Incident: The company released its 2024 semi-annual report, achieving net profit to mother of -0.76 billion yuan, -113% year-on-year, deducting non-net profit of -0.16 billion yuan, or -103.90% year-on-year. Among them, Q2's net profit was -0.321 billion yuan, -109.31%/+26.75% month-on-month; after deducting non-net profit of 0.094 billion yuan, -95.25%/+136.90% month-on-month.

The drop in lithium prices put pressure on performance, but after deducting non-net profit, it improved quarterly. 1) 1H24's net profit to mother was -6.6 billion yuan year-on-year, mainly due to the weakening prosperity of the lithium industry. ① The volume and price of the lithium sector increased and fell, and profitability narrowed sharply. Although sales of the company's 1H24 lithium products increased year over year, it is difficult to make up for the negative impact of falling prices. In the first half of the year, the average carbon price of SMM electricity plummeted 68% year on year. As a result, the company's lithium sector gross margin was -12.37 pct to 11.75% year on year, and gross profit -2.541 billion yuan year on year to 0.767 billion yuan. ② Loss of investment income and changes in fair value further affects performance. The main reasons for the company's 1H24 investment income -2.127 billion yuan year-on-year: the decline in 1H24 lithium prices led to the year-on-year net profit of the company's 50% lithium mine MTMarion -2.33 billion yuan to 0.298 billion yuan, and the net profit of Minmetals Salt Lake, which holds 49% of the shares, -0.864 billion yuan to 0.298 billion yuan year-on-year. 1H24's fair value change loss was as high as 0.874 billion yuan (-2.075 billion yuan year on year). The loss mainly came from: the lithium mining company Pilbara's stock price fell by about 0.7 Australian dollars; the company held 0.173 billion shares, and the corresponding loss was about 0.57 billion yuan; 2) The basic calculation of inventory impairment was completed, and the bottom of the performance was beginning to show. 4Q23-2Q24 deducted non-net profit of -1.676/-0.254/0.094 billion yuan, respectively, showing a quarterly improvement trend. On the one hand, the calculation of the company's inventory impairment was completed; on the other hand, after the rate of decline in mineral salt prices converged, smelter losses narrowed drastically, and profits became more stable.

C-O Salt Lake successfully released and increased its holdings of the Goulamina lithium mine, and the company's resource layout ushered in a harvest period. 1) Resource side: The company's equity lithium resource production capacity is expected to increase 119% year-on-year to 0.146 million tons of LCE by the end of 2024. ① The company currently has a production capacity of 0.067 million tons of LCE and continues to climb. Among them, Argentina's C-O Salt Lake 0.04 million-ton production line (47% equity) has reached 70% capacity utilization by mid-24, and is expected to produce 0.02-0.025 million tons of lithium carbonate throughout the year; ② It is expected to add 0.08 million tons of LCE production capacity this year. First, Mali's Goulamina lithium mine is expected to produce the first batch of lithium concentrate within the year, with a project production capacity of about 0.063 million tons LCE, and the company plans to increase its equity to 100%; second, the 0.017 million ton LCE production line (100% equity) of Mariana Salt Lake in Argentina is expected to be tested by the end of 24; 2) Smelting end: the current basic lithium salt production capacity is about 0.16 million tons, which will be expanded to 0.3 million tons+, including ① Jiangxi Fengcheng Phase II 0.025 million tons of lithium hydroxide; ② 0.05 million tons of lithium salt in Dazhou, Sichuan; ③ 0.025 million tons of lithium carbonate in Shangrao, Jiangxi; ④ 0.02 million tons of lithium carbonate in Inner Mongolia; ⑤ 0.02 million tons of lithium chloride in Mariana Salt Lake; ⑥ 0.05 million tons of lithium carbonate in PPG Salt Lake. 3) Battery side: At present, the total production capacity has reached 20GWh+, and the planned production capacity is 31GWh, including ① Xinyu Ganfeng Lithium Battery Phase III 6GWh; ② Dongguan Ganfeng 10GWh; ④ Royal Sichuan 10GWh; ⑤ Xiangyang 5GWh.

Profit forecast and valuation: As the company's fair value change losses exceeded expectations, we adjusted the company's net profit to mother in 2024-2026 to 0.541, 3.398, and 6.369 billion yuan to maintain the “gain” rating.

Risk warning: Profit forecasts and valuation models fall short of expectations, and the risk that commodity prices will fall beyond expectations