Core views

The company published its report for the first quarter of 2024. Total revenue for the first quarter was 921 million yuan, +43.05% year on year, net profit to mother was 242 million yuan, +20.13% year over year. The basic EPS was 0.16 yuan, and the average ROE was 4.01%. Last year, the company set up lithium mining business in Hunan and Sichuan. Upfront investment was high, and the scale of debt financing increased, which led to a slight increase in financial expenses. The company plans to build an integrated production capacity of 40,000 tons/year for lithium carbonate mining, selection and metallurgy in Linwu, Hunan. In April 2023, a controlling interest in Chenzhou Chengtai was obtained through an auction, which in turn controlled the lithium mine in Jijiashan, Hunan. The continuation of prospecting rights has now been completed. The first phase of the 20,000 ton lithium carbonate project obtained energy assessment approval in December last year. The project site was successfully delisted in February of this year. The project is expected to successfully open up production lines within this year. The company obtained the Sichuan Jiada lithium prospecting license in November 2023. The mine has good resource endowments and is expected to contribute more profit to the company.

occurrences

The company published its report for the first quarter of 2024.

In the first quarter, the company's total revenue was 921 million yuan, +43.05% year on year, net profit to mother was 242 million yuan, +20.13% year over year, basic EPS was 0.16 yuan, and the average ROE was 4.01%.

Brief review

Production increased and gross profit increased.

The Q1 Platts iron ore index is 123.56 US dollars/ton, which is basically the same as the same period last year. It is estimated that the company's selling price per ton has remained stable. Q1 The company's gross profit was 523 million yuan (year-on-year +199 million yuan, month-on-month -121 million). Q1 gross profit margin 57% (YoY +6.1pct, month-on-month +1.6pct).

The increase in the company's gross profit is mainly due to an increase in production and sales volume.

Financial expenses have increased due to the layout of the lithium mine business.

The company's Q1 financial expenses were $73 million (+47 million year-on-year, +0.07 billion month-on-month). Last year, the company set up lithium mining business in Hunan and Sichuan. Upfront investment was high, and the scale of debt financing increased, which led to a slight increase in financial expenses.

Lithium mine profits are worth looking forward to.

By actively developing the lithium mining industry, the company has obtained two major resources: the Jijiaoshan lithium mine in Hunan (control) and the Jiada lithium mine in Sichuan. Among them, the company plans to build an integrated production capacity of 40,000 tons/year for lithium carbonate mining, selection and metallurgy in Linwu, Hunan. In April 2023, a controlling interest in Chenzhou Chengtai was obtained through an auction, which in turn controlled the lithium mine in Jijiashan, Hunan. The continuation of prospecting rights has now been completed. The first phase of the 20,000 ton lithium carbonate project obtained energy assessment approval in December last year. The project site was successfully delisted in February this year. The project is successfully expected to open up production lines within this year. In addition, the company obtained the Sichuan Jiada lithium mine through an auction in August 2023, predicting an average lithium oxide grade of 1.26%, the potential ore resource volume of 29.67 million tons to 47.16 million tons, and estimated lithium oxide resources of 370,000 tons to 600,000 tons (equivalent to 920,000 tons to 1.48 million tons of lithium carbonate equivalent). The company obtained a prospecting license for the mine in November 2023. The mine has good resource endowments and is expected to contribute more profit to the company.

Profit forecast and investment proposal: The cornerstone plan proposes that domestic iron powder production will reach 370 million tons by 2025. Compared with the current increase of about 100 million tons, domestic iron powder is an important part of supplementing iron ore supply and increasing self-sufficiency. The company has leading procurement technology and excellent cost control. It is an excellent domestic iron powder company with high potential to expand production. However, at the same time, iron ore prices have recovered from a high level during the year, and it is expected that the company's iron ore business volume will increase, profit, and decline, and is generally stable. The company's lithium carbonate production line in Hunan has already entered the construction cycle. The lithium salt company, which is self-sufficient in resources, still has a certain competitive advantage in the lithium carbonate industry, and will become a new profit growth point after it is put into operation. The company's net profit due to mother for 2024-2026 is estimated to be $1.05 billion, $1.53 billion, and $1.72 billion, respectively, maintaining an “increase in holdings” rating.

Risk analysis: The company's main products are iron powder and pellets. As the main raw materials for smelting steel, demand is largely affected by the downstream steel industry. The steel industry is closely related to the macroeconomic cycle. If macroeconomic fluctuations occur, the steel industry is not doing well, and demand for iron powder and pellets falls. The main raw material of pellets is iron powder. The price of pellets will fluctuate with the price of iron powder and is positively correlated. Fluctuations in the price of iron powder will have a great impact on the company's performance. Constrained by the external environment and administrative approval, the company has a risk that the project progress will fall short of expectations in terms of increasing production, expanding production and technological reform, and expanding new energy minerals, etc., which in turn has a great impact on the company's performance. The company was issued a supervisory warning letter on December 27, 2023 by the Inner Mongolia Securities Regulatory Bureau because the supervisor borrowed 2 million yuan from the company and constituted the occupation of related party funds.