Key points of investment:

Company announcement: The company released its 2024 quarterly report. During the reporting period, it achieved operating income of 2,724 million yuan (YoY -42.12%, QoQ -52.95%), net profit attributable to mother of 934 million yuan (YoY -58.03%, QoQ -59.64%), and net profit after deducting non-return to mother of 875 million yuan (YoY -60.42%, QoQ -72.82%). The performance was slightly lower than expected.

In 24Q1, domestic potash stocks and supply pressure were high. The economy gradually bottomed out, and the company's production and sales declined somewhat. In 24Q1, due to high port stocks, superimposed potash imports increased dramatically, and supply-side pressure was higher than in previous years. According to the company announcement and Baichuan information, domestic potash imports reached 3.64 million tons in the first quarter, an increase of 42.2% over the previous year. Meanwhile, as of April 29, 2024, potash port stocks reached 3.438,200 tons, accounting for 19.5% of the domestic annual potash demand of 17.64 million tons in 2023. Higher imports and inventories continued to suppress the potash boom. The average price of potash fertilizer in the 24Q1 domestic market was 2488.6 yuan/ton, down 29.95% and 12.27%, respectively. Looking at the scale of production and sales, as the price of potash fertilizer continued to fall, downstream demand to stock up 100 million yuan was somewhat suppressed. The company's production in the first quarter was about 1.1235 million tons. Although the year-on-year increase was 12.56%, sales volume fell 38.77% year on year to 764,300 tons. Looking ahead, as domestic ports continue to be digested, current port inventories have fallen back to 749,400 tons from their high point during the year. The potash fertilizer boom has gradually bottomed out, and downstream demand for summer fertilizer stocking is expected to begin.

The 24Q1 lithium carbonate boom bottomed out, the company's production and sales scale remained high, and the long-term volume growth logic remained unchanged. Demand from cathode material companies was still slightly weak at the beginning of '24, but after the holiday season, some lithium carbonate manufacturers overhauled, and environmental protection inspections in Jiangxi were strengthened, and supply-side support was strong. At the same time, terminal cell companies began demand for inventory replenishment, and lithium carbonate prices bottomed out and picked up at the end of February. According to Wind statistics, the average market price of industrial grade lithium carbonate in 24Q1 was 94,800 yuan/ton, down 74.12% year on year, down 31.54% month on month; battery grade lithium carbonate market average price was 104,400 yuan/ton, down 73.99% year on year and 30.57% month on month.

As of April 29, 2024, the average prices in the domestic industrial grade and battery grade lithium carbonate markets were 11.3 and 120,500 yuan/ton respectively. Compared with the low levels at the beginning of the year, they increased by 2.45 and 225 thousand yuan/ton, respectively, and the economy picked up marginally. In terms of production and sales scale, as Lanke Lithium continues to release new production capacity, the company's lithium carbonate production and sales scale remained high. 24Q1 lithium carbonate production reached 0.87 million tons, up 38.1% year on year, down 12.1% from month to month due to seasonal factors; lithium carbonate sales reached 0.99 million tons, up 607.1% year on year, and basically flat from month to month. Judging from the progress of subsequent projects, the 40,000 tons/year basic lithium salt integration project has completed all project approval procedures, and the general construction contract bidding and procurement work has been completed. It is expected that results will be released one after another in 2025 according to the plan, and there is significant room for future growth.

Investment rating and valuation: Maintaining the company's profit forecast for 2024-2026, it is expected to achieve 63.94, 75.4, and 8.671 billion yuan respectively. The corresponding PE is 15X, 12X, and 11X respectively, maintaining the “buy” rating.

Risk warning: the price of potassium chloride fell; the commissioning of lithium projects fell short of expectations; the price of lithium carbonate fell.