Positive 2021 alert confirmed upbeat outlook
Investment Thesis
Overly concerned on chip shortage impact. GFLi was alerting its 2021 recurring earnings to be ahead of consensus and exceeded our expectation. We believe the market has overworried about the negative impact from shortage of chips and power in 4Q21. We expect the news would provide positive share catalyst in anticipation of Chinese lithium products market price approaching multiple-year high.
Smooth expansion progress on good upstream development. GFLi’s good progress in overseas upstream projects could boost raw material self-sufficiency to above 70% in 2024, from 30% in 2020, and provide additional margin support from this year onwards. Also, GFLi’s new projects in Qinghai are well on track; we expect it would support market share expansion. We estimate GFLi’s sales volume growth at a 33% CAGR during 2021 to 2023 after a 24% CAGR during 2019 to 2021.
Upgrade earnings estimate. Amid the continuous lithium price uptrend, we raise our FY22F/FY23F estimate by 11%/37% on our new GP assumptions. GFLi’s core net earnings growth is estimated at an 48% CAGR during 2021 to 2023.
Valuation:
Our H-share TP of HK$230 is based on a 13x FY22F PB, supported by ROE improvement to >26% by 2023 from <11% in 2020. Our A-share TP of RMB230 is based on a 15x PB, in line with domestic peers, and at the high end of its historical range, which is consistent with the historical price spread to the Hshare.
Where we differ:
We believe GFLi’s smooth progress of market share expansion support above market earnings CAGR during 2021 and 2023.
Key Risks to Our View:
A market collapse on an unexpected shift in market dynamics and/or geopolitical/ China policies swing.