Company Reports

Lithium prices are at multiyear lows due to oversupply. The issue is driven by supply growth. Demand is growing at a mid-teens percentage, due to higher global electric vehicle sales and the buildout of energy storage systems. However, a wave of new supply exceeded demand growth driving prices down.

Narrow-moat Ganfeng’s second-quarter net loss was at the low end of its preliminary announcement and missed our expectation mainly due to weaker-than-expected lithium product selling prices. With the lithium price plunging more than 50% in the second quarter, gross margin remained under pressure, but recovered from a year ago, as the company increased its self-supply of lithium concentrate.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.

Chinese lithium producers Tianqi and Ganfeng both reported net losses for the first quarter, mainly attributable to the decline in lithium compounds' selling prices and the drop in gross margin. With lithium prices plunging more than 70% year over year in the first quarter, the gross margin contracted by 41 percentage points year over year for Tianqi and 31 percentage points for Ganfeng. Tianqi also recorded losses from equity holdings in Sociedad Quimica Y Minera De Chile SA. Given the weaker-than-expected earnings, we cut Tianqi’s 2024-26 net profit forecast by 25%-39% to factor in lower lithium compound and lithium concentrate prices and production margin assumptions, as well as lower equity income contributions. Due to lower compound prices and margin assumptions, our 2024-26 net profit forecast for Ganfeng was reduced by 15%-28%.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.

Narrow-moat Ganfeng’s fourth-quarter net loss was below the midpoint of its preliminary announcement. The results missed our expectations principally because of the decline in the prices of lithium products and a drop in gross margin. With lithium prices plunging more than 70% in the fourth quarter, the gross margin contracted to only 1%.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.

Lithium spot prices fell over 80% in 2023. As prices reached all-time highs in 2022, new, higher-cost supply brought the market to balance, sending prices plummeting. Bears say oversupply conditions will occur in 2024 amid rising supply and slowing demand as battery electric vehicle, or EV, sales falter.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.

Narrow-moat Ganfeng's third-quarter revenue fell 43% year over year leading to a net profit decline of 98%. The first nine months' revenue and net profit accounted for 66% and 49% of our full-year forecast, respectively. The profit miss was mainly due to a decline in lithium product sales and a drop in the gross margin. With third-quarter average lithium prices plunging more than 50% from the prior-year period, the gross margin contracted to only single-digit levels from 51% a year ago.

In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than 6% in 2021. Much of the growth occurred in China, which has been a leader in EV sales over the past decade. However, with national EV subsidies in China expiring in 2022 and far lower sales in the U.S. and Europe, the market questions if EV sales can continue to grow without subsides.

Narrow-moat Ganfeng's second-quarter results reflected weak selling prices, with revenue declining 4.1% year over year and 7.7% quarter on quarter to CNY 8.7 billion. According to management, the sales volume of lithium components in the first half remained flattish compared with last year, which indicates the top-line drop was mainly attributable to the decline in lithium product prices from record levels last year amid soft demand. In the second quarter, the average prices of battery-grade lithium carbonate and lithium hydroxide in China were down 36% and 39% quarter on quarter, respectively.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.

Shares of lithium producers plunged in 2023 as falling spot prices leave investors worried the 2022 boom turned bust. However, we see no reason to panic. For investors, the selloff creates an attractive opportunity to invest in lithium.

Narrow-moat Ganfeng reported first-quarter revenue growth of 76% year over year, but net profit dropped 32% to CNY 2.4 million, accounting for 14% of our full-year estimate. With first-quarter average lithium prices plunging more than 20% from a record fourth quarter last year, gross margin contracted 29 percentage points from a year ago.

Narrow-moat Ganfeng's strong fourth-quarter net profit growth of 107% year over year was in line with its preliminary announcement. Significant profit growth was mainly due to record lithium prices, given robust demand for lithium compounds from new energy vehicle production. 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 56 (CNY 48.50) from HKD 75 (CNY 66), which implies 2023 P/E ratio of 5.8 times. At the current price, H-shares are trading at 3-star territory, fairly valued, in our view.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.

Stock prices of the H-shares of Chinese lithium producers, Ganfeng Lithium and Tianqi Lithium, fell 23% and 21%, respectively, over the past month on concerns of prolonged lithium prices decline. The battery grade lithium carbonate price in China dropped to the CNY 380,000 level on Monday from the peak of CNY 570,000 in November last year. This comes amid media reports (as first reported by 36Kr on Feb. 17) that battery producer Contemporary Amperex Technology, or CATL, plans to offer four of its customers a battery price that fixes lithium carbonate prices at CNY 200,000 per metric ton, roughly half that of current spot prices.

Narrow-moat Ganfeng reported strong third-quarter net profit, up six times year over year, at the midpoint of the company’s preliminary announcement. First nine months revenue and net profit accounted for 85% and 89% of our full-year forecast, respectively. Significant profit growth was mainly underpinned by record lithium prices due to robust demand for lithium compounds from new energy vehicles. We maintain our fair value estimate at HKD 75 (CNY 66), which implies a 2023 price/earnings ratio of 5.2 times. At the current price, the H-shares are trading at 30% discount to our fair value, which we think is attractive. The A-shares, at a 37% premium to its H-shares, are fairly valued.

Ganfeng is a critical supplier in the lithium value chain. It is the world’s third largest and China’s largest lithium producer, and the world’s largest lithium metal producer, as measured by production capacity in 2021. As a leading lithium producer in China, we believe Ganfeng will continue to benefit from global energy transition and carbon neutrality initiatives.