Incidents:
On March 30, 2024, Salt Lake Co., Ltd. released its 2023 annual report: in 2023, the company achieved operating income of 21,579 billion yuan, a year-on-year decrease of 29.80%; realized net profit attributable to shareholders of listed companies of 7.914 billion yuan, a year-on-year decrease of 49.17%; and a weighted average return on net assets was 27.91%, a year-on-year decrease of 61.56 percentage points. The gross profit margin on sales was 56.05%, a year-on-year decrease of 23.05 percentage points; the net profit margin was 43.40%, a year-on-year decrease of 20.59 percentage points.
Among them, in 2023Q4, the company achieved revenue of 5.789 billion yuan, -19.57%, and -0.79%; realized net profit to mother of 2,314 billion yuan, -33.64% year on year, +360.67% month on month; ROE was 7.51%, down 7.23 percentage points year on year, up 5.81 percentage points month on month. The gross profit margin on sales was 53.10%, down 22.71 percentage points year on year, up 24.23 percentage points month on month; net sales margin was 40.10%, down 18.53 percentage points year on year, up 22.95 percentage points month on month.
Investment highlights:
Potassium and lithium prices fell from a high level, and the company's performance declined
In 2023, the company achieved operating income of 21,579 billion yuan, a year-on-year decrease of 29.80%; net profit attributable to shareholders of listed companies was 7.914 billion yuan, a year-on-year decrease of 49.17%. The decline in the company's performance was mainly due to a fall in the prices of its two main products, potassium chloride and lithium carbonate, from a high level of economic activity. According to Wind, the average prices of potassium chloride and lithium carbonate in 2023 were 2924.31 yuan/ton and 25.87 trillion yuan/ton, respectively, down 30.51% and 46.38% year-on-year respectively. As product prices declined, the gross margins of the company's potassium chloride and lithium carbonate sectors fell by 28.11%, 19.51% to 51.32% and 72.44% respectively in 2023. The company adopted a volume-based pricing strategy. In 2023, sales of potassium chloride and lithium carbonate were 560.00 and 37,600 tons respectively, +13.33% and 24.62% year-on-year respectively.
In terms of period expenses, the company's sales/management/ financial expenses ratio in 2023 was 0.67%/4.09%/-0.84%, respectively, -0.17/+0.30/ -1.24pct. Among them, the decline in sales expenses was mainly due to the establishment of logistics subsidiaries and changes in accounting standards; the decline in management expenses was mainly due to an increase in interest income compared to the previous period.
2023Q4 profit was recovered month-on-month, mainly because the proceeds from the sale of supplementary mining rights in the third quarter dragged down 2023Q4. The company achieved revenue of 5.789 billion yuan, -19.57%, and -0.79% month-on-month; realized net profit to mother of 2,314 billion yuan, -33.64% year-on-year, and +360.67% month-on-month.
The sharp increase in the company's net profit due to 2023Q4 was mainly due to revenue from the concession of supplementary mining rights being dragged down by 1,897 billion yuan in the third quarter. Without considering this impact, net profit for the fourth quarter is expected to be +5.66% month-on-month. The price of lithium carbonate declined somewhat in the fourth quarter, but the price of potassium chloride rebounded somewhat, driven by downstream inventory replenishment. According to Wind, the average price of 2023Q4 was 2836.74 yuan/ton and 140,500 yuan/ton, respectively, +12.39% and -41.61% month-on-month, respectively.
After the implementation of the new Companies Law, the company is expected to pay dividends
The new “Company Law” amends “Capital Provident Funds shall not be used to cover company losses” to “Provident Funds may be used to cover company losses” and will come into effect on July 1, 2024. As of September 30, 2024, the company had a capital reserve of RMB 40.735 billion and undistributed profit of RMB 17.351 billion. After the implementation of the new “Company Law”, the company is expected to meet the dividend conditions. According to the “Investor Relations Activity Record Form” disclosed by the company on March 1, 2024, the company will strictly follow the regulations, formulate reasonable dividend policies, and actively return investors.
Profit forecasts and investment ratings
Based on the 2023 performance, we adjusted the company's profit forecast. We expect the company's net profit to be 83.34 billion yuan, 92.03 billion yuan, and 9.475 billion yuan respectively in 2024-2026, and the corresponding PE is 10.46, 9.47, and 9.20 times, respectively. Considering the strong profitability of the company's main products and the company's active expansion of production in the lithium salt field, it is expected to bring continuous growth and maintain the company's “buy” rating.
Risk warning
The risk of falling demand for products due to macroeconomic fluctuations; a sharp drop in product prices; the risk of new capacity expansion falling short of expectations; and increased risk of industry competition.