24H1 net profit to mother -113.00% YoY, maintaining an increase in holdings rating

Ganfeng Lithium released its semi-annual report. In 2024, H1 achieved revenue of 9.589 billion yuan (yoy -47.16%), net profit to mother of 0.76 billion yuan (yoy -113.00%), deducting non-net profit of 0.16 billion yuan (yoy -103.90%).

Among them, Q2 achieved revenue of 4.531 billion yuan (yoy -47.96%, qoq -10.42%) and net profit to mother of 0.321 billion yuan (yoy -109.31%, qoq +26.75%). We expect the company's 2024-2026 BPS to be 24.48, 27.59, and 31.29 yuan respectively. Comparatively, the company's 24-year Wind unanimously expected an average PB value of 1.18 times. Considering that the company will increase more in the future as a leader in the industry, the company will be given 1.30 times PB in 24 years, with a target price of 31.82 yuan (previous value of 39.92 yuan) to maintain the “gain” rating.

Lithium prices fell, and 24Q2 continued to lose money

According to the interim report, the company's 24H1 gross and net sales margins were 10.80%/-11.12% and yoy-11.70pct/-43.34pct, respectively. Of these, the 24Q2 single quarter gross margin/net margin was 15.95%/-10.38%, +9.76pct/+1.39pct. After the impact of inventory was eliminated, the company's profitability rebounded sequentially in the second quarter. In terms of expenses, the company's 24H1 total expense ratio was 17.59%, yoy+10.47pct. Among them, financial expenses increased 164.33% year-on-year, mainly due to the combination of current interest expenses and exchange losses. Furthermore, the company's net income from changes in fair value in the second quarter was 0.605 billion yuan, mainly due to a drop in the PLS share price of the company's financial assets.

The company plans to increase its stake in the Goulamina project in Mali to 90%, and the mine side self-sufficiency rate is expected to continue to rise. According to the company's May 8 announcement, the company plans to use 0.3427 billion dollars of its own capital to acquire the remaining 40% of its shares in Mali Lithium from Leo Lithium. After the acquisition is completed, the company will hold 90% of the Goulamina project's shares. The first phase of the project's 0.506 million tons of concentrate capacity is expected to be put into operation in mid-24. On the salt lake side, according to the announcement on August 16, the company plans to subscribe for at least 14.8% of Proyecto PastosGrandes S.A. The project will mainly be used to promote the development of the lithium salt lake project in Argentina's PastosGrandes Basin. The company's multiple large-scale low-cost lithium projects will be put into operation in 24 years, and the mine side's self-sufficiency rate and cost advantage are expected to be further strengthened.

Lithium prices may pick up during the short-term peak season, or continue to fluctuate at a low level for a long time

According to our estimates, as of August 28, 24, the number of days that outsourced lithium salt concentrate companies lost money for more than 70 days this year, but due to the high share of corporate hedging and concentrate supply companies, lithium salt production still did not drop significantly in July-August, and supply remained high. Meanwhile, on the demand side, July-August is the traditional low season. Demand declined, the supply and demand pattern deteriorated further, lithium salt prices weakened, and the spot price of lithium carbonate fell below 0.08 million yuan/ton in August. Looking ahead to the future market, lithium carbonate prices are expected to pick up steadily in the short term as new energy vehicles enter the traditional peak season and demand for downstream storage rebounds. However, in the long run, there is still excess supply on the concentrate side. Low-cost projects such as SQM and Greenbush still have plans to expand production in the next two years, and the pattern of excess lithium supply cannot hide a relatively rapid reversal. Therefore, we think lithium prices will fluctuate at a low level for a long time.

Risk warning: Downstream demand in the industry falls short of expectations, and the company's production capacity expansion falls short of expectations.