization of domestic control measures, the company's anti-static ultra-clean products and medical device business revenue also declined. As lithium prices subsided, in 2024Q1, the company reversed losses month-on-month, with gross profit of 300 million yuan, an increase of 11%; at the same time, the company's asset impairment losses swept back 216 million yuan and received 380 million yuan in other income (mainly government subsidies), and net profit to mother improved markedly. As of 2024Q1, the company's book inventory value was 1.9 billion yuan, accounting for a share of current assets falling to 15% from 21% in the same period last year. The month-on-month increase was mainly due to an increase in lithium concentrate stocks, and overall inventory pressure was low.
The integrated layout of resources & smelting is progressing steadily, and it is expected that prices will be compensated by volume in the back of the Ningde era. (1) On the smelting side, the company has now built 135,000 tons of electric hydrogen plus 30,000 tons of electric carbon production capacity. Among them, Tianyi Lithium (holding 75% of the shares) and 60,000 tons of electricity and hydrogen production capacity of Sichuan Tianhua (holding 93% shares) have now reached production; Weineng Lithium (holding 75% of the shares) is planning a 50,000 ton electric hydrogen project, and the first phase of the 25,000 ton electric hydrogen project will reach the scheduled state of use in 2023Q3; Fengxin Era (holding 75% of the shares) plans to build 100,000 tons of lithium carbonate production capacity. The first phase of 30,000 tons was put into operation in July last year. The long-term plan is to produce 260,000 tons of battery-grade lithium salt. It is expected that the new production capacity will continue to increase this year; the company has formed a stable community of interests with the Ningde Era through joint ventures, incoming material processing, and mutual shareholding, and is expected to rely on major customers to absorb the new production capacity and achieve volume compensation.
(2) Resource side: The company is currently the largest shareholder of overseas resource companies such as AVZ, Global Lithium, Premier, and QXR, and has obtained forward underwriting rights for its mines. Among them, Premier's Zulu flotation plant's production capacity previously fell short of expectations due to design issues. It is expected that the project will complete plant optimization and enter the commissioning phase in April of this year. If the design production capacity can be achieved, the project is expected to accelerate, and the shortfall in long-term resources may be strengthened.
Investment advice: The company is a leading domestic electricity and hydrogen company, and is expected to achieve volume compensation in the Ningde era; more growth on the resource side provides medium- to long-term performance flexibility. The company's net profit for 2024-2026 is estimated to be 18/20/2.26 billion yuan, corresponding to PE of 9.1/8.3/7.4 times, maintaining a “buy” rating.
Risk warning: Demand growth falls short of expectations, supply projects are released beyond expectations, and the development of mineral rights in Africa is at risk.