The price of lithium salt fell, putting pressure on Shengxin Lithium Energy's performance. In 2023, the company's revenue was 7.95 billion yuan, a decrease of 34%; net profit to mother was 700 million yuan, a decrease of 87%. The company pays a cash dividend of 2.40 yuan for every 10 shares to all shareholders. In Q1, the company's revenue in Q1 was 1.21 billion yuan, a decrease of 56%; net profit attributable to mother was a loss of 140 million yuan, which turned into a year-on-year loss. The company's losses in the first quarter were mainly dragged down by falling lithium salt prices.

Lithium resources were deployed globally, and the SabiStar project was successfully put into operation. The company has successively laid out lithium resource projects around the world. Max Mind Zimbabwe, the holding subsidiary of the company, has mining licenses for a total of 40 rare metal blocks in the Sabixing lithium and tantalum mine project in Zimbabwe. Of these, the main mineral has 88,500 tons of Li2O resources, with an average grade of 1.98%. The project was put into operation in May 2023. The raw ore production scale is 900,000 tons/year, equivalent to about 200,000 tons/year of lithium concentrate. We believe that the SabiStar project will climb to full production in 24 years, providing low-cost raw material support for the company's lithium salt business.

The development of lithium wood wool mine is at a critical juncture. The company holds a total of 48.06% of Huirong Mining's shares. Huirong Mining currently has 1 prospecting right and has proven Li2O resources of 989,600 tons. It is the largest hard rock monomer lithium mine discovered in Asia so far, with an average grade of 1.62%. It is one of the highest grade lithium mines in Sichuan. It is undergoing procedures related to the conversion of prospecting rights into mining rights. On May 13, the Ministry of Natural Resources announced that the mineral resource development and utilization plan for the cashmere lithium mine had passed expert review. The plan shows that the planned annual production scale of the project is 3 million tons. We believe that the development of lithium wood wool is an important driving force for the next stage of the company's development. Passing expert review of the project is a key milestone in mine exploration and conversion.

Lay out Indonesian lithium salt production capacity to seize overseas lithium salt markets. The company has built production bases for lithium products around the world. The company Zhiyuan Lithium has built a lithium salt production capacity of 42,000 tons, Suining Shengxin has built a production capacity of 30,000 tons, Shengxin Metal plans to have a production capacity of 10,000 tons, and has already built the first phase of 5,000 tons. In Indonesia, the company has a layout with Shengtuo Indonesia, with a design capacity of 60,000 tons of lithium salt. The company is expected to be completed and put into operation in the first half of 2024. Currently, the total production capacity of the company's lithium salt design is 140,000 tons. We believe that the company's global deployment of lithium salt production capacity will help to participate in sharing the growing demand for new energy vehicles in overseas markets such as Europe and the US, and raise the company's profit level.

Profit forecasting and ratings. Shengxin Lithium Energy is the world's leading lithium salt smelting company. As the company advances construction of lithium mine projects in Zimbabwe and Sichuan, the company's production capacity on the lithium resource side is rapidly expanding. We expect the company's 2024-2026 EPS to be 0.81, 1.84, and 2.28 yuan/share. Considering the competitive advantage of the company's global resource layout, we will give the company 20-22 times PE in 2024, corresponding to a reasonable value range of 16.20-17.82 yuan/share, and give it a “superior to the market” rating.

Risk warning. There is a risk that the price of lithium salt will fall; overseas project construction progress is lower than expected; the exploration and construction progress of the lithium wood velvet mine is lower than expected.