3Q24 results miss our expectations

Tibet Mineral Development announced its 3Q24 results: Revenue fell 29.2% YoY and 20.2% QoQ to Rmb195mn; net profit attributable to shareholders fell 53.1% YoY and 52.9% QoQ to Rmb41mn, lower than our expectations due to falling lithium price and rising mining royalty.

1) Falling domestic lithium carbonate prices eroded revenue. In 3Q24, the domestic price of battery-grade lithium carbonates fell 67% YoY to Rmb79,398/t. We believe the decline in domestic lithium salt prices was the main culprit to the decline in the company's revenue. We think the company's sales volume of lithium concentrates may have grown YoY in 3Q24, given a low base in 3Q23.

2) Costs increased due to amortization of mining rights transfer fees. In 3Q24, the firm's operating cost rose 119% YoY to Rmb295mn. According to corporate filings, the sharp increase in operating cost was mainly attributable to the increase in lithium salt costs caused by amortization of mining rights transfer fees.

3) High chrome ore prices bolstered earnings. According to Asian Metal, the CIF price of chromium concentrates in China rose 6% YoY to US$310/t in 3Q24. We believe high prices of chrome concentrates bolstered the firm's earnings. In 1H24, revenue from the chromium business rose 57% YoY to Rmb115mn and GM rose 33ppt YoY to 67%.

Trends to watch

The 10,000t battery-grade lithium carbonate project started trial production; the chrome ore business remained solid.

Lithium business: The Zabuye Salt Lake is a high-quality lithium- rich brine in Xizang. The firm's 10,000t battery-grade lithium carbonate project started construction in June 2022 and began trial production on June 30, 2024. The construction of supporting energy facilities is underway. The project uses the membrane separation and evaporation crystallization process to efficiently recycle lithium and potassium resources in Zabuye. The project is designed to produce　9,600t of battery-grade lithium carbonate and 2,400t of industrial lithium carbonate annually.

Chrome ore business: China's high-grade chrome ore resources are concentrated in Xizang. The company owns the mining rights of the Luobusa chrome ore in Xizang and the exploration rights of chromite in the southern part of Luobusa's mine groups I and II. At present, the approved mining rights total 100,000t/yr.

Financials and valuation

Due to falling lithium salt prices, we cut our 2024 net profit forecast 78% to Rmb180mn and introduce 2025 net profit forecasts of Rmb330mn. The stock is trading at 34.5x 2025e P/E. We maintain an OUTPERFORM rating, and due to the combined effect of falling average lithium prices and the battery-grade lithium carbonate project starting trial production, we cut our target price 36% to Rmb25.30. Our TP implies 40x 2025e P/E, offering 16% upside.

Risks

Lithium salt prices continue to decline; lithium carbonate capacity expansion disappoints; costs exceed expectations due to the use of new technologies.