Guangzhou Tinci Materials Technology (002709 CH) 1Q21: Strong Results In Line;
EarningsTo Accelerate In 2021 Tinci’s 1Q21 revenue was up 198% with net profit rebounding to Rmb287m (+591% yoy, 1,879% qoq), driven by electrolyte products’ ASP hike and sales volume increase.
We expect the electrolyte market to remain strong throughout 2021 given the supply tightness. Tinci, which issued a positive 1H21 profit alert, will see earnings growth accelerate on the electrolyte price hike and production expansion in 2021. Maintain BUY and raise the target price to Rmb125.00.
• Strong 1Q21, in line with profit alert. Guangzhou Tinci Materials Technology (Tinci) reported 1Q21 net profit of Rmb287m, up 591% yoy, in line with its previous profit alert (net profit to grow 502.35-622.82%).
Revenue rose by 198% yoy to Rmb1.56b, due to: a) the production ramp-up and ASP increase in the lithium-ion battery material segment (mainly electrolyte), and b) steady contribution from the personal-care product segment. Its blended gross margin improved 11.6ppt qoq and 3ppt yoy to 33.7%, and the key contribution was from the strong electrolyte segment performance
• Positive 1H21 profit alert. Tinci also issued a positive profit alert for 1H21, and expects its net profit to grow 108.55-140.63% yoy to Rmb650m-750m, indicating 2Q21 net profit to be Rmb363m-463m (up 26.5-61%qoq).The company attributes the strong results to: a) an increase in electrolyte shipments and prices due to a demand spike, and b) an improvement in the electrolyte margins due to its increased rate of raw materials’ self-sufficiency. Total shipments of electrolyte are estimated to be 132,000-140,000 tonnes in 2021(vs 2020: 75,000 tonnes), with the gross margin estimated to recover to about 35% in 2H21.
We expect that a limited impairment loss will be recognised from the cathode segment in 2021 after the write-off was recorded in 4Q20. STOCK IMPACT
• Management guidance: a) Electrolyte shipments will rise to 13,000-14,000 tonnes/month from Sep 21 (1Q21: 9,000 tonnes/month; May-Aug 21: 11,000-12,000 tonnes/month) with the new capacity ramp-up in 2H21; b) total LiPF6 capacity will reach about 35,000 tonnes by end-21 (vs 15,000 tonnes in 2020); c) focus will be on R&D of new lithium salt (LiFSI) and new types of additives, without capacity expansion in solvents; d) management estimates that LiPF6 will remain in deficit for the rest of 2021 and electrolyte prices are likely to stay at a high level.
Tinci’s current market share is 27-28% of the global LIB electrolyte market, and it targets to reach 35-40% in the long run.
• Earnings growth to accelerate amid strong electrolyte market in 2021. We expect the tight supply of lithium-ion electrolyte to persist in 2021, as not much new capacity is expected to come on stream even though demand from the electric battery segment is spiking.
The shortage of LiPF6 has pushed prices from Rmb65,000/tonne in Sep 20 to. Rmb210,000/tonne in Apr 21.Thus, electrolyte prices also rose to about. Rmb60,000/tonne in Apr 21 (vs Rmb45,000/tonne in 4Q20). Tinci’s integration model leads to better cost control in an environment of higher raw material prices.
• Maintain BUY with a higher target price of Rmb125.00. Our DCF-based valuation suggests a target price of Rmb125.00. We assume WACC of 13.8% (previously at 14.5%), derived from cost of equity of 14.1%, post-tax debt cost of 2.2% and terminal growth of 4%.
The DCF-based target price implies 11x 2021F P/B and 50x 2021F PE. Our target price implies a 29% upside from its current share price. Thus, we maintain BUY.
Its main products include personal care, lithium-ion battery and organic silicon rubber materials. STOCK DATA GICS sector Materials Bloomberg ticker: 002709 CH Shares issued (m): 546.1 Market cap (Rmbm): 52,985.5 Market cap (US$m): 8,141.8 3-mth avg daily t’over (US$m): 191.9-
-By UOB Kay Hian Research