Incident: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 2.58 billion yuan, or -45.8%; net profit to mother -0.19 billion yuan, -130.6% year over year; deducted non-net profit of -0.28 billion yuan, -161.0% year on year. Among them, Q2 achieved revenue of 1.37 billion yuan, or -30.8%/+12.6% month-on-month; realized net profit to mother of -0.04 billion yuan and deducted non-net profit of -0.13 billion yuan, and losses narrowed month-on-month.

1H24 lithium salt sales also increased 20%, but the rapid decline in lithium prices put pressure on performance. 1) The sharp drop in lithium prices was the main reason for the year-on-year decline in the company's 1H24 net profit of 0.8 billion yuan, and exchange losses further affected performance. ① In terms of volume, benefiting from the continuous climb of the SabiStar project, the company achieved 0.129 million tons of lithium concentrate production in 1H24, reaching 75% of the annual production level last year. Furthermore, 1H24 lithium salt production was +7.9% YoY to 0.0322 million tonnes, and sales +20.2% YoY to 0.0343 million tonnes. ② In terms of profit, the price of 1H24 lithium continued to fall, and the average price of electricity and carbon markets plummeted 68% year on year. As a result, the gross margin of the company's lithium business decreased by 16.3 pct to 3.15% year over year, and gross profit shrank sharply by 0.84 billion yuan to 0.08 billion yuan; ③ Furthermore, due to the sharp depreciation of the Zimbabwean currency in 1H24, the company's financial expenses for the first half of the year were +0.12 billion yuan to 0.1 billion yuan year on year, further adversely affecting performance.

2) The month-on-month improvement in Q2 profit was mainly due to increased government subsidies and reduced profit and loss for minority shareholders. The company's Q2 net profit to mother increased by about 0.1 billion yuan month-on-month. On the one hand, other income (mainly from government subsidies) was +0.08 billion yuan month-on-month, and on the other hand, profit and loss for minority shareholders decreased month-on-month.

The mine side continued to increase, and Indonesia's Shengtuo 0.06 million ton lithium salt project successfully tested production. 1) Resource side: ① Own mine: The production line of the Sabixing lithium mine project has been optimized, and the company's own mineral production capacity has increased to 0.365 million tons. The Sabixing lithium mine project in Zimbabwe has now reached production. At the same time, during the reporting period, the company further increased the project's lithium concentrate production capacity by 0.29 million tons/year (previously 0.2 million tons/year) through technical improvements and optimization of the production line; in addition, the company further increased its shareholding in wood-velvet lithium ore to 52.2% during the reporting period. The woodwool mine has been proven to have 0.99 million tons of Li2O resources. It is the largest hard rock monomer lithium mine discovered in Asia so far. The company is proceeding with exploration and mining procedures and preparations for development and construction in an orderly manner, which may further increase production capacity by 0.2 million tons after commissioning; ② Outsourced mining: deeply bound to Pilbara to strengthen raw material security. The company reached a lithium contract agreement with Pilbara in February '24 to purchase a total of 0.38 million tonnes of spodumene concentrate between 2024-2026. 2) Smelting side: The Indonesian project was successfully put into operation, which is expected to bring significant volume growth to the smelting side. ① Indonesia's 0.06 million ton lithium salt project was put into operation in June 24, driving the company's lithium salt production capacity to 0.137 million tons; ② Furthermore, Shengjing Lithium's 0.02 million ton lithium carbonate project was put into operation in June 24, which can effectively supplement production flexibility for the new 0.03 million ton lithium salt production line in Suining.

Profit forecast and valuation: As lithium prices fell more than expected, we adjusted the company's 2024-2026 net profit to 4.29, 0.488, and 1.444 billion yuan. Considering that profitability will increase after the company's resource self-sufficiency rate continues to increase, we 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