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.

Tianqi’s second-quarter net loss was at the midpoint of its preliminary announcement, but missed our expectation mainly due to the decline in lithium product selling prices and drop in equity income. With the lithium price dropping more than 50% in the second quarter, gross margin remained under pressure, tanking 31 percentage points year over year, dragged by both the lithium compound and lithium mining segments. We lower our fair value estimate to HKD 31.50 (CNY 28.10) per share from HKD 37.90 (CNY 33.80), which implies a 2025 price/earnings ratio of 10 times. We expect investors to be sidelined, in any case, as prices have yet to bottom, with the battery-grade lithium carbonate spot price in China—which had stabilized in the second quarter with 6% sequential growth—falling 23% year over year in July and August.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output.

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%.

Tianqi’s fourth-quarter net loss was below the midpoint of its preliminary announcement. The results missed our expectation mainly due to the weak lithium compound segment and drop in equity income. Due to the plunging lithium prices in the quarter, gross margin tanked 7 percentage points year over year, mostly dragged by lithium compound segment margin weakness.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output.

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.

Narrow-moat Tianqi's third-quarter net profit fell 71% year over year. While year-to-September revenue is in line with our forecast, net profit only makes up 54% of our full-year forecast. The profit miss was mainly due to a decline in lithium product sales and drop in equity income. Despite plunging lithium prices in the quarter, gross margin still managed to stay at around 85%, demonstrating the resilient margin profile of its upstream lithium mining business.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output.

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 Tianqi's second-quarter revenue grew 48% year over year to CNY 13.4 billion on a resilient lithium mining segment with revenue growth and margin expansion. However, due to the significant lithium price fall, the compound segment saw drops in both product selling price and revenue. In the second quarter, the average prices of battery-grade lithium carbonate and lithium hydroxide in China slid 46% and 43% year on year, respectively.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output.

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 Tianqi reported first-quarter net profit growth of 46% year over year to CNY 4.9 billion, accounting for 26% of our full-year estimate. Despite first-quarter average lithium prices plunging more than 20% from a record fourth quarter last year, gross margin still managed to gain 5 percentage points from last quarter to 89.8%, demonstrating the resilient margin profile of its upstream lithium mining business and the value of its self-sufficiency in lithium resource supply.

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.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output.

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.

According to Wood Mackenzie, Tianqi is the largest producer of mined lithium globally, in terms of output in 2021, and is ranked third in terms of revenue generated from lithium, as of 2021. The company is also ranked fourth globally and second in Asia, as measured by lithium compound production output in 2021.

Narrow-moat Tianqi reported stronger-than-expected preliminary full-year results, with the midpoint of the company’s 2022 net profit 7% above our full-year estimate. Significant profit growth was mainly due to robust demand for lithium compounds for new energy vehicles, or NEVs, and the surge in lithium price. We maintain our fair value estimate at HKD 102 (CNY 92), which implies a 2023 price/earnings ratio of 6.5 times. The H-shares, at 36% discount to its A-shares and 37% discount to our fair value estimate, are attractive, in our view, but the A-shares are fairly valued.