The price of lithium carbonate has fallen sharply, and stocks may be rising against the trend, which may be full of risks.

The price of lithium carbonate has fallen sharply, and stocks may be rising against the trend, which may be full of risks.

Against the background of market expectations of overall excess lithium carbonate production capacity and a downward price cycle, Dawei shares are still bucking the trend and investing heavily in lithium carbonate projects. Recently, the “2023 Stock Issuance Plan to Specific Targets” released by Dawei Shares shows that the company plans to raise no more than 1 billion yuan, of which 700 million yuan will be used for Dawei Shares’ Chenzhou lithium battery new energy industry Guiyang has an annual output of 40,000 yuan tons of battery-grade lithium carbonate project (Phase I), 300 million yuan will be used to supplement working capital.

A reporter from the “Economic Information Daily” noticed that Dawei Co., Ltd.’s performance growth has been weak in recent years. In the first three quarters of this year, it turned from profit to loss compared with the same period last year. The company’s planned investment in the lithium carbonate project this time aims to create an important engine and profit growth point for the company’s future development. However, David Co., Ltd. has only been involved in the lithium battery new energy industry for a short period of time. At the end of 2022, the company launched the Dawei Co., Ltd. Chenzhou lithium battery new energy industry project and developed the new energy business segment. It has not yet contributed to operating income. Industry insiders said that amid risks such as supply, demand and price fluctuations in the lithium carbonate market, the company’s prospects for private placement may be full of worries.

  Massive layout of new energy industry

Dawei’s business includes two major businesses: “new energy + automobile” and “semiconductor storage + intelligent terminal”. With this private placement, Dawei Co., Ltd. plans to raise no more than 1 billion yuan to build a new Dawei Co., Ltd. Chenzhou Lithium Battery New Energy Industry Guiyang 40,000-ton battery-grade lithium carbonate project (Phase I) in Guiyang County, Chenzhou City, Hunan Province. .

Dawei Co., Ltd. said that this project is an important part of the company’s Hunan Chenzhou lithium battery new energy industry project and will become an important engine and profit growth point for the company’s future development. Project construction can help the company optimize its industrial layout and focus the company’s superior resources on the lithium battery industry, which is a need for the company to implement a new stage of development strategy.

However, from the perspective of Dawei’s revenue structure, by product, in the first half of this year, the company’s semiconductor memory achieved operating income of 135 million yuan, accounting for 64.30%; communications equipment, computers and other electronic equipment achieved operating income of 49.9431 million yuan , accounting for 23.82%; retarder and other auto parts revenue accounted for 9.02%, and house rental and others accounted for 2.86%. In the first half of the year, the company’s lithium battery new energy business segment was still under preparation and did not contribute to operating income.

On the other hand, Dawei’s entry into the lithium battery new energy industry is still relatively short. In December 2022, the company launched the Dawei Chenzhou lithium battery new energy industry project to create a new energy battery industry chain project from lithium-containing mineral resource mining, mineral processing, lithium carbonate smelting, lithium battery production and comprehensive treatment and utilization of tailings. Launch lithium resources business.

On December 28, 2022, the company signed an “Investment Cooperation Agreement” with the Guiyang County People’s Government, with a planned total project investment of approximately 22 billion yuan, including 9 billion yuan in lithium mining and dressing, lithium carbonate, environmental protection, and tailings treatment projects. ; The investment in lithium battery positive materials and lithium battery-related production projects is 12 billion yuan, and the new energy special vehicle base investment is 1 billion yuan. Among them, Dawei Co., Ltd. is mainly responsible for the investment and construction of the mining, mineral processing, and lithium carbonate production projects, and other companies in the consortium participate respectively; the new energy special vehicle base project is mainly responsible for the investment and construction of Dawei Co., Ltd., and other companies in the consortium participate respectively.

Analysts pointed out that Dawei’s large bet on new energy may be due to its weak performance growth in recent years. Flush data shows that from 2020 to 2022 and January to September 2023, the company achieved operating income of 387.6465 million yuan, 857.3874 million yuan, 837.8721 million yuan and 521.0801 million yuan respectively; the net profits attributable to shareholders of the parent company were 8.9937 million yuan respectively. yuan, 15.4791 million yuan, 15.9792 million yuan and -34.735 million yuan.

In addition, Dawei Shares also faces the risk of large amounts of goodwill impairment. In 2020, the company completed the acquisition of 60% of the equity of Dawei Chuangxin, and Dawei Chuangxin became a holding subsidiary of the company. While developing the new generation of information technology industry, exploring markets and improving profitability, the company also generated 7634.88 million in goodwill. According to the provisions of the Accounting Standards for Business Enterprises, the above-mentioned goodwill will not be amortized, but will need to be tested for impairment at the end of each future accounting year. If a large amount of goodwill impairment occurs later, it may have a greater adverse impact on the company’s net profit level for the current period.

 Lithium carbonate prices are in a downward cycle

It is understood that lithium carbonate is an important basic raw material for the lithium battery and energy storage industry, and is ultimately used in new energy vehicles and energy storage fields. In recent years, with the rapid development of emerging industries represented by global new energy vehicles and energy storage, the explosive demand for battery-grade lithium carbonate and other products has provided huge market space and development opportunities for lithium-related products.

Dawei shares stated that after this issuance, the company will use the funds raised for the construction of lithium carbonate projects. With the implementation of the fundraising projects, the company’s new energy business segment revenue will increase significantly in the future. However, how much room for performance growth can the lithium carbonate project bring to Dawei Shares? The short term is yet to be determined. However, from an industry perspective, the market expects an overall surplus of lithium carbonate production capacity, and the price trend is not optimistic. The problem of digesting Dawei’s new production capacity remains to be solved.

CICC’s research report shows that the Guangzhou Futures Exchange’s lithium carbonate futures contract has been listed for trading since July 21, 2023, and has closed down for many consecutive days, mainly because the corresponding date of the first contract is January 2024, reflecting the market’s expectations for carbonate next year. Lithium surplus is expected to be strong. CICC expects that lithium carbonate pricing will face a process of gradual convergence between expectations and reality.

Judging from the current price performance of lithium carbonate, the overall price is still in a downward cycle. Since its listing in July this year, the price of lithium carbonate futures has been fluctuating and falling. From November 27 to December 6, the main contract of lithium carbonate futures closed down for 8 consecutive trading days, with a range of decline of more than 25%, setting a new low since the listing of this type of futures. From December 7th to 8th, the main contract of lithium carbonate futures rebounded and rose, with a cumulative increase of more than 16%. Spot prices still maintain a downward trend. Data released by Shanghai Steel Federation show that battery-grade lithium carbonate fell by 2,000 yuan/ton on December 7, with the average price reported at 122,500 yuan/ton.

Regarding the price performance of lithium carbonate, many institutions believe that there is still room for downside, and the pessimistic expectations on the demand side are relatively consistent. Hengli Futures analysis believes that on the supply side, the supply plans of major manufacturers have worsened the market’s supply pessimism, and supply will also remain loose in December. Upstream inventories have increased significantly, while downstream inventories have slowed down. On the demand side, price cuts for electric vehicles and energy storage systems are transmitted upwards, leading to a further drop in battery and cathode material prices, which in turn affects the weakening of upstream demand for lithium carbonate, which is now the main contradiction in the market. The fourth quarter is not the peak production period, so in the short term, the pessimistic signals released by the demand side will continue.

Looking forward to the market outlook, Guosen Futures said that the guiding force of excess fundamentals on downward prices has not changed, and there is still room for the main contract to fall. Yide Futures believes that from the perspective of supply and demand fundamentals, there is an excess supply of lithium carbonate globally, mainly due to the release of resources, the slowdown in the growth of consumer-side power batteries, and the slower-than-expected growth of energy storage batteries. In 2024, the market oversupply pattern is expected to continue.

Regarding the supply, demand and price fluctuations in the lithium carbonate market, Dawei shares frankly admitted that when subsidies in the new energy vehicle industry decline, the economy goes down, or downstream demand drops sharply due to unexpected factors, it will reduce the overall expansion speed of vehicle manufacturers and the number of new vehicles. Investment intensity will have an adverse impact on the market demand for lithium salt products. At the same time, lithium carbonate production capacity continues to expand, and there may be a structural excess in the short term, which will have an adverse impact on the demand and prices of lithium carbonate products.

Planned refinancing many times

It is worth noting that this is the fourth time Dawei has planned refinancing since its listing. Tonghuashun data shows that the company planned a fixed increase in 2014, but it was not approved by the shareholders’ meeting. Then the company planned a fixed increase in 2020, 2022, and 2023 respectively. Among them, the fixed increase in 2020 and 2022 is to supplement working capital, and the issuance targets include the company’s controlling shareholder Shenzhen Chuangtong Investment Development Co., Ltd. (referred to as “Chuangtong Investment”).

Specifically, the company’s private placement plan disclosed in December 2020 shows that the total amount of funds to be raised will not exceed 387.9 million yuan (including the original amount). The company will all use it to supplement working capital after deducting issuance expenses. The target of the issuance is Chuangtong Investment. . Later, a revised draft was disclosed in March 2021, adjusting the total amount of private placement funds to “not exceed 298.5 million yuan (including the original amount)”, and the subscription objects were adjusted to the company’s controlling shareholder Chuangtong Investment and actual controller Lian Zongmin, Chuangtong Investment and Lian Zongmin subscribed for the issued shares in cash.

On March 26, 2022, Dawei Shares announced that the company’s 2020 non-public stock issuance plan has been disclosed for a long time. After comprehensive consideration of the company’s actual situation, regulatory policies and other factors, in order to comprehensively and effectively protect the rights and interests of all shareholders, The company decided to terminate the non-public issuance of A shares in 2020. On the same day, Dawei Shares disclosed its 2022 private placement plan. The target of this issuance is still Chuangtong Investment, the company’s controlling shareholder, and all the shares in this issuance will be subscribed in cash. The total amount of funds raised in this issuance is 313 million yuan. After deducting the issuance expenses, the net amount of funds raised is 306 million yuan.

Benefiting from the “blood transfusion” of the previous controlling shareholder, David Shares currently has a low asset-liability ratio. From the perspective of financial status, the scheduled increase plan shows that as of September 30, 2023, the company’s consolidated asset-liability ratio was 12.23%, and the monetary fund balance was 343 million yuan. The main reason for the company’s low asset-liability ratio is that in 2022, the company raised 300 million yuan through a fixed increase from major shareholders and repaid part of its bank borrowings, causing the asset-liability ratio to drop from 43.53% to 12.23%.

However, Dawei Co., Ltd. said that the investment amount in the lithium battery new energy industry project in Chenzhou, Hunan Province is huge. At present, the company’s funds can only be used to support the initial basic investment, leaving a large funding gap. If all subsequent investments are made from bank borrowings, the company’s asset-liability ratio will increase significantly, and it will need to bear a large amount of interest expenses every year, which is not conducive to optimizing the asset structure and ensuring financial security.

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