Key takeaways from our group investor call
We hosted a group call with the company and have summarised the below top discussed questions.
Question 1: Could you discuss the supply-demand outlook of the lithium market between 2H2022 and 2025? And where would the lithium price head to? Answer: The lithium market would remain undersupplied in 2022. Based on the industry’s new project pipeline, we foresee supply increasing from 2023 onwards. But considering the project delays and that inventory needs to be retained at each stage along the supply chain, overall, the market is expected to largely remain in balance. Having said so, the lithium price would still see a correction due to the spodumene price weakness amid rising market supply.
Question 2: What is the outlook for China solid state battery (“SSB”) development in the next three years? How would it impact the company’s revenue contribution? Answer: Ganfeng developed 3GW of SSB capacity by end2021, and its SSB Gen-2 will be ready to launch in 2023 and 2024. This version has an advantage over Gen-1 in terms of material cost reduction and better product safety. Planned capacity would reach 10GW/20GW in 2022/2023, up from 3GW in 2021. SSB’s revenue would be reflected in the lithium battery and storage product segments, and the company’s capacity expansion would provide a strong volume growth driver.
Question 3: What is your core competitive edge, as compared to other industry peers, in terms of automation of spodumene mining production? Answer: Ganfeng’s current mining production is well optimised. Apart from the production efficiency upgrade, management’s focus is on the development of salt lake mines in recent years. For example, direct lithium extraction could shorten the project construction cycle and upgrade the recovery rate to 80% (from 40%), the best ever in the industry. Hence, the improvements in clay and brine output could bring a significant benefit by lowering the overall production cost of its lithium products.
Our view and earnings revision. Ganfeng is aiming to build a full supply chain to enhance its leading industry position, whereas the company’s overall development plan is well progressing. We have revised up our FY22F/FY23F earnings estimate by 25%/5% in view of the sales momentum picking up amid a firm lithium market environment going into 2H. In all, we maintain our BUY rating and revised up our target price to HK$110 (HK$107 prior).