KGI: Tianqi Lithium Corporation (9696 HK) – Largest IPO in Hong Kong YTD in 2022
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IPO overview:
Sector: Mining and materials
Issued price: HK$82 (upper bound)
Total new shares issued: 164.12mn
Initial market cap: HK$13.458bn
Subscription rate of the public tranche: 9.3x
Sponsors: Morgan Stanley, CICC, CMBI
Listing date: 13th July Wednesday
Buy Entry – 76.0 Target – 91.6 Stop Loss – 68.5
Tianqi Lithium is a lithium producer in China and around the world and is listed on the Shenzhen Stock Exchange (002466 CH). The company owns and mines lithium minerals in Australia and produces lithium compounds and derivatives in China. Tianqi is the only lithium producer in China that is 100% self-sufficient and fully vertically integrated with a stable supply of lithium concentrate. Tianqi engages in two core businesses: sales of lithium compounds and mining of lithium mines.
Financials overview over the past three years.
Use of proceeds. 73.7% of the proceed raised by Tianqi’s H-share listing is to repay the debt of Sociedad Quimica y Minera de Chile (SQM US) which is a listed company registered and established in Chile with a focus on mining lithium. In 2018, Tianqi acquired a 23.77% stake in SQM for a total consideration of US4.07bn. Tianqi is financing from the syndicate for this deal, with a total loan of US3.5bn. The current H-share listing is used to repay the remaining US1.13bn principal.
Valuations. The peer Ganfeng Lithium is dual-listed. Ganfeng’s A-share (002460 CH) is currently trading at a respective 14.9x/13.3x FY22F/23F PER, and its H-share is trading at a respective 9.8x/9.2x FY22F/23F PER. The H-share PER has an average 32.5% discount on its A-share. Tianqi’s A-share retraced by 14% from last week’s 52-week high of RMB148.57 to RMB127.8 as of Tuesday. Bloomberg consensus of FY22F/23F EPS growth is 529.4%/4.3%, translating to a respective PER of 14.4x/13.8x. Based on the initial listing price of HK$82, Tianqi’s H-share will be trading at a respective 8.6x/8.3x FY22F/23F PER. Therefore, assuming Tianqi’s H-share will be trading at 9.5x FY22F PER or a 32.5% discount on its A-share PER, we derive a TP of HK$91.6, an average of HK$90.6 and HK$92.7.
