Rating:BUY(Initiation)
Target price: RMB31.00
Share price (4 Aug): RMB22.77
Market Cap (RMBm): 58,728.7
Up/downside: 36.1%
We initiate coverage with a BUY call and target price of RMB31. With Gortune and Beiterui in the picture, and market-driven management practices, we expect to see an efficiency lift in Baoan’s operations, while its cathode tech premium andhigher anode capacity continue to drive growth.
New controlling shareholder could raise management efficiency
Baoan, a conglomerate with nearly 200 subsidiaries, had tracked a conservative development path under its SOE identity until recently. Beiterui chairman He Xueqin became its vice president in Aug 2020, and in 2021, Baoan shareholder ShaoguanGaochuang (韶关高创: a wholly owned subsidiary of Gortune Investment) removed clauses that had hindered standard management changes,including those on early dismissal. These had subjected the company to a lump-sum financial compensation equal to more than 10x of annual salary plus benefits. Thus the liberalization paved the way to market-driven management. With Gortune and Beiterui inthe picture, we believe the company’s operations will improve.
Baoan core asset is 68% stake in Beiterui’s lithium battery business
Cathodes: incremental production capacity lifts and quality customer structure
1) Beiterui consistently provided the world's highest anode shipments and its annual production capacity is growing. Effective production capacity was 106000 tons in 2020 and slated to reach 160000/260000 tons in 21/22E.
2) Its customer structure is high-quality and it is the key producer in the overseas supply chain. Major overseas battery factories are its customers: Panasonic, Samsung SDI and LG Chem. Having cooperated with these companies for nearly 10years, we believe Beiterui will continue to lead the supply market.
Cathodes: two new technologies increase efficiency and reduce cost
Efficiency:silicon-based anodes perform well and enjoy a tech premium. Its silicon carbon anodes have been supplied to Samsung SDI since 2013 and silicon oxide anodes to Panasonic and Tesla since 2017. Witha current silicon capacity of 3,000 tons, its tech premium leads to net profit of RMB65000 per ton.
Cost reduction:we believegraphitization technology advances are helping to reduce cost by ~30% vs. traditional processes. Graphitization is a major cost component in man-made cathode production and most of Beiterui’s peers reduce cost by building bases in areas with low electricityprices and improving their furnace installation methods. Beiterui has innovated a continuous graphitization process, but as this is in its early stage of application, we assume it is being used mainly to make low-end anodes. We estimate that with process maturity,its graphitization cost could reduce ~30%.
Anodes: better capacity utilization; mostly-overseas customers lift quantity, profit
It is rolling out incrementalproduction capacity increases more quickly. We expect effective production capacity of 33,000/59,000 tons in 2022/23E. Its high-nickel anodes have been certified by Panasonic and SKI.
Valuation and risks
We expect Baoan’s revenue to arrive at RMB16bn/24.8bn in 2021/22E and net profit of 1.2bn/2bn, up 85%/62%, corresponding to PEs of 48/30x. With a sum-of-the-parts valuation, we assign to Beiterui a PE of 45x and 20x to Mayinglong Pharmaceutical,corresponding to Baoan’s total market value of RMB80bn. We initiate coverage with a BUY call and a target price of RMB31.Risks include: lower-than-expected production capacity roll-outs; cathode prices falling below expectations; weaker-than-expected electric vehicle sales; high-than-expected coke prices; and worse-than-expected company governance changes.Note: our calculations are subjective.
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This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF InternationalSecurities Group Limited and its affiliates and subsidiaries (「TF Group」) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intendedrecipient, please inform TF Group and destroy this message immediately. Thank you.
Rating:BUY(Initiation)
Target price: RMB31.00
Share price (4 Aug): RMB22.77
Market Cap (RMBm): 58,728.7
Up/downside: 36.1%
We initiate coverage with a BUY call and target price of RMB31. With Gortune and Beiterui in the picture, and market-driven management practices, we expect to see an efficiency lift in Baoan’s operations, while its cathode tech premium andhigher anode capacity continue to drive growth.
New controlling shareholder could raise management efficiency
Baoan, a conglomerate with nearly 200 subsidiaries, had tracked a conservative development path under its SOE identity until recently. Beiterui chairman He Xueqin became its vice president in Aug 2020, and in 2021, Baoan shareholder ShaoguanGaochuang (韶关高创: a wholly owned subsidiary of Gortune Investment) removed clauses that had hindered standard management changes,including those on early dismissal. These had subjected the company to a lump-sum financial compensation equal to more than 10x of annual salary plus benefits. Thus the liberalization paved the way to market-driven management. With Gortune and Beiterui inthe picture, we believe the company’s operations will improve.
Baoan core asset is 68% stake in Beiterui’s lithium battery business
Cathodes: incremental production capacity lifts and quality customer structure
1) Beiterui consistently provided the world's highest anode shipments and its annual production capacity is growing. Effective production capacity was 106000 tons in 2020 and slated to reach 160000/260000 tons in 21/22E.
2) Its customer structure is high-quality and it is the key producer in the overseas supply chain. Major overseas battery factories are its customers: Panasonic, Samsung SDI and LG Chem. Having cooperated with these companies for nearly 10years, we believe Beiterui will continue to lead the supply market.
Cathodes: two new technologies increase efficiency and reduce cost
Efficiency:silicon-based anodes perform well and enjoy a tech premium. Its silicon carbon anodes have been supplied to Samsung SDI since 2013 and silicon oxide anodes to Panasonic and Tesla since 2017. Witha current silicon capacity of 3,000 tons, its tech premium leads to net profit of RMB65000 per ton.
Cost reduction:we believegraphitization technology advances are helping to reduce cost by ~30% vs. traditional processes. Graphitization is a major cost component in man-made cathode production and most of Beiterui’s peers reduce cost by building bases in areas with low electricityprices and improving their furnace installation methods. Beiterui has innovated a continuous graphitization process, but as this is in its early stage of application, we assume it is being used mainly to make low-end anodes. We estimate that with process maturity,its graphitization cost could reduce ~30%.
Anodes: better capacity utilization; mostly-overseas customers lift quantity, profit
It is rolling out incrementalproduction capacity increases more quickly. We expect effective production capacity of 33,000/59,000 tons in 2022/23E. Its high-nickel anodes have been certified by Panasonic and SKI.
Valuation and risks
We expect Baoan’s revenue to arrive at RMB16bn/24.8bn in 2021/22E and net profit of 1.2bn/2bn, up 85%/62%, corresponding to PEs of 48/30x. With a sum-of-the-parts valuation, we assign to Beiterui a PE of 45x and 20x to Mayinglong Pharmaceutical,corresponding to Baoan’s total market value of RMB80bn. We initiate coverage with a BUY call and a target price of RMB31.Risks include: lower-than-expected production capacity roll-outs; cathode prices falling below expectations; weaker-than-expected electric vehicle sales; high-than-expected coke prices; and worse-than-expected company governance changes.Note: our calculations are subjective.
免责声明(DISCLAIMER):
此文件仅发给指定收件人或机构。其内容可能包含某种享有法律特权或者需要保密的信息。对于任何未经本公司授权而对本文件所载内容进行使用、披露、分发、变更之行为及由此产生的后果，天风国际证券集团有限公司及其联属公司和附属公司（「天风集团」）概不承担任何责任。如您并非此文件的指定收件人或机构，请立即通知天风集团，并立即销毁此文件。谢谢合作。
This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF InternationalSecurities Group Limited and its affiliates and subsidiaries (「TF Group」) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intendedrecipient, please inform TF Group and destroy this message immediately. Thank you.
