1H22 results in line with our forecast

Tibet Mineral Development (Tibet Mineral) announced 1H22 results: Revenue surged 439.2% YoY to Rmb1.22bn, net profit attributable to shareholders soared 1,018.3% YoY to Rmb475mn, and recurring net profit attributable to shareholders grew 991.6% YoY to Rmb470mn. For 2Q22, revenue advanced 861.4% YoY and 146.0% QoQ to Rmb868mn, net profit attributable to shareholders climbed 1430.4% YoY and 160.0% QoQ to Rmb343mn, and recurring net profit attributable to shareholders grew 1,413.6% YoY and 173.0% QoQ to Rmb344mn. Results were in line with our forecast.

In 1H22, the firm enhanced efforts to ramp up sales of lithium salt products. Tibet Mineral promoted the technical transformation of the Phase I Zabuye Salt Lake project in 2021, leading to a sharp increase in capacity utilization rate and, thus, providing sufficient reserves of lithium concentrates for sale in 1H22. The firm’s inventory of lithium concentrates equaled 11,300t at end-2021, and sales volume reached 6,841t in 1H22, consisting of 2,113t in 1Q22 and 4,728t in 2Q22. We believe the firm has ample lithium concentrate inventory to support sales in 2H22. In addition, prices of lithium salt products continued to rise. For 1H22, data from asianmetal.com shows that the average price of electric carbon surged 449% YoY to Rmb448,000/t. Tibet Mineral’s sales price of lithium concentrates increased in 1H22, in line with the trend of market price hikes of lithium salt products.

Trends to watch

Clear capacity expansion plan; promising prospects for the exploitation of Zabuye Salt Lake. Tibet Mineral expects its lithium salt capacity to reach 30,000-50,000t by the end of 2025. We foresee sustained growth in the production capacity of lithium carbonate at Zabuye Salt Lake. Specifically, Tibet Mineral plans to add lithium carbonate capacity of 12,000t in the battery-grade lithium carbonate project over 2021-2023, which the firm expects to start operating in September 2023. In 2023-2025, the firm plans to invest Rmb2bn in the construction of a 10,000t-level lithium hydroxide project and a second battery-grade lithium carbonate project, further enhancing the firm’s total capacity of lithium salt and the diversity of its products, in our view.

10,000t-level battery-grade lithium carbonate power supply project advances smoothly; Baowu Clean Energy a winning bidder. Tibet Mineral announced that it terminated the power supply contract with the Tibet branch of State Power Investment Corporation (SPIC) on June 22, and that it was seeking an alternative cooperative agreement to power its 10,000t-level battery-grade lithium carbonate project. On July 26, the firm announced Baowu Clean Energy Ltd, a majority-owned subsidiary of China Baowu, as the winning bidder, with a power tariff of Rmb0.998/kWh. Tibet Mineral completed the bidding of the power supply project efficiently, demonstrating majority shareholder China Baowu’s support for Tibet Mineral’s development after the firm was acquired by the former, in our view. We think this may help advance the progress of Tibet Mineral’s 10,000t-level battery-grade lithium carbonate project and ease the impact of insufficient power supply on the launch of new projects.

Financials and valuation

As sharp increases in lithium salt prices boosted the firm’s earnings growth, we raise our 2022 and 2023 earnings forecasts by 196.7% to Rmb1.04bn and by 34.8% to Rmb1.24bn. The stock is trading at 26.2x 2022e and 22.1x 2023 P/E. We maintain an OUTPERFORM rating. Given that lithium prices are not likely to remain high in the long term, we raise our TP 22.7% to Rmb57.90 (implying 29.0x 2022e and 24.4x 2023e P/E), with 10.6% upside.

Risks

Progress in the construction of the lithium carbonate project disappoints; resource integration slower than expected; price of lithium drops.