Ganfeng Lithium Alert:Improved self-sufficiency should boost bottom line in 2017

FY1H17 preliminary results in line with both DBe and Bloomberg consensus.

    Ganfeng Lithium announced FY1Q17 results after market close on 27 April 2017. Its 1Q17 revenue was RMB625m, down 5.75% YoY, and its NPAT was reported at RMB136m, up 27.03% YoY. Ganfeng also gave guidance on preliminary 1H17 NPAT between RMB473m to RMB612m, in line with both DBe and Bloomberg consensus, by achieving 45%~58% FY17DBe and 45%~59% of full year Bloomberg consensus.

    Improved self-sufficiency should boost the bottom line from 2Q17.

    Ganfeng’s Mt Marion delivered the first shipment of 15kt spodumene concentrates in Feb. We believe the increasing spodumene delivery should significantly escalate the raw material self-sufficiency rate, decrease the avg cost and then improve the profitability. Ganfeng expected that its 1H17 NPAT should arrive at c. RMB473-612m, up 70%-100% YoY.

    New take or pay deal signed.

    Ganfeng announced the purchase of no more than a 5% share of the Pilbara project for US$20m. In addition, Ganfeng obtained a take or pay deal of 160ktpa (20kt LCE) spodumene annual shipment after June 2018. We previously pointed out that Ganfeng may still have a slight mismatch of processing capacity and raw material supply capacity (13.5kt LCE shortage of supply in 2019E), assuming that Mt Marion project can fully ramp up. See our report “China Lithium Industry” published on 10th Apr 2017. The new take-or pay deal is likely to fulfill the shortage.

    Secured raw material supply for aggressive capacity expansion, Buy reiterated .

    We are optimistic about significant improvement in Ganfeng’s bottom line in the next three years, due to 1) increasing processing capacity from 30ktpa in 2016 to 72ktpa in 2019E and 2) secured raw material sources. Buy reiterated.