Tinci Alert:1H17results in line,maintain Hold

1H17 results in-line with DBe but missed Bloomberg estimates.

    Tinci announced its 1H17 results after market close on 21 Aug 2017. Thecompany generated revenues of RMB935m in 1H17, reaching 46% FY17 DBeand 38% Bloomberg 2017 full-year estimates. Tinci delivered NPAT of RMB373m in 1H17, accounting for 47% FY17 DBe and 28% Bloomberg 2017 fullyearestimates. The interim results were in line with DBe while missingBloomberg consensus.

    Electrolyte GPM improvement sequentially backed on vertical integration.

    Although ASP of Electrolyte in 1H17 suffered from c.10% drop HoH, Tinci stillmanaged to deliver sequential gross margin improvement from 41.7% in 2H16to 43.5% in 1H17. With 6000t/a liquid LiPF6 new capacity ramping-up in thereporting period, Tinci will add c.16000t/a incremental Electrolyte volume. Thecompany currently has economies of scale of being the largest electrolytemaker in the world (c.20% global market share), and cost advantage on theback of self-owned LiFP6 production lines. We believe that 1H17 earningscontribution from Electrolyte segment slowed down as expected, but weexpect profitability to stabilize in 2H17-2018, thanks to strong electric vehiclesand energy storage systems related demand.

    Maintain hold on demanding valuation.

    The company is currently trading at 38x 2017 forward PE vs. our bottom-linegrowth forecast at c.20% in 2018-2019E. We believe the share price has runahead of the fundamentals; maintain Hold on demanding valuation. Majorupside/downside risk: significant China EV subsidy policy changes.