1Q22: Net Profit Up 422% Yoy And 129% Qoq, Beating Estimates
Tinci’s 1Q22 net profit came in as expected at Rmb1,498m (+422% yoy/+129% qoq). The
earnings beat lies in the cost savings from the low-cost lithium carbonate and margin
expansion as a result of higher electrolyte ASP and increase in self-sufficiency rate for
LiPF6. Tinci raised 2022 sales volume guidance for electrolytes by 46% to 350,000
tonnes (+150% yoy), and guided for 20-30% revenue growth in 2023-24. We keep 2022-
24 EPS estimates. Maintain BUY. Target price: Rmb204.00.
RESULTS
• 4Q21 net profit beat estimates at Rmb1,498m (+422% yoy/+129% qoq), vs our
estimate of Rmb1,205m and consensus estimate of Rmb1,385m. The earnings beat
came from cost savings from the low-cost lithium carbonate inventories accumulated last
year, which boosted 1Q22 net profit by Rmb200m. Revenue grew 230% yoy and 15%
qoq to Rmb5.15b, driven by sales volume growth and electrolytes ASP increase. Gross
margin soared 9.7ppt yoy and 15.0ppt qoq to 44.0% in 1Q22, due to higher ASP of
electrolytes and higher self-sufficiency rate for lithium hexafluorophosphate (LiPF6), the
major raw material for electrolytes which makes up 40-45% of total cost. Guangzhou Tinci
Materials Technology (Tinci) launched a 60,000 tonne per annum (tpa) plant for liquid
LiPF6 in Nov 21, raising total capacity for LiPF6 to 90,000 tpa. After a two-month trial run,
the new LiPF6 plant has fully ramped up since Jan 22, boosting the self-sufficiency rate
for LiPF6 to over 90%, vs 80% in 4Q21 and 85% in 1Q-3Q21. Net profit per tonne of
electrolytes rose from Rmb13,000/tonne in 2021 to Rmb18,000-19,000/tonne in 1Q22.
Also, the iron phosphate business turned around in 1Q22 with a net profit of Rmb100m.
STOCK IMPACT
• Tinci raised 2022 target for electrolyte sales volume from 240,000 tonnes (+70%
yoy) to 350,000 tonnes (+150% yoy), and guided for 2023-24 sales volume of 500,000-
600,000 tonnes and 800,000-900,000 tonnes, based on strong order flows (40% of the
orders are long-term orders) and capacity expansion for LiPF6 and electrolytes. Tinci
tripled production capacity for LiPF6 to 90,000 tpa by launching a new LiPF6 plant in Nov 21. Going into 2022, Tinci will double its capacity for LiPF6 to 180,000 tpa by launching
another new plant with a 90,000 tpa capacity by Jun-Jul 22. As such, Tinci’s capacity for
electrolytes will double from 240,000 tpa at end-21 to 480,000 tpa by end-22. In 2023,
Tinci will continue to expand its production capacity. The new sales target for 2022 has
factored in the supply chain disruption from the recent COVID-19 containment measures,
which will cause qoq sales volume drop in 2Q22 vs 60,000 tonnes in sales volume in
1Q22. The company is going to suspend production for part of the production line for
regular maintenance in 2Q22. We keep our sales volume estimates for 2022-24 at
240,000 tonnes/360,000 tonnes/480,000 tonnes to reflect the expected bigger impact of
the COVID-19 containment measures.
• We keep 2022-24 ASP assumptions for electrolyte at Rmb90,000/tonne,
Rmb70,000/tonne and Rmb70,000/tonne respectively. This compares to the current
market prices of Rmb97,500/tonne for nickel cobalt manganese (NCM) electrolyte and
lithium iron-phosphate (LFP) electrolyte.
• Management guided for not less than Rmb25b in revenue for 2022 and 20-30% p.a.
revenue growth in 2023-24, based on the sales volume growth of electrolytes and the
ramp-up of the production volume of other products, eg the iron-phosphate business will
contribute 350,000 tonnes in sales volume and Rmb8-9b in revenue in 2023. We keep
2022-24 revenue estimates at Rmb22.96b/26.56b/34.96b respectively, based on our
more conservative sales volume assumptions.
• Margin set to drop from 2Q22, which we have factored in. Management guided that
net profit per tonne of electrolyte will drop from Rmb18,000-19,000/tonne in 1Q22 to
15,000-16,000/tonne in 2Q22, due to the decline in LiPF6 prices and electrolyte prices.
LiPF6 prices dropped 25% from the peak of Rmb590,000/tonne in early-Mar 22 to
Rmb445,000/tonne currently. Tinci charges customers based on a cost-plus model, ie
gross profit per tonne is 15% of the total material cost (LiPF6 and other additives). On an
annual basis, Tinci guided for over Rmb13,000/tonne in per tonne net profit in 2022 (vs
Rmb13,000/tonne in 2021) and over Rmb10,000/tonne from 2023 onwards, based on the
sustained higher self-sufficiency rate of LiPF6 (90-100%). We keep our 2022-24
assumptions on per tonne net profit for electrolytes at Rmb13,800/tonne,
Rmb11,700/tonne and Rmb11,700/tonne, roughly in line with management guidance.
EARNINGS REVISIONS/RISKS
• We keep net profit forecasts for 2022-24 at Rmb4,021m, Rmb5,119m and
Rmb6,821m respectively.
• Risk factors. The resurgence of the COVID-19 pandemic and chip shortage may
adversely impact global EV sales and hence demand for electrolyte.
RECOMMENDATION
• Maintain BUY with a target price of Rmb204.00, based on 10-year DCF (WACC: 7.5%;
10-year FCF growth: 25%; terminal growth: 4%). Our target price implies 48.7x 2022F
PE. Based on a bear-case scenario (WACC: 7.5%; 10-year FCF growth: 15%; terminal
growth: 4%), we estimate the fair value at Rmb113.00 (27x 2022F PE), still above the
current stock price.