RONBAY NEW ENERGY TECHNOLOGY(688005)：PREANNOUNCED 2021 RESULTS BEAT;INDUSTRY LEADER CONTINUES TO ENJOY RAPID GROWTH

Preannouncement: 2021 net profit up 317.7-331.8% YoY

    Ronbay New Energy Technology has preannounced its 2021 results, estimating that net profit attributable to shareholders grew 317.7-331.8% YoY to Rmb890-920mn, and recurring attributable net profit rose 399.6-418.3% YoY to Rmb800-830mn, beating our expectations on higher shipment volume and improved shipment structure in 4Q21 as well as the firm’s inventory of low-cost lithium salts amid surging lithium prices. We estimate that the firm’s attributable net profit rose 200.7-227.2% YoY to Rmb340-370mn in 4Q21.

    Trends to watch

    Revenue: The penetration rate of nickel-rich products has grown steadily on robust downstream demand. According to iccsino.com, the penetration rate of nickel-rich products was about 42% in 11M21, and that of nickel- rich layered oxides (NCM811) stood at around 39.7%. We estimate the firm’s sales volume at about 18,000-20,000t in 4Q21, given its leading position in the domestic nickel-rich ternary cathode market. We estimate the firm’s revenue at around Rmb340-370mn in 4Q21, implying ASP of about Rmb180,000-200,000/t.

    Earnings: The firm’s profitability improved on optimized product mix, self- sufficiency of precursors, and low-cost inventory amid rising raw material prices.

    Per-tonne earnings: The firm has continued to optimize its product mix. Shipments of its polycrystalline nickel-rich products have surpassed those of its peers, and the proportion of single-crystal, nickel-rich products and nickel-ultra-rich series in the firm’s total shipments has grown steadily, boosting earnings per tonne. We estimate the per-tonne net profit of the firm’s cathodes at around Rmb13,000 in 4Q21.

    Precursors: The firm has made smooth progress in capacity expansion and project construction for its precursor business, with self-sufficiency ratio at 30%. Assuming self-sufficiency ratio is 30%, we estimate the per-tonne net profit of precursors at around Rmb1,200.

    Inventory gains: Due to the tight supply of lithium salts, equipment overhauls, and increased stockpiles in 4Q21, prices of lithium hydroxide and lithium carbonate rose 66.7% and 131.1% to Rmb195,000/t and Rmb275,000/t in 4Q21. The firm benefited from rising lithium salt prices as it adopts the cost-plus pricing model and stocked up on low-cost raw materials in advance.

    Given the firm’s increasing self-sufficiency ratio, improving product mix, technological upgrading, and rising capacity utilization rate, we believe its profitability will improve further. We are also optimistic that rapid capacity expansion will likely bring earnings upside.

    Valuation and recommendation

    Considering the firm’s high production and sales in 4Q21, improving self- sufficiency of precursors, and higher-than-expected inventory gains, we raise our net profit forecast by 6.5% to Rmb895mn for 2021 and by 47.2% to Rmb2.1bn for 2022, and introduce 2023 forecast of Rmb3.08bn. The stock is trading at 24.7x 2022e and 16.8x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb168, implying 35.9x 2022e and 24.5x 2023e P/E and offering 45.4% upside.

    Risks

    Sales of alternative fuel vehicles and commissioning of production capacity disappoint; volatile prices of upstream raw materials.