Yahua Group: Lithium Chemical Product Sales to Increase in Q4 2024, Annual Net Profit Expected to Grow by Over 596%

SMM, February 28: On February 27, Yahua Group released a record of its investor activity survey, which mentioned the company's lithium industry operations. Yahua Group stated that it entered the lithium industry in 2013 by acquiring a stake in State Lithium, specializing in lithium mining, lithium resource procurement, product R&D, production, manufacturing, sales, and trade. The company currently owns two lithium mines: the Lijiagou Lithium Mine in Sichuan and the high-quality Kamativi Lithium Mine in Zimbabwe. It also has three high-quality lithium chemical product production sites: Yaan Lithium, Sichuan State Lithium, and Blossom Lithium. Sichuan State Lithium is one of the earliest lithium chemical product producers in China. Yaan Lithium possesses internationally advanced production technology, achieving full automation in production, informatization in management, and digitalization in manufacturing, while leading the industry in intermediate electrochemical detection and consistency control. The company has signed long-term exclusive sales agreements with Pilbara, DMCC, Atlas, and other mineral resource providers, ensuring a stable supply of lithium ore resources for its lithium operations. The company's high-quality lithium chemical products hold international influence and market position in the lithium industry and are key long-term suppliers to top-tier enterprises such as Tesla, SKON, LGES, LGC, Panasonic, and CATL.

Regarding the company's lithium resource layout, Yahua Group stated that in terms of self-controlled lithium resources, the company acquired and integrated the Kamativi Lithium Mine in Zimbabwe in 2022 and carried out exploration, mine construction, and raw ore beneficiation in 2023. The second phase of the mine's construction was fully completed and put into operation in November 2024, and in 2025, it is expected to achieve an annual lithium ore processing capacity of 2.3 million mt, significantly improving self-sufficiency and greatly alleviating the company's previous reliance on externally purchased ore. The company plans to further expand its processing capacity to 3.3 million mt per year, further increasing its self-owned lithium ore resources and laying a foundation for the long-term stable development of its lithium business.

Regarding other lithium resources, to meet the current and future lithium resource demands for capacity expansion, the company has reserved lithium resources through various channels domestically and internationally. Domestically, the company has obtained priority rights through its stake in the Lijiagou Lithium Mine in Sichuan. Internationally, the company has secured exclusive sales rights through equity participation or long-term agreements in countries such as Australia, Africa, and Brazil, including projects like Pilgangoora, DMCC, and Atlas. Additionally, the company plans to continue expanding its overseas lithium resource projects to further enhance its lithium ore self-sufficiency.

Regarding the company's lithium chemical customers, Yahua Group stated that its lithium chemical customers mainly include cathode material companies, battery manufacturers, and automakers, such as Tesla, Panasonic, LGES, LGC, SKON, and CATL. The company has established strong cooperative relationships with these enterprises, creating channel advantages for the future expansion and release of its lithium chemical capacity. Currently, overseas customers still account for a significant proportion, providing strong support for the selling price of lithium chemical products.

Previously, Yahua Group released its 2024 performance forecast, stating that the company's net profit attributable to shareholders of publicly listed firms is expected to range from 280 million to 330 million yuan, representing a YoY increase of 596.26% to 720.60%, compared to a net profit of 40.21 million yuan in 2023.

Regarding the reasons for performance changes during the reporting period, Yahua Group stated that the sales volume of lithium chemical products increased significantly during the period, with stable orders from top-tier customers. The company strengthened management across all aspects of production and operations, improved the balance of mining, production, and sales, enhanced efficiency, and reduced costs, leading to a rebound in annual operating performance and YoY growth compared to 2023.

According to the company's Q3 2024 performance report, the net profit attributable to shareholders of publicly listed firms was approximately 155 million yuan in the first three quarters of 2024, indicating that the company is expected to achieve a net profit of 125 million to 175 million yuan in Q4 2024. Regarding the reasons for the QoQ improvement in Q4 performance, Yahua Group stated that in Q4 2024, the sales volume of lithium chemical products increased, with stable orders from top-tier customers. The company strengthened management across all aspects of production and operations, improved the balance of mining, production, and sales, enhanced efficiency, and reduced costs. Additionally, the company's civil explosive business maintained stable profitability, leading to a rebound in Q4 operating performance and QoQ improvement.

Furthermore, the company responded to inquiries about its lithium carbonate futures hedging activities. Yahua Group stated that it has a dedicated futures management team that will carry out hedging activities based on market conditions and work plans.

Looking back at lithium prices in 2024, according to SMM historical quotes, lithium carbonate prices showed a downward trend throughout the year amid an overall supply surplus in the industry. Prices even fell to a three-year low of 72,250 yuan/mt on September 9, 2024, down 495,250 yuan/mt from the peak of 567,500 yuan/mt in 2022, representing a decline of 87.27%.

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On a YoY basis, according to SMM quotes, the average spot price of lithium carbonate in 2024 dropped significantly compared to 2023. SMM spot quotes showed an average price of 90,509 yuan/mt in 2024, compared to 258,794 yuan/mt in 2023, a YoY decrease of 168,285 yuan/mt, or 65.03%.

Entering 2025, battery-grade lithium carbonate spot prices initially rose and then fell. In mid-January, stimulated by numerous favorable market factors and pre-holiday stockpiling sentiment among some downstream enterprises, inquiries and transactions in the lithium carbonate market were relatively active. Additionally, upstream smelters, under sustained cost pressure, showed strong sentiment to stand firm on quotes for 2025 long-term contract discount coefficients and spot prices. Combined with relatively low inventory levels at upstream smelters and minimal sales pressure, prices were supported. Traders also raised prices in response to active downstream purchasing periods, leading to a price increase in mid-January.

However, after the Chinese New Year, as most lithium chemical plants resumed normal operations following maintenance and some plants ramped up production, domestic lithium carbonate output increased significantly. Coupled with sufficient pre-holiday stockpiling by downstream material plants and only limited restocking demand post-holiday, downstream material plants adopted a cautious and observant attitude, with minimal stockpiling purchases. Market transactions were relatively subdued, and under the backdrop of strong supply and weak demand, lithium carbonate prices faced downward pressure.

As of February 28, domestic battery-grade lithium carbonate spot prices fell to 74,200–76,200 yuan/mt, with an average price of 75,200 yuan/mt. The center of lithium carbonate spot prices continued to decline. SMM believes that based on current market transactions, lithium carbonate spot prices have reached relatively low levels, and downstream material plants have shown increased purchase willingness. However, as upstream lithium chemical plants still hold strong sentiment to stand firm on quotes, most transactions are occurring between traders and downstream material plants. Considering the expected increase in domestic lithium carbonate production and overseas imports, the domestic lithium carbonate market is expected to remain in a surplus state.

Despite the significant YoY decline in lithium chemical product prices, Yahua Group's net profit is still expected to achieve over 596% growth, demonstrating its strong capabilities.

Institutional Comments

On February 24, Kaiyuan Securities released a research report, assigning a "Buy" rating to Yahua Group. The main reasons for the rating include: 1) Dual-core businesses of lithium and civil explosives, with promising profit growth potential; 2) The company is one of the leading enterprises in China's civil explosives industry, and overseas market expansion is expected to contribute long-term growth; 3) Lithium prices may gradually bottom out, with impairment losses diminishing and increased lithium ore self-sufficiency supporting performance growth. Risk warnings: macroeconomic fluctuations, raw material or product price volatility, safety and environmental protection risks, etc.

On February 24, Huafu Securities released a research report, assigning an initial "Buy" rating to Yahua Group. The main reasons for the rating include: 1) Dual drivers of lithium and civil explosives businesses, combining stability and flexibility; 2) Lithium business: upstream multi-channel expansion ensures resource supply, while downstream long-term contracts secure major customers; 3) Civil explosives business: horizontal mergers and acquisitions and vertical expansion into mining services create new growth points. Risk warnings: lithium price volatility, lower-than-expected global NEV sales, underperformance of projects under construction, raw material price fluctuations in civil explosives, macroeconomic and industrial policy changes.