Key points of investment

Incident: On the evening of October 17, 2024, the company announced that its subsidiary Yajiang County Huirong Mining Co., Ltd. obtained a mining license for lithium wood wool mine on the same day. The production scale is 3 million tons/year, and the period is valid for 24 years.

The resource endowment of lithium wood velvet ore is excellent, and the total cost is expected to be as low as 0.05 million yuan. A total of 61.095 million tons of ore resources and 0.9896 million tons of lithium oxide (minus 2.44 million tons LCE) have been discovered in Asia. It is the largest hard rock monomer lithium mine discovered in Asia so far, with an average grade of 1.62%, making it one of the highest-grade lithium mines in Sichuan. The wood velvet mine is designed to have a production capacity of about 0.07 million tons LCE. We expect large-scale mass production in 28 years, and the total cost is expected to be as low as 0.05 million/ton (excluding tax). As of October 17, the company held a total of 52.20% of Huirong Mining's shares through direct and indirect methods, with a corresponding equity production capacity of about 0.037 million tons of LCE.

The mine side self-supply rate reached 40-50% in 24 years, and the self-supply rate will increase steadily in the future. The subsidiary Oinuo Mining owns the Yelonggou spodumene mine and the Taiyanghekou lithium mine. The Yelonggou lithium mine was put into operation in '19. The raw ore production scale is 0.405 million tons, and the lithium concentrate is about 0.075 million tons. We expect production to remain around 0.07 million tons in 24 years. The production scale of the five mineral rights of the Sabixing lithium tantalum ore is 0.99 million tons, and the lithium concentrate is about 0.29 million tons. It was put into operation in May '23, and we expect production of 0.2 million tons+ in 24 years. Overall, we expect to ship nearly 0.3 million tons of concentrate at the mining end in '24, which is about 0.035 million tons of LCE; in '24, we expect to ship 0.07-0.08 million tons of LCE, and the mine side's self-supply rate will reach 40-50%. With the subsequent completion and extraction of the wood velvet mine, the company's self-supply rate at the mine side will further increase, and the cost of lithium salt will drop significantly.

Profit forecast and investment rating: Due to the fall in lithium prices, we lowered the company's net profit to 0.003/0.08/0.46 billion yuan in 2024-2026 (originally estimated at 0.72/0.87/1.11 billion yuan), -99.5%/+2167%/+482%, corresponding to 173x/30x in 25-26. Due to the company's excellent lithium resource endowments and the smooth operation of overseas Indonesian plants, we maintained a “buy” rating.

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