What's new
We invited senior executives of Ganfeng to talk with investors on February 13.
Comments
Output to ramp up; capex controllable. We estimate that Ganfeng’s production capacity for lithium hydroxide and carbonate will reach 80,000t and 40,000t by end-2020. The firm plans to increase capacity of lithium compound to 200,000t by 2025. Ganfeng enjoys technological advantages in design and construction, and unit capex should be lower than domestic and overseas peers, in our view.
Supply & demand conditions healthy for lithium hydroxide. Global incremental demand for lithium hydroxide could exceed 20kt in 2020, according to our estimates. We see upside momentum for lithium hydroxide prices in 2020, as only three lithium hydroxide producers have entered the supply chain of mainstream automakers and battery manufacturers （i.e. Ganfeng, Albemarle and Livent）。
Strengthening development of non-spodumene resources. Ganfeng plans to utilize overseas non-spodumene resources for producing lithium carbonate to enhance its cost advantages. In addition, the firm plans to allocate more domestic lithium mineral processing capacity to producing lithium hydroxide to ensure its output and quality, which may help secure orders from high-end large clients.
The novel coronavirus pneumonia （NCP） to affect operations moderately. Due to the NCP, the firm suspended production during the Chinese New Year, and delayed production resumption by about a week. The NCP weighed on domestic logistics and pushed up costs of raw materials and transportation. On February 12, the firm announced a price hike of up to 10% for its lithium hydroxide products.
Valuation and recommendation
We maintain our 2019 and 2020 earnings forecast at Rmb483mn and Rmb796mn, and introduce our 2021 forecast at Rmb1.55bn. Ganfeng A-shares and H-shares are trading at 50x and 24x 2021e P/E. We maintain an OUTPERFORM rating. Given improving demand to boost valuation, we raise TP for the A-shares 71% to Rmb72 （60x 2020e P/E with 21% upside） and for the H-shares 83% to HK$42 （30x 2021e P/E with 24% upside）。 Risks: Disappointing capacity expansion and/or AFV sales volume.