Is The Inflection Point Of Hard Core Lithium Deposit Established?

Dong Peng, researcher of the 21st Century Capital Research Institute

After a continuous decline at the end of January, lithium stocks have accumulated a considerable withdrawal range, with major component stocks generally falling by more than 40%, and the largest decline in some stock ranges is more than 50%.

The inflection point occurred this week (April 19-23).

In Shanghai auto show opening and Huawei's new car sentiment driven by the collective trading of lithium stocks on Monday.

Taking Ganfeng lithium industry, Tianqi lithium industry and China Mining Resources Co., Ltd. included in Shenwan rare metal lithium industry as an example, they all closed on the same day with trading limits. Until April 23, the plate still continued the collective upward trend.

Looking back, the recent periodic bottom of lithium stocks started on April 15.

That night, the first quarterly report of "two giants in lithium industry" was released, one achieved at least 57 times growth, and the other achieved year-on-year loss reduction.

This means that the logic of the increase in the price of lithium carbonate and other products on the profitability of related enterprises has been effectively verified.

It is also in this context, lithium stocks hit the bottom quickly rebounded. As of April 21, sinomine, which has the smallest market value, closed positive for six consecutive trading days, with a range increase of 39.6%.

In this regard, the column "21 hard core investment and research" of the 21st Century Capital Research Institute has pointed out many times that the improvement of the industry prosperity in the first quarter will directly promote the improvement of the profit margin and profit scale of relevant companies. In addition, with the lower profit base in the same period of 2020, Ganfeng lithium industry is expected to grow more than 10 times in the current period.

At the same time, it also predicted that "the short-term visible turning point will also be dominated by the first quarter report disclosed in April... If the profitability is significantly improved, or even exceeds the expectation, the adjustment of lithium battery plate may end here."

There is no doubt that it is a good strategy.

Verification process of growth logic

Product price rise is the most concerned and familiar investment logic of A-share investors in recent years.

In history, there have been a series of cases such as Fangda carbon that have aroused the attention of the whole market.

At the same time, because this kind of industry has the characteristics of cyclical fluctuation and relatively stable cost, when the prosperity of the industry goes up, the profit increase range of related enterprises will be much higher than that of other industries.

The same logic applies to lithium ore, which belongs to the rare metal plate.

In the first quarter of 2020, the net profit of Ganfeng lithium industry to the parent company was only 7.75 million yuan, which provided the basis for the large-scale performance in the first quarter of this year. The forecast net profit for the current period reached 450 million yuan to 510 million yuan, with a year-on-year increase of 5709.38% - 6483.96%.

Under the low base effect, the significance of simple comparison increase is limited, and it needs to be compared with the high point of the previous business cycle. In the first quarter of 2018, the company's profit peak was 358 million yuan.

After excluding the non recurring profit and loss, Ganfeng lithium industry forecast a net profit of 250 million yuan to 310 million yuan in the first quarter of this year. At a glance, the company's profit scale has rebounded to near the historical peak.

However, comparing the product price and the company's revenue scale, we can find that the current company's profit margin is still far from the historical peak.

Taking domestic battery grade lithium carbonate price as an example, the 21st Century Capital Research Institute found that the average price in the first quarter of 2018 was 159800 yuan / ton, while that in the first quarter of this year was 72500 yuan / ton.

The price of main products is only half of that of the same period in 2018. However, the current revenue scale of Ganfeng lithium industry is basically the same as that of the first quarter of 2018. Even the first quarter report to be disclosed in the future is difficult to disclose in detail. The biggest possibility is that it is driven by the company's production capacity and sales volume.

In other words, although the price of battery grade lithium carbonate has climbed out of the deep hole in 2020, it is still at the relatively low level in the price range of nearly five years, and the current price is basically the same as that in 2019.

From this point of view, lithium salt products such as lithium carbonate in the medium and long term still have a large space to rise. The current price of 85000 yuan / ton is obviously not the top.

According to the 21st Century Capital Research Institute, the sustainability of the upward cycle of lithium products in this round will be better than that of the last cycle from 2014 to 2017. The judgment basis is as follows.

Firstly, the driving force of the current round comes from the spontaneous growth of the demand side, and the policy dependence is obviously less than that of the previous cycle; Second, the marketization degree of new energy vehicles is higher than that before 2017, and the post electrification process of traditional automobile enterprises will support the long-term demand for lithium resources; Third, the power exchange mode brings additional lithium resources.

As for the price performance in April, the price of lithium carbonate has ended the continuous upward trend in the first quarter. Recently, the price of 85500 yuan / ton has only slightly increased by 1000 yuan compared with that at the end of March, and the price trend is relatively stable.

However, from the perspective of driving enterprise profits, the current electricity carbon price of 85000 yuan is enough. As long as the electricity carbon price in the second quarter does not fall too obviously, the average sales price of lithium chemical products in the second quarter of the "two giants of lithium industry" is bound to be higher than that of the first quarter.

At the same time, considering that A-share lithium companies have more distribution in the upstream lithium mines and the limited change range of its cost side, the actual operating profit after deducting non-profit in the second quarter is still expected to achieve month on month growth.

The logic of periodic "bottoming out" of stock price

As far as the whole cyclical industry is concerned, the growth of lithium industry is the most certain, which is different from the characteristics of limited total profit and internal redistribution in other industries, and it is expected to enjoy the increment brought by the continuous expansion of "total plate".

The key is that the short-term trend of the secondary market is too random, and emotions, funds and styles will have an impact on the stock prices of related companies.

In terms of the trend from 2020 to now, it can be roughly divided into two stages: the first is from April 2020 to the end of January 2021, and the second is from February 2021 to the present.

From April 2020 to the end of January 2021, the upstream lithium mine, midstream power battery, and downstream vehicle leaders all rose. Finally, annual bull stocks such as Ningde times and BYD emerged, and lithium stocks followed.

The reason for this is that the systematic rise of lithium stocks in the second half of 2020 is driven by the recovery of the industry bottom, the emergence of enterprise profit turning point, strong growth certainty, and the sharp rise in the stock prices of downstream automobile enterprises such as Tesla and Weilai automobile.

Since affected by sentiment, in the last round of stock price pull-up process, it is inevitable that stock prices and fundamentals go further and further away.

Under the above background, there is a serious "overspending" phenomenon in the accumulated considerable increase, so lithium stocks will fall systematically since the end of January 2021.

Compared with the data, it can be seen that after the concentrated rise in the second half of 2020, lithium stocks in the first quarter of the collapse of the Baotuan stock market, the main stocks have a very obvious retreat.

Among the five lithium stocks included in the sample, the average drop in the statistical range was more than 45%. The correction range of Tianqi lithium and Yahua group, which were in the forefront of the growth list in January this year, should be more obvious.

As a result, from February to April this year, there was a short-term deviation between the fundamentals and the stock price of lithium mining stocks. On the one hand, the prosperity of the industry continued to improve; on the other hand, the stock prices of related companies kept falling.

This deviation, in essence, is that the market is looking for the balance between the stock price and the fundamentals, and digesting and rationally returning to the valuation of the stock price after the previous big rise.

At the end of the decline of lithium stocks on March 5, the column of "hard core investment research" of our newspaper pointed out that "the turning point in the short term will also be dominated by the first quarter report disclosed in April, which determines whether the aforementioned performance growth logic can be verified. If the profitability improvement is obvious, or even beyond expectations, the adjustment of lithium battery plate may end here. "

Since then, the head of the company's first quarter performance forecast, Ganfeng lithium and other companies' stock prices periodically bottomed out, and some individual stocks rebounded more than 30%.

The market performance on April 19 was the most typical. When the Shanghai Auto Show opened on that day, the news of Huawei's new cars was on the screen. The focus of the secondary market was all on the automobile and related industrial chain. Ganfeng lithium, which was included in Shenwan lithium industry, was all trading.

The 21st Century Capital Research Institute believes that after the collective rebound started in mid April, the periodic bottom of lithium stocks has been relatively proved.

Compared with 2018, although the absolute value of the current stock prices of Ganfeng lithium and other stocks is higher, the market environment of the two stages is completely different.

After the first quarter of 2018, the price of lithium carbonate and other products is in a downward trend, but at present, it is just the opposite. The industry prosperity is in the upward stage after the bottom reversal, and the enterprise's profit expectation is in a good state.

Who is more flexible?

There are not a few listed companies involved in lithium mines, but many companies have designed and planned production capacity. In response to the letter of concern, * ST Jiang has made a detailed inventory of the production situation of the same industry companies.

In terms of production capacity and industry status, it is still the first to promote "two giants in lithium industry", which are also the two lithium mining companies most concerned by institutional investors.

However, there are some differences in the specific business layout, profit margin and performance elasticity between the two.

Ganfeng lithium industry is currently the company with the highest value of lithium in the A-share market. The company takes the whole industry chain route of upstream resource development, midstream lithium salt production, downstream batteries and recycling, and its products include lithium carbonate and some lithium battery materials.

Tianqi lithium industry, on the other hand, has made heavy efforts twice since 2013, successively taking control of talison, the world's largest and lowest cost solid spodumene ore, and part of the equity of sqm company, a leading lithium extraction company from brine. Its products are mainly concentrated in lithium carbonate and lithium hydroxide.

This is just like the difference between muyuan shares and Wen's shares, or between Shengnong development and Yisheng shares. The operation performance of enterprises with multi product layout and the whole industrial chain is relatively stable, and the ability to smooth out the periodic fluctuation of products is stronger.

However, in the rising stage of industry prosperity, the performance elasticity of listed companies focusing on a certain link of the industrial chain will be significantly higher than that of the former.

From the perspective of historical operating efficiency, Tianqi lithium's profit margin is also higher.

Taking the high price of lithium carbonate in the first half of 2017 as an example, the current gross profit rate data of Ganfeng lithium industry shows that the gross profit rate of "deep processing lithium compound series" products is 43.47%, and that of "metal lithium and lithium salt series" products is 35.44%.

In the same period, the gross profit margin of "lithium concentrate" products and "derived lithium products" of Tianqi lithium industry was 66.95% and 69.44%, respectively.

Even when the price of lithium carbonate falls below 50000 yuan / ton in the first half of 2020, the gross profit rate of lithium concentrate products of Tianqi lithium industry still reaches 63%, and that of derivative lithium products exceeds 33%.

According to the 21st Century Capital Research Institute, considering the low profit base of Tianqi lithium Co., Ltd. still failed to turn losses in the first quarter of this year, it is expected that the performance elasticity of Tianqi lithium industry will be better than that of Ganfeng lithium industry in the stage of large-scale realization of industry prosperity into profits of listed companies.

However, this has a premise, that is, the company's huge debt arising from the acquisition of sqm's equity can be quickly solved, otherwise the financial expenses of 500 million yuan per quarter will continue to swallow up the profits generated by the company's operation.

At the same time, the operational uncertainty caused by the debt problem will also hinder the participation of institutional investors, which is unfavorable to the rise of the company's share price.

The good news is that on December 9, 2020, Tianqi lithium and its wholly-owned subsidiary, tlea, signed an investment agreement with Igo and its wholly-owned subsidiaries, intending to introduce Igo as a strategic investor through capital increase and share expansion at the level of tlea.

According to the latest response of Tianqi lithium, the company is actively promoting the transaction with Igo, which is subject to a series of delivery preconditions, which can be officially started and completed only when the relevant conditions are met. So far, progress has been smooth and some preconditions have been achieved.

If this financing is implemented, the company's debt pressure will be reduced.

Generally speaking, the stock option incentive plan launched by Ganfeng lithium has also given a "bottom line" for the performance growth in the next few years. The overall operating performance of the company is stable and the future growth is clear. Tianqi lithium industry is in the state of "return to blood", there is a certain gap from the return to normalization, but the performance elasticity is greater.

The two companies have chosen different routes, growth prospects and stages. When it comes to stock selection in the secondary market, the two companies are just corresponding to two different types: earning steady returns and winning excess returns.

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