Key points of investment:
Event: The company released its 2023 annual report and 2024 quarterly report. For the full year of 2023, the company achieved operating income of 6.01 billion yuan, -25.2% year-on-year; net profit to mother of 2.21 billion yuan, or -33.0% year-on-year; net profit after deduction of 3.22 billion yuan, or -33.9% year-on-year. 2024Q1 achieved operating income of 1.13 billion yuan, +11.8% month-on-month; net profit of 260 million yuan, +85.5% month-on-month; net profit after deduction of 230 million yuan, +117.1% month-on-month, slightly exceeding expectations.
2024Q1: The share of lithium extraction from lithium concentrates has increased, and the cost has improved due to the depreciation of the Zimbabwean currency and increased financial expenses. 1) Price: Q1 lithium price first rose and then fell. According to SMM data, the average price of Q1 electric carbon market was 102 thousand yuan, -27.5% month-on-month; the average price in the electric hydrogen market was 95,000 yuan, -29.9% month-on-month. 2) Profit: The company mainly used lithium concentrate for smelting this quarter, and the cost of releasing its own resources was greatly improved. However, due to the depreciation of the Zimbabwean currency, exchange gains and losses increased. Q1's financial expenses were 136 million yuan, +245.2% over the same period last year.
2023: Profitability improvements due to private mineral production. 1) Volume: In the lithium salt business, lithium salt production was 18,400 tons, -19.5%, but its own mines achieved a total lithium salt production of 15,800 tons, a significant increase; the cesium-rubidium salt fine chemicals business sold 999.23 tons, an increase of 25.92% over the previous year. 2) Price: According to SMM data, the average price of electric carbon in '23 was 263,000 yuan/ton, 46.7% YoY, and the average price of the electric hydrogen market was 275,000 yuan/ton, or -42.8% YoY. 3) Profit: The self-sufficiency rate increased from 21% in 2022 to 86% in 2023, and costs were greatly improved.
The copper business began a second round of growth. The company has successively acquired Tsumeb smelter and Kitumba copper mine.
Tsumeb smelter is one of the few specialty smelters in the world that can process complex concentrates such as high arsenic copper concentrate. Currently, production capacity is 260,000 tons/year, which can be increased to 370,000 tons/year through technical improvements. The Kitumba copper mine project has discovered an average copper grade of 2.20% and a copper metal volume of 614,000 tons. There is potential for additional storage. Feasibility studies are being carried out to complete an integrated layout of 50,000 tons/year copper metal mining, selection and metallurgy by 2025, and to obtain new high-quality copper resources within 2 years.
Self-sufficient lithium resources have been greatly increased, and cost reduction efforts continue. At present, the company has a total mineral processing capacity of 4.18 million tons/year and a battery-grade lithium salt production capacity of 66,000 tons/year, all of which have reached production. It is planned to complete the construction of Canada's Tanco 1 million tons/year selection plant in 2025; complete the integrated layout of 30,000 tons/year mining, selection and metallurgy in Africa in 2026. At that time, the production capacity of the mid-term smelting end will be close to 100,000 tons; and new high-quality lithium ore resources will be obtained within 2 years.
The rubidium cesium business guarantees the company's profitability. The company's Tanco Mine in Canada and Bikita Mine in Zimbabwe have an absolute monopoly advantage in cesium-rubidium resource companies. In '23, they achieved operating income of 1,124 billion yuan, +20.7% year over year, gross profit margin of 64.39%, and -0.31 pct year on year, contributing steadily to cash flow.
Profit forecast: Assuming lower lithium prices and sales volume, the company's net profit for 24-26 is estimated to be $1,348/16.73/24.48 billion yuan ($26.95/3.0 billion 24-25 years ago). In 2024, it corresponds to PE 19.2 times. Considering the company's continued cost reduction and steady production expansion, the “buy” rating was maintained.
Risk warning
The risk of lithium price fluctuations, the risk of changes in overseas policies, and projects under construction fall short of expectations.