Key points of investment:
Event: The company released its semi-annual report for 2023. 23H1 achieved revenue of 4.758 billion yuan, -7.3% year-on-year, and net profit of 611 million yuan, -79.75% of the same period. On a quarterly basis, 23Q2 achieved revenue of 1,974 billion yuan, -42.7%/-29.1% of the same period; net profit of the same period was 148 million yuan, or -92.4%/-68.1% of the same period.
The price of lithium continues to drop, and the company's performance is under pressure. 1) Volume: H1 lithium salt production was 29,800 tons, up 46.04% year on year; sales volume was 28,600 tons, up 54.44% year on year. 2) Price: In Q2, the average price of electric hydrogen in China was 274,000 yuan, -44.5%/-40.1% over the same period; the average price of electric carbon was 255,000 yuan, -47.1%/-38.9%. 3) Profit: H1's gross profit margin was 19.4%, down 40.6 pct from the full year of '22.
Resource-side projects continue to advance, and Africa's mineral capacity is about to be released. 1) Yelonggou, Sichuan: Raw ore production scale is 405,000 tons, equivalent to about 75,000 tons of lithium concentrate, and 54,300 tons of concentrate were produced in '22. 2) Sabixing, Zimbabwe: Five of these mineral rights are equivalent to about 200,000 tons/year of high-grade lithium concentrate. Trial production began in May of this year. Up to now, more than 20,000 tons of concentrate have been produced, and the first batch of ore is expected to be shipped soon.
3) Sichuan Mudong: The grade is 1.63%, equivalent to about 1.59 million tons of LCE. Exploration and conversion are currently being carried out. Up to now, the total shareholding ratio has increased to 41.20%. 4) SDLA in Argentina: The brine production capacity is 2,500 tons of LCE equivalent, has a certain brine inventory, and will be sent to Shengxin Metal for further processing into lithium salt. 5) Pocitos, Argentina: Construction of a pilot production line with an annual output of 2,000 tons of LCE equivalent will commence.
Production capacity on the smelting side is steadily expanding. 1) Zhiyuan Lithium: It has built a production capacity of 25,000 tons of lithium carbonate, 15,000 tons of lithium hydroxide, and 2,000 tons of lithium chloride; 2) Suining Shengxin: 30,000 tons of lithium hydroxide production capacity has been built, of which 10,000 tons can be flexibly produced, and Shengjing Lithium is constructing 20,000 tons of lithium carbonate as a flexible production arrangement for Suining Shengxin; 3) Shengxin Metal: Planned production capacity of 10,000 tons of lithium salt. Using salt lake lithium raw materials, the first phase of 5,000 tons of production capacity will be completed in the second half of 2023; 4) It produces 50,000 tons of lithium hydroxide plus 10,000 tons of lithium carbonate per year. It is expected to be put into production by the end of '23. 5) Shengwei Lithium: The planned production capacity is 1,000 tons of metallic lithium per year. Currently, a production capacity of 500 tons has been built. At the same time, ultra-thin and ultra-wide lithium belts have achieved small-batch production.
Profit forecast and investment suggestions: Based on lithium price fluctuations and the company's H1 production situation, we have changed our lithium price and production assumptions. We expect the company's net profit to be 23.02/33.36/3.357 billion yuan (original value 62.5/64.1/64.5) in 23-25, giving a PE valuation of 9.2 times in 2024, corresponding to the target price of 33.38 yuan, and maintaining the “buy” rating.
Risk warning: Risk of lithium price fluctuations, risk of overseas policy changes, projects under construction falling short of expectations.