Key points of investment

Incident: The company plans to jointly build a 500,000 ton copper smelting project and a 300,000 ton iron lithium iron and iron phosphate project in Guizhou. The company plans to invest 65-70%, with an employee shareholding platform and a third party investment of no more than 35%, and the total investment is expected to be 15 billion yuan. The first phase of this phase will take the lead in building 200,000 tons of copper smelting with a combined production capacity of 800,000 tons of sulfuric acid and steam. The construction period is 24 months, and the Guizhou Qiannan government supports the company to add more than 50 million tons of phosphate prospecting rights before the first phase is put into operation.

The long-term plan is to add 300,000 tons of production capacity over a six-year period, and carefully expand production to maintain a continuous increase in market share. The company currently has a production capacity of 700,000 tons. We expect to ship 700,000 tons+ throughout the year, an increase of 35%. The market share continues to increase, and the advantages of lithium iron faucets are obvious. The company is cautious about expanding production. The current production capacity plan for the next six years is 300,000 tons. Production will gradually expand as demand grows, and the capacity utilization rate will maintain a high level of capacity utilization. 24H2 plans to add 50,000 tons of production capacity in Guizhou, and is expected to ship 900,000 tons+ in 25, an increase of 30%, maintaining the leading position in the industry.

The phosphate ore layout continues to advance, and the integration ratio increases to consolidate the cost advantage. The company has obtained two prospecting rights, with reserves of 100 million tons. It has now obtained a mining license from Huangjiapo, with a production capacity of 1.2 million tons/year. After landing, we expect to meet the phosphorus resource requirements of 1.2 million tons+lithium iron. This time, Guizhou promised to further add 50 million tons of phosphate mining rights, and sulfuric acid and steam, the by-products of the copper smelting project, will help further reduce production costs. The price of phosphate ore is high at 1,000 yuan/ton, and the production cost is about 300 yuan/ton (including resource tax). If the self-supply ratio reaches 20%, the profit per ton corresponding to the thickening of the cathode is 600 yuan/ton, which will gradually increase profits starting in '25.

Iron-lithium processing costs have bottomed out, and profits are expected to rise steadily in the future. Prices of 24H2 low-end products have declined slightly, but currently the industry's leading production is at full capacity. We expect processing costs for high-end products to be stable. The company's net profit per Q1 unit will reach 10,000 yuan/ton. Subsequently, as capacity utilization increases and the integrated ratio of phosphate ore operations increases, the company's net profit is expected to return to around 20,000 yuan/ton.

Investment advice: Considering the company's deepening integrated layout and consolidating cost advantages, we maintain the company's 2024-2026 net profit forecast of 10/25/3.4 billion yuan, -35%/+147%/+35% compared to the same period, corresponding PE of 23/9/7 times. Considering that the company is an iron lithium cathode leader, the cost advantage is remarkable. It is 15x for 25 years, and the target price is 50 yuan, maintaining a “buy” rating.

Risk warning: Raw material prices fluctuated beyond market expectations, and electric vehicle sales fell short of market expectations.