Net profit from 24Q1 decreased by -179.93% year on year. Maintaining increased holdings, the rating company achieved operating income of 2,585 billion yuan, yoy -77.42% in the first quarter of '24; net profit to mother of 3.897 billion yuan, from profit to loss, deducting net profit from non-recurring profit and loss of 3.917 billion yuan. The sharp decline in the cost of high-priced lithium concentrate and confirmed investment income from associated companies had a major impact on the company's 24Q1 performance. Based on the current inventory situation, we lowered the company's net profit to mother of -11.81/39.30/5.945 billion yuan respectively for 24-26 (prior value of 32.41/40.03/6.336 billion yuan for 24-26 years, respectively). Comparable to the 24-year Wind unanimously anticipated PB1.53X, giving the company 1.53XPB in 24. The company's A/H premium rate for the past three months was 46.43%, based on the HKD/RMB exchange rate of 0.926 on April 29, 2024, corresponding to an A/H target price of $46.93/34.61 (previous value of $50.06/37.76), maintaining the “increase in holdings” rating.
The price of lithium fell, and the high cost caused the company's net profit to turn negative
The 24Q1 company's comprehensive gross profit margin and net margin were 48.39%/-32.13% respectively, down -41.40pct/-105.97pct year-on-year respectively. Mainly due to the sharp drop in the sales price of the company's lithium products compared to the same period last year, compounding the mismatch between the products and costs sold by the company in the current period, the profit situation of lithium concentrate products dropped sharply. In terms of rate, the total cost rate for the 24Q1 period was 14.96%, yoy+14.55pct, of which sales/management/R&D/finance rates were 0.15%/4.66%/0.34%/9.81%, yoy+0.08pct/+3.68pct/+0.27pct/+10.52pct, respectively.
The company confirmed that the SQM tax ruling dispute had a significant impact on the 24Q1 results. According to the company's quarterly report, the company lost 1,327 billion yuan in net investment income in the first quarter of '24. According to the company's announcement, the Santiago de Chile court ruled on the tax litigation of the company's affiliate SQM in the 2017 and 2018 tax years in April 2024, and reversed the tax and customs court's ruling on the case on November 7, 2022. SQM is re-examining the accounting treatment of all tax dispute amounts based on the latest ruling and is expected to reduce its net profit for the first quarter of 2024 by approximately $1.1 billion. According to Bloomberg's forecast of SQM's earnings per share for the first quarter, combined with the impact of SQM's tax dispute ruling, the company confirmed a sharp decline in 24Q1 investment income.
A new “trade-in” automobile subsidy policy was introduced, and the boom in the lithium industry is picking up. On April 26, 7 departments including the Ministry of Commerce jointly issued the “Automobile Trade-In Subsidy Implementation Rules”, which provide a one-time fixed subsidy of 10,000 yuan for end-of-life new energy passenger vehicles registered before April 30, 2018 and the purchase of new vehicles. According to data from the Association of Automobile Manufacturers, sales of new energy vehicles nationwide in the first quarter of '24 were 2.09 million units, reaching a year-on-year growth rate of 31.78%. The boom in NEVs may continue after the implementation of the new subsidy policy. At the same time, along with many overseas mines announcing 24-year production cuts since the end of '23, the pattern of oversupply of lithium has shown signs of narrowing to a certain extent. Based on this judgment, we expect lithium prices to stabilize in 24-25 after bottoming out, and the industry's profit situation is picking up.
Risk warning: Upstream production expansion exceeds expectations, and downstream demand falls short of expectations.