Key points of investment

Incident: The company disclosed its report for the third quarter of 2024, and revenue and profit declined year-on-year. The company's revenue for the third quarter of 2024 was 0.562 billion yuan, or -59.65%; net profit to mother was 0.571 billion yuan, or -39.42% year-on-year; net profit without return to mother was 0.569 billion yuan, or -40.09% year-on-year. The company's revenue for the first three quarters of 2024 was 2.324 billion yuan, or -44.53%; net profit to mother was 1.868 billion yuan, or -37.08% YoY; net profit after deducting non-return to mother was 1.847 billion yuan, or -37.38% YoY.

The company's investment income from Julong Copper rose sharply in the first three quarters of 2024. In the first three quarters of 2024, Julong Copper produced 0.122 million tons of copper and sold 0.1206 million tons, achieving operating income of 9.272 billion yuan and net profit of 4.428 billion yuan. The company obtained investment income of 1.363 billion yuan, accounting for 72.96% of the company's net profit to mother, an increase of 33.88% over the same period last year.

The company's potash business is under pressure for a short period of time, and the Laos potash project is preparing an “EIA Report”. In the first three quarters of 2024, the company achieved operating income of 1.51 billion yuan and potassium chloride production of 0.7562 million tons, down 1.32% year on year; sales volume of 0.715 million tons, down 28.22% year on year; average sales unit price was 2301.21 yuan/ton, down 15.40% year on year; sales cost was 1210.10 yuan/ton, up 16.84% year on year. The company's subsidiary, Zangge Laos Development, has obtained 157.72 square kilometer potash deposit certificates in Vientiane Setani County and Bavo County in Laos. Within 157.72 square kilometers of potash, the amount of potassium chloride resources is about 0.984 billion tons. Currently, the “Project Feasibility Study Report” for the potash mine in Bao'ao County, Vientiane City, Laos has been prepared and is awaiting review, and the “EIA Report” is being prepared.

Sales of the company's lithium carbonate products grew rapidly, prices dropped sharply, and the Mamicuo, Jiechaka and Longmucuo Salt Lake projects progressed steadily. In the first three quarters of 2024, the company achieved operating income of 0.806 billion yuan, lithium carbonate production of 9277.50 tons, up 12.84% year on year; sales volume of 10210 tons, up 31.56% year on year; affected by the continuous decline in prices, the average sales unit price of lithium carbonate was 89250.72 yuan/ton, down 63.73%; sales cost was 39795.50 yuan/ton, up 2.39% year on year. The company's application for the issuance of the Mamicuo Salt Lake mining license is in progress; in conclusion, the renewal of the Chaka Salt Lake mining license has been completed, and the production capacity plan is to produce 0.06 million tons of lithium salt per year, including the 0.03 million ton industrial-grade lithium hydroxide project and the 30,000 ton battery-grade lithium carbonate project. The renewal of the Longmucuo Salt Lake mining license has been completed. The production capacity plan is to produce 0.07 million tons of lithium salt per year. The “Feasibility Study Report” and “Development and Utilization Plan” of the project have been reviewed and approved, the EIA report has been prepared and publicized, and the EIA approval process is continuing.

Profit forecast: As the prices of potassium chloride and lithium carbonate remain low, we lowered the company's profit forecast. We forecast that the company's revenue for 24-26 will be 3.172/3.197/4.5 billion yuan respectively, net profit to mother will be 2.41/2.721/4.049 billion yuan, and PE 18.57/16.45/11.05 times, respectively. Maintain a “buy” rating.

Risk warning: (1) The second phase of production of Julong Copper fell short of expectations; (2) the prices of copper, potassium chloride, and lithium carbonate fell beyond expectations; (3) the sales volume of the company's lithium carbonate products fell short of expectations.