Robust growth momentum remains
- Preview 1H22 earnings to increase at least 408% y-o-y
- 2H sales volume could possibly beat our target
- Self-sufficiency in mine supply to benefit product GP
- Revised up earnings on better GP assumptions and maintain BUY at TP HK$110
Investment Thesis
GPM outlook.
Ganfeng has alerted the market about its robust 1H22 earnings on the back of strong GPM expansion. We believe the company’s GPM would sustain at an estimated >50% these two years, as the prices stand at the historically high level and from benefits from its improved self-sufficiency in mine supply. Our earnings estimate represents a CAGR of 78% during 2021-2023.
Possibility of lithium product sales volume beating target.
Overall lithium metal and compound product sales have recovered since late June after the China lockdowns. Although sales volumes in the first six months would be below the figures for the same period last year, we reckon that going forward, the improved sales momentum would bring the monthly sales volume to an excess of 12,000 tones, translating to a total of >102,000 tonnes for the full year.
Incremental benefits from mining project developments.
The clay project in Mexico and brine mines in Argentina under development are progressing well. In addition, the lepidolite mines in Inner Mongolia and Jiangxi and salt lake resources in Qinghai will bode
well for Ganfeng’s mid-term growth.
Valuation:
Our H-share TP of HK$110 represents a target of 5.0x FY22F PB, relative to the average level during 2018 and 2022. Our A-share TP of RMB125 is based on a 7.0x PB, in line with domestic peers.
Where we differ:
Our earnings CAGR (2021-2023) is above the consensus, in anticipation of GFLi’s GP continuing to outperform that of industry peers.
Key Risks to Our View:
Unexpected market supply expansion or collapse in demand and price regulation may affect our assumptions.