3Q24 results are in line with our expectations

The company announced 3Q24 results: revenue of 4.34 billion yuan, -43% YoY, -4% month-on-month; net profit to mother 0.12 billion yuan, -25% YoY; net profit to mother of -0.2 billion yuan after deduction, in line with expectations.

First, the decline in domestic lithium prices has led to a decline in operating income. According to Asia Metal Network, the average price of domestic battery-grade lithium carbonate in 3Q24 was 0.079 million yuan/ton, -24% month-on-month. The pricing of the company's lithium salt products followed the market price, which led to a decline in revenue.

Second, falling concentrate prices and high inventory consumption are beneficial to controlling costs. Since the beginning of the year, the company's stocks of lithium concentrate raw materials and lithium salt products have remained low. The average price of 3Q24 lithium concentrate was 869 US dollars/ton, -27% month-on-month, which is conducive to controlling lithium salt costs. The 3Q24 company accrued asset impairment of 0.19 billion yuan, further releasing the risk of high-value inventory.

Third, the contribution of mining investment income to profits has weakened. 3Q24's investment income was about 0.04 billion yuan, or -58% month-on-month, mainly due to the continued decline in lithium product prices and the high cost of Mt Marion lithium ore. The discounted SC6 cost of Mt Marion lithium ore 1H24 was 844 Australian dollars/ton.

Development trends

The Mali lithium project is about to be put into operation, and the incremental release of its own mine is accelerating. We believe that the company's own resource projects will reach an inflection point in 2025, which is expected to drive the company's resource self-sufficiency rate from 31% in 2024 to 39% in 2025. First, the first phase of Cauchari Salt Lake in Argentina's lithium carbonate production capacity of 0.04 million tons/year has climbed smoothly. The company expects to produce 0.02-0.025 million tons of lithium carbonate in 2024, and the second phase of the project is being planned. Second, the first phase of the Goulamina lithium mine project in Mali plans a lithium concentrate production capacity of 0.506 million tons/year. The crushing production line has been completed and started, and the construction of the flotation production line is being completed. Currently, the company is discussing government investment matters with the Malian government. The company expects to produce the first batch of spodumene concentrate products within 2024. In the long run, the second phase of the project has the potential to expand lithium concentrate production capacity to 1 million tons/year. Third, the first phase of Mariana Salt Lake in Argentina plans a lithium chloride production capacity of 0.02 million tons/year. The company expects to start climbing production capacity in 2025.

Profit forecasting and valuation

We keep our profit forecast for 2024 and 2025 unchanged. The current stock prices for A shares and H shares correspond to 53.0 times and 29.3 times the price-earnings ratio in 2025. Maintaining an outperforming industry rating, but due to the smooth progress of the company's own resource projects, we raised our target price of A shares by 8% to 38.48 yuan, which corresponds to 60.0 times the 2025 price-earnings ratio, and has 13% room to rise compared to the current stock price. We raised our target price for H shares by 7% to HK$25.01, corresponding to 34.2 times the 2025 price-earnings ratio. There is 17% room for growth compared to the current stock price.

risks

The price of lithium salt fell beyond expectations; progress in resource projects fell short of expectations; profits in battery projects declined.