Incident: The company released its 2024 three-quarter report. The company achieved operating income of 13.925 billion yuan in the first three quarters, or -45.78% year-on-year; the company achieved net profit to mother of -0.64 billion yuan in the first three quarters, or -110.66% year-on-year. The company achieved revenue of 4.336 billion yuan in Q3, or -42.46% year-on-year; the company achieved net profit of 0.12 billion yuan to mother in Q3, or -24.85% year-on-year.

Comment: Q3 results were corrected for the first time in the last 4 quarters. The month-on-month reversal of the company's Q3 performance was mainly due to a positive net income change in fair value, which changed from -0.605 billion yuan in Q2 to 0.303 billion yuan in Q3. However, lithium prices are still declining. The average prices of lithium carbonate and lithium hydroxide in Q3 2024 were 0.0803 million/ton and 75,600 yuan/ton, respectively, down 28% and 21% from Q2.

The global resource side has entered the harvest period, and the long-term smelting capacity is planned to reach 0.6 million tons. According to the company's announcement, the Cauchari-Olaroz project in Argentina was put into operation last year. It will produce about 6,000 tons of lithium carbonate in 2023, and is expected to produce about 20,000 tons to 25,000 tons of lithium carbonate in 2024; the Argentina Mariana project is expected to begin testing at the end of this year; the PPG project in Argentina is completing a series of preliminary works and has now completed the construction of a pilot line. The construction of the Mali project has almost been completed, and preparations are under way before production. The company still expects the project to produce the first batch of lithium concentrate in 2024. The company plans to develop a lithium product supply capacity with a total annual output of at least 0.6 million tons of LCE by 2030.

The downstream extends to the battery business, and the solid-state battery layout seizes the first-mover advantage. The company actively promotes R&D, production and commercial application of solid-state lithium batteries. The company achieved trial production of ultra-thin oxide electrolyte ceramic membranes in the development of key materials for solid-state batteries, with a thickness of 50 μm and an ionic conductivity of 0.6 mS/cm at room temperature; polymer-based solid electrolyte membranes are 5V resistant to high pressure, and the room temperature ionic conductivity exceeds 0.5 mS/cm, and the thickness is below 30 μm. The company developed a high specific energy battery with an energy density of 420 Wh/kg, a cycle life of more than 700 times, and developed samples with an energy density of 500 Wh/kg.

After a two-round clearance cycle, sectors may be gradually added. Through the comparison of the two rounds of clearance cycles, we believe that the mining stop/production reduction strategy in this round is more proactive, and that there is more cash on the books. Considering that the mines on the right side of the cost curve still have room to cut costs in the future and supplies such as salt lake on the left side of the cost curve are expected to release new production capacity, the bottom of this round of lithium prices may fall below the cost support line calculated by theoretical estimates, reaching the 0.06-0.07 million/ton range. As of October 31, 2024, the price of lithium carbonate was 0.0732 million/ton, which is close to the bottom range.

Profit forecast and rating: In view of the decline in lithium prices, we lowered our profit forecast. We expect net profit to be -0.22 billion yuan/0.71 billion/ 1.38 billion yuan in 2024, turning into losses in 2024, and a reduction of 81%/73.8% in 2025/2026, corresponding to the 2024-2026 PE of NA, 97 times, and 50 times. Due to the company's leading position in the global industry, we maintain the “Overweight” rating.

Risk warning: downstream electric vehicle production falls short of expectations; risk of fluctuations in raw material prices; increased market competition, etc.