Key points of investment

The company's interim results were in line with expectations. The company's H1 revenue in '24 was 1.76 billion yuan, down 37%; net profit to mother was 1.3 billion yuan, down 36%, of which Q2 revenue was 1.15 billion yuan, down 87%, and net profit to mother was 0.77 billion yuan, down 31%, up 45%, minus non-net profit of 0.7 billion yuan, down 35%, and 21%. The gross profit margin was 48.5%, and -25pct/-1.6pct compared to the same period. The performance was in line with market expectations.

Lithium: Q2 production increased by 43%, with a significant cost advantage. In 2024, H1 lithium carbonate production was 5,809 tons, achieving 55% of the annual target, an increase of 29%, and sales volume of 7630 tons, achieving 73% of the annual target and an increase of 57%; of these, Q2 production was 3,423 tons, an increase of 43%, and sales of 3,660 tons, a decrease of 8%. In terms of price costs, 24H1 lithium carbonate achieved revenue of 0.63 billion yuan, an average sales price of 0.094 million yuan/ton, a decrease of 64%, and an average sales cost of 0.0413 million yuan/ton, a decrease of 0.4%; of these, Q2 revenue was about 0.32 billion yuan, operating costs were about 0.16 billion yuan, an average tax inclusive price of 0.1 million yuan/ton, an increase of 13%, and a sales cost of 0.042 million yuan per ton, an increase of 5% +, mainly due to old halogen prices The impact of improvement.

Potassium: Q2 production and sales increased sharply month-on-month, and prices are expected to pick up in the second half of the year. In 2024, H1 produced 0.52 million tons, achieving 52% of the annual target, a decrease of 1.5%, and 0.54 million tons of sales, achieving 52% of the annual target, and a decrease of 8%; of these, Q2 production was 0.36 million tons, an increase of 130%, and a sales volume of 0.4 million tons, an increase of 187%. In terms of price costs, Q2 potash revenue was about 0.82 billion yuan, operating costs were about 0.44 billion yuan, the average price including tax was 2,237 yuan/ton, a decrease of 4.5%, and the sales cost per ton was nearly 1,100 yuan, an increase of 10%. At the beginning of July, the contract price came to fruition. It was agreed that the 24-year contract price for potash fertilizer would be CFR 273 US dollars/ton, corresponding to the domestic market price including tax of about 2,400 yuan/ton. Potash prices are expected to pick up in the second half of the year with the determination of international potash contract prices and the gradual increase in demand in the domestic market due to fall farming.

Copper: The rise in copper prices in Q2 increased profits, and the return on investment was rich. The participating company Julong Copper 24H1 produced 0.081 million tons of copper, an increase of about 0.01 million tons, with an average price of 0.085 million yuan including tax and a net profit of 0.034 million yuan per ton, achieving revenue of 6.1 billion yuan, net profit of 2.8 billion yuan, corresponding investment income of 0.86 billion yuan, an increase of 46%; of these, Q2 produced 0.039 million tons of copper, a decrease of 7%, and an average price including tax of 0.091 million yuan. The environment increased 14%, the net profit per ton was 0.042 million yuan, and the environment increased by 54%, achieving revenue of 3.1 billion yuan and net profit of 1.6 billion yuan, corresponding investment income of 0.5 billion yuan, an increase of 43% for the environment. The company expects trial production of the Julong Phase II renovation and expansion project in Q1 in '26, and the annual copper production will increase to 0.3-0.35 million tons after delivery.

Mid-term dividends enhance shareholder returns, and buybacks demonstrate management confidence. In '24, H1 paid a cash dividend of 2.6 yuan for every 10 shares and an interim cash dividend of 0.408 billion yuan to all shareholders. This is the third consecutive mid-term dividend since '22. In addition, the company announced a repurchase and cancellation plan. It is preparing to repurchase 0.15-0.3 billion yuan of company shares. The repurchase period is 12 months, and the shares will be cancelled after the repurchase is completed.

Profit forecast and investment rating: Due to the continued decline in lithium prices, we lowered the company's profit forecast for 2024-2026. The estimated net profit for 2024-2026 is 2.27/2.49/3.41 billion yuan (the original forecast was 2.69/3.07/4.05 billion yuan), -34%/+10%/+37% year-on-year, corresponding to 16x/14x/11xPE in 24-26. Considering the company's significant cost advantage, we maintained a “buy” rating.

Risk warning: Production capacity release falls short of expectations, demand falls short of expectations