On Tuesday, Tianqi Lithium Corp (002466:CH) stock was initiated with an Outperform rating and a price target of HK$55.00 by Bernstein SocGen Group. The firm highlights Tianqi Lithium as the largest pure-play lithium producer by revenue on a global scale.
The company boasts exceptional financial performance within the EV battery supply chain, with an average EBIT greater than 80% and ROACE above 30% for the period 2021-23.
Tianqi Lithium, noted for its complete self-sufficiency in spodumene supply, operates the Greenbushes mine, recognized as the world's largest and most cost-effective lithium mine. This mine's cash costs stand at just $5k per ton of lithium carbonate equivalent (LCE).
The company is set to enhance its spodumene production capacity at Greenbushes by 63%, from 1.62 million tons per annum (MTPA) in 2023 to 2.67 MTPA by 2027. Concurrently, lithium refining capacity is expected to increase from 89ktpa LCE in 2023 to 144ktpa LCE.
Revenue for Tianqi Lithium is projected to reach its lowest in 2024, followed by a significant growth at a compound annual growth rate (CAGR) of 35% from RMB12.6 billion to RMB23.0 billion over the next two years (2024-26). Operating profit is anticipated to rise even more sharply at a 60% CAGR during the same timeframe, with operating profit margin (OPM) improving from 48% in 2024 to 67% in 2026.
The company's financial health is underscored by a strong balance sheet, with Tianqi generating substantial free cash flow (FCF) and maintaining a net debt to equity ratio of -6% at the end of 2024. The price target set by Bernstein SocGen Group is based on a discounted cash flow (DCF) valuation, factoring in a 10% weighted average cost of capital (WACC) and a terminal growth rate of 2%. This valuation suggests a fair value of RMB55 per share for A-shares and HKD47 per share for H-shares.
Currently, Tianqi Lithium's stock is trading at 50 times the 1-year forward price-to-earnings (P/E) ratio, which is consistent with the historical average. The current valuation implies a lithium carbonate price of $13k per ton, which, according to the firm, appears undervalued.
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