Traditional labor gloves manufacturers have transformed and entered the lithium resource race track in 2021. The company was founded in 2000 and specializes in the development and production of labor protection gloves. It is one of the enterprises with the largest variety and most complete range of products in the domestic labor protection gloves industry. The products are mainly sold to developed countries such as Europe, America, and Japan. Beginning in 2021, the company successively invested in Tiancheng Lithium and the Bougouni spodumene project in Mali, Africa, to deploy lithium extraction and spodumene resources from mica, and accelerated the transformation of traditional labor protection glove manufacturers into enterprises with an integrated lithium salt industry chain.
It is proposed to control Tiancheng Lithium and cut into mica to extract lithium, and release production capacity to help overperform performance. The company has acquired Tiancheng Lithium's shares twice. After the transaction is completed, it will hold a total of 51% of Tiancheng Lithium's shares. Tiancheng Lithium is mainly engaged in lithium sulfate solution processing. It is located in Yichun, Jiangxi, the “lithium capital of Asia”, and has obvious location advantages for lithium mica raw materials.
1) Production expansion progress: Tiancheng Lithium's Phase II tunnel kiln production line has now been put into operation. At the end of August, it had achieved a lithium sulfate solution design capacity of 800 tons of lithium carbonate equivalent per month. 2) Performance commitment: In March 2022, the company plans to acquire another 17.67% of Tiancheng Lithium's shares. Tiancheng Lithium promised that the net profit after deducting non-attributable net profit from 2022-2024 would not be less than 180, 2.0, and 210 million yuan respectively. It is expected to become the company's largest source of performance growth after merging in the future.
The holding subsidiary, Xiecheng Lithium, was established, and the integrated lithium salt layout was gradually formed. In January 2022, Xiecheng Lithium, a holding subsidiary of the company, was established. Currently, projects with an annual output of 6,000 tons of lithium carbonate and 6,000 tons of lithium hydroxide transferred from Tiancheng Lithium are under construction. Of these, the lithium carbonate production line is expected to be tested after the third quarter, and the lithium hydroxide production line is scheduled to be tested around August 2023. In the future, the lithium sulfate solution produced by Tiancheng Lithium will be supplied to Xiecheng Lithium to process and produce lithium carbonate and lithium hydroxide, and the company's integrated battery-grade lithium salt layout will gradually take shape.
It lays out high-quality lithium mines in Mali, Africa, and indirectly owns lithium concentrate underwriting rights. By transferring 100% of the property shares in Xinchang, Taian, the company holds shares in the Bougouni spodumene project in Mali, Africa. The project currently has 1 mining right and 4 prospecting rights, 21.31 million tons of lithium ore resources, an average lithium oxide grade of 1.11%, equivalent to about 584,000 tons of lithium carbonate equivalent, and promises to be put into operation within 23 years. According to the framework agreement signed earlier, Suay Chin, which is controlled by the company, indirectly owns no less than 80% of the lithium concentrate underwriting rights. The underwriting period is 3 years. After the term expires, the contract can be renewed on a priority basis, and can also enjoy other benefits of the Bougouni project. High-quality spodumene ore effectively guarantees the company's upstream lithium ore supply and lays a resource foundation for future lithium salt business expansion.
The boom in new energy vehicles and photovoltaic energy storage continues, and the conflict between supply and demand supports the high price of lithium. The global new energy vehicle and photovoltaic energy storage industry continues to be booming. We expect global demand for lithium salt to be 1,929,000 tons of lithium carbonate equivalent in 2025, with a CAGR of 32.6% in 2021-2025. Affected by the epidemic, etc. On the supply side, the balance between supply and demand of lithium resources will continue to be tight in 2022-2025, while low-grade and sub-optimal resources will drive up the lithium salt cost curve. Contradictions between supply and demand and cost increases will support lithium prices to remain in a high range, and upstream lithium salt manufacturers will fully benefit from high lithium prices.
Investment suggestions: The company's traditional glove business has been developing steadily. The lithium salt industry chain began to be accelerated in '21. Tiancheng Lithium's production line with an annual output of 10,000 tons of lithium carbonate equivalent lithium sulfate has been put into operation, and Xiecheng Lithium's 6,000-ton lithium carbonate production line is expected to be tested after the third quarter of '22. We expect the company's net profit to be 1.96/3.30/474 million yuan respectively, corresponding to the closing price of October 11, PE is 33/20/14 times, covered for the first time, and given a “careful recommendation” rating.
Risk warning: Downstream demand falls short of expectations, lithium prices are falling rapidly, progress of overseas projects falls short of expectations, etc. Demand for traditional glove business is declining and the competitive landscape is worsening