Tianqi Lithium Alert:FY16results in line with expectation

类别:公司研究 机构:德意志银行 研究员:James Kan 日期:2017-04-06

FY16 results in line with expectation.

    Tianqi Lithium announced FY16 results after market close on 27 March. Tianqirecorded revenue of RMB3.9bn, up 109% YoY, representing 103% DBe and94% Bloomberg consensus. Tianqi also realized a historical high NPAT ofRMB1.5bn, up 510% YoY, in line with expectations by achieving 94% DBe and94% Bloomberg consensus. Tianqi also announced a cash dividend ofRMB0.18 per share.

    Strong financial results due to high ASP and excellent cost control.

    Tianqi’s lithium compounds ASP was as high as RMB116k/t in 2016, up 54%YoY. Meanwhile, we observed an excellent cost control of lithium compounds,which inflated only by RMB2k/t to RMB30k/t. For 2017, we expect Talison’sspodumene price sold to parent company should continue to climb slightly toc.US$500/t and may result in a cost hike of c.RMB5~6k/t for lithiumcompounds. However, it is unlikely to deteriorate Tianqi’s bottom line heavily,because the internal selling price of spodumene should only affect the taxpayment distribution between China and Australia and current unit gross profitof lithium compounds is as high as c. RMB70-80k/t.

    Foreseeable stable production/sales volume in the next two years.

    Tianqi sold 24kt lithium compounds in 2016. We expect its sales volume in2017/2018 should reach c.30kt, up 27% YoY. As Tianqi had almost fullyramped up its Zhangjiagang capacity in 4Q16, we see limited further up-sidepotential in terms of production volume before its new Australian factory isconstructed in 4Q18. It is worth mentioning that Tianqi may be the only largedomestic player that can provide reliably-stable high quality products withmassive volume in the market in this year. The other three major domesticplayers, Albemarle (through JiangLi New Material), Ganfeng and GeneralLithium, are expecting to shift their raw material feedings in 2017 and mayencounter operational interruption.

    But, limited free cash flow expected in 2017-2018.

    Tianqi generated strong operating cashflow of RMB1.8bn, up 179% YoY, inline with our expectation. Strong operating cashflow should support largeCAPEX of c.RMB2.8bn expected in the next two years. (c.RMB2.0 forhydroxide factory and half of the RMB1.7bn for Talison’s expansion.) Otherfunding sources include RMB1.5bn cash on hand and a total amount ofRMB1bn in corporate bond issuance approved by CSRC on 6 March. Despitethat, free cash flow erosion of Tianqi in 2017-2018 is still inevitable in our view.

    Downstream demands should remain resilient, Hold reiterated on valuation.

    Downstream demand from EV seems to remain resilient in 2017 and our autoteam forecast a growth rate of 38%YoY in 2017. We factored in FY2016 resultsinto our forecast trajectory and slightly adjusted our DCF-derived TP down toRMB41. Our TP implies 29x/32x FY17/18 PEs. With c.4% upside potential, wereiterate Hold on Tianqi. Major risk: significant China EV policy change.

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