Key points of investment

In Q1, the company's net profit in Q1 was 140 million yuan, a decrease of 63%, in line with market expectations. Q1 revenue in 2014 was 1.2 billion yuan, down 56%, down 8%, net profit to the mother - 140 million yuan, down 131%, 63%, deducted non-net profit - 160 million yuan, 150% decrease, 55% decrease, gross profit margin 4%, same decrease 18 pct, 7 pct, net interest rate to mother -12%, same decrease of 29 pct, same decrease of 18 pct, same decrease of 18 pct, in line with market expectations.

The 24Q1 sales volume increased by nearly 50%, and is expected to increase by about 60% in '24. The company has built 77,000 tons of lithium salt production capacity. We expect 24Q1 to sell about 15,000 tons of lithium products, an increase of nearly 50% over the previous month. In terms of production capacity, Indonesia's 60,000 tons of lithium salt (50,000 tons of lithium hydroxide +1 10,000 tons of lithium carbonate) is expected to be completed and put into operation in the first half of '24, and Suining plans a 10,000 ton project. The first phase of 5,000 tons was put into operation in 23Q4, contributing to the increase in production capacity in 24; we expect to ship 80,000 to 90,000 tons in 24, an increase of about 60%. In terms of profit, we expect 24Q1's price discount of 92-94%. The average price of lithium products including tax is more than 90,000 yuan, and no loss of about 10,000 yuan per ton is deducted, mainly due to lower lithium prices and more cost dilution. In terms of cost, we expect the cost of self-supply of mineral lithium salt to be around 60,000 yuan. Starting in Q2, the self-supply ratio will increase, and profits will gradually improve.

The mine side self-supply rate reached 40-50% in 24, and wood velvet ore is expected to contribute more in 25 years. The subsidiary Oinuo Mining owns the Yelonggou spodumene mine and the Taiyanghekou lithium mine. The Yelonggou lithium mine was put into operation in '19. The raw ore production scale is 405,000 tons, and the lithium concentrate is about 75,000 tons. We expect production to remain around 70,000 tons in 24 years. The production scale of the five mineral rights of the Sabixing lithium tantalum mine is 900,000 tons, and the lithium concentrate is about 200,000 tons. It was put into operation in May 23. We expect to produce 200,000 tons+ in 24 years; the wood velvet lithium mine is undergoing exploration and conversion procedures, and we expect to start production in 25 years. Overall, we expect to ship nearly 300,000 tons of concentrate at the mine end in '24, minus 35,000 tons of LCE+, and the mine side's self-supply rate will reach 40-50%. In terms of concentrate procurement, the company signed long-term offtake agreements with domestic and foreign companies such as Jinxin Mining, DMCC, and Pilbara. In February 24, it was announced that in 2024-2026 it would purchase 8.5/15/150,000 tons of concentrate from Pilgangoora, which is about 0.9/16,000 tons of LCE compared to LCE.

Q1 The cost rate decreased significantly from month to month, and inventory decreased compared to the beginning of the year. The cost rate for the 24Q1 period was 13%, with an increase of 8 pct and a loop reduction of 5 pct, of which the management fee rate was 8%, the financial cost ratio was 5%, and the loop reduced by 3 pcts. Net cash flow from Q1 operating activities was 450 million yuan, a decrease of 23% and a decrease of 22%; Q1 capital expenditure was 770 million yuan, a decrease of 8%, a decrease of 31%. Inventory at the end of Q1 was 2.4 billion yuan, a decrease of 12% from the beginning of the year; projects under construction amounted to 3.6 billion yuan, an increase of 29% over the beginning of the year.

Profit forecast and investment rating: We maintain our 2024-2026 net profit forecast of 7.2/8.7/1.11 billion yuan, an increase of 2%/21%/28%, corresponding to 23x/19x/15xPE in 24-26, maintaining a “buy” rating.

Risk warning: Production capacity release falls short of expectations, demand falls short of expectations.