Tianqi’s Strong Q4 As Guided; Cut FVE to HKD 66/CNY 58 on Lower Lithium Spot Prices

Narrow-moat Tianqi reported strong fourth-quarter net profit growth of 4 times year over year, around the midpoint of the company’s preliminary announcement. Significant profit growth was mainly underpinned by record lithium prices due to robust demand for lithium compounds from new energy vehicle demand. However, with year-to-date average lithium prices plunging more than 20% from a record fourth quarter last year, we reduce our fair value estimate to HKD 66 (CNY 58) from HKD 102 (CNY 92), which implies a 2023 price/earnings ratio of 5 times. At the current price, H-shares are trading in 4-star territory, but investor interest in Tianqi may be muted until lithium prices look to be stabilizing.