Guangfa Hong Kong released a research report saying that due to the continuous increase in the permeability of new energy vehicles, global lithium resources are expected to remain in tight balance, and the supply gap of lithium resources is expected to last until 2023. Lithium resource prices are expected to remain strong no earlier than 2023. The bank said that ALB.US has rich and high-quality lithium resources, the long Association model can stabilize the gross profit margin of the lithium resources business, and the situation in which the processing capacity of Yabao lags behind that of lithium resources is expected to improve after 2022. The bank believes that the current valuation of Yabao's share price is in the undervalued stage, taking into account the company's growth, business cycle and financial situation, giving Apel a reasonable PE multiple of 34.36 times in 2022, corresponding to a reasonable share price of $302.33 in 2022, with a potential increase of 43 per cent.
Core point of view
We expect the global shortage of lithium resources to continue until 2024.
Due to the continuous increase in the permeability of new energy vehicles, global lithium resources are expected to remain in tight balance. Although the global supply elasticity of lithium resources is not low, and the sharp rise in lithium prices will lead to a substantial expansion of production in the industry to ensure their respective market share, the supply and demand situation is still tight due to the strong demand for new energy vehicles. We expect the shortage of lithium resources to last until 2023. Therefore, we expect lithium resource prices to remain strong no earlier than 2023.
Preferred industry blue chip Yabao company
Yabao (hereinafter referred to as Yabao) is a global specialty chemicals company with a leading position in the fields of lithium, bromine and catalysts. Yabao, which initially focused on the production and sales of catalysts and chemicals, formally entered the lithium industry through acquisitions in 2015.
Yabao is rich in high-quality lithium ore resources.
In terms of mines, Yabao owns Kings Mountain mines in the United States, Talison Greenbushes in Western Australia and Wodgin mines in Western Australia, while salt lakes have Salar de Atacama in Chile and Silver Peak Salt Lake in the United States. In 2020, Yabao's lithium resources reserves have reached 3.28 million tons. Talison Greenbushes Lithium Mine is the world's top mineral resource, with a 49 per cent stake and equity reserves of about 920000 tons in 2020.
Yabao's long-term association model can stabilize the gross profit margin of lithium resources business.
Yabao mainly through the signing of long orders to stabilize the supply of lithium compound products to customers. Although the price of lithium compound in this model is inelastic, it can resist the risk of lithium price fluctuation, so as to maintain a stable gross profit margin.
The situation that Yabao's processing capacity lags behind that of lithium resources will be improved after 2022.
In order to meet the rising demand for lithium resources, Yabao is promoting the capacity expansion plan of the lithium compound processing plant. Arbor has three lithium carbonate plants and three lithium hydroxide plants worldwide, and is building La Negra and Kemerton projects in Western Australia, which is expected to increase LCE production capacity by 90000 tons per year when it is put into production in 2022.
At present, the stock price valuation is in the undervalued stage.
We expect Arbor EPS to be $3.08,8.80and $12.35in 2021-2023, respectively. In terms of valuation, taking into account the company's growth, business periodicity and financial situation, we give Yabao a reasonable PE multiple of 34.36 times in 2022, corresponding to a reasonable share price of $302.33 in 2022, with a potential increase of 43%.
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Overall supply and demand of lithium industry
Due to the continuous increase in the permeability of new energy vehicles, global lithium resources are expected to remain in tight balance. Although the major suppliers of lithium resources in the world have not formed a price alliance and the elasticity of supply is not low, the sharp rise in lithium prices is likely to lead to a substantial expansion of production in the industry to ensure their market share (as is true of our production expansion plans of the three major lithium companies), but the supply and demand situation is still tight due to the strong demand for new energy vehicles. We expect the lithium supply gap to continue until 2023, although the gap is narrowing.
Specifically, we expect global lithium (LCE) demand to grow 77 per cent, 39 per cent and 19 per cent year-on-year to 591406 tonnes, 819229 tonnes and 972607 tonnes respectively in 2021-23, while supply will increase 16 per cent, 52 per cent and 30 per cent to 474909 tonnes, 721672 tonnes and 940036 tonnes, respectively, and the supply gap will narrow from 116497 tonnes in 2021 to 32571 tonnes in 2023. Therefore, we expect lithium resource prices to remain strong no earlier than 2023.
(Albemarle) of Yabao Co., Ltd.
Yabao is a global specialty chemicals company with a leading position in the fields of lithium, bromine and catalysts. Originally focused on the production and sales of catalysts and high-performance chemicals, Arbor formally entered the lithium industry after the acquisition of Rockwood Holdings in 2015, and developed the production and sales business of lithium chemicals into one of the company's core businesses. Yabao pays attention to the holding of upstream lithium resources, and obtains high-quality lithium resources and lithium processing plants around the world through many mergers and acquisitions, gradually forming and perfecting the integrated pattern of upstream lithium resources and middle and downstream processing plants.
Main points of investment
Yabao has 3 mines and 2 salt lakes, which provides Yabao with rich and high-quality lithium ore resources. In terms of mines, Yabao owns Kings Mountain (mines in the United States, Talison Greenbushes and Wodgin mines in Western Australia, while salt lakes have Salar de Atacama in Chile and Silver Peak Salt Lake in the United States. In 2020, Yabao's lithium resources reserves have reached 3.28 million tons. Talison Greenbushes Lithium Mine, the world's top mineral resource, was acquired by Yabao in 2015 and is now jointly owned by Tianqi Lithium and Yabao, of which Yabao has a 49 per cent stake. Located about 250km south of Perth, Western Australia, the main lithium minerals are spodumene (containing about 8 per cent lithium oxide) and leucopyroxene, with equity reserves of about 920000 tons in 2020, and its lithium ore is sold only to two shareholder companies. this ensures the supply of lithium resources for Yabao. At present, the production capacity of the Talison Greenbushes mine has reached 82075 tons of lithium carbonate equivalent, and the capacity expansion plan is also under way, but due to the epidemic and the downturn in the lithium market in the previous two years, the implementation of the third phase of Talison production expansion has been temporarily postponed to 2023, and the production capacity is expected to reach 118825 tons of lithium carbonate equivalent after production expansion. Wodgina Mine is another mine owned by Yabao in Western Australia. Because of low lithium prices at the time, Yabao temporarily shut down the mine after it completed its acquisition of a 60 per cent stake in the mine in 2019. The Wodgina mine mainly produces 6 per cent of spodumene concentrate, with an annual production capacity of 750000 tons (equivalent to about 56000 tons of lithium carbonate equivalent). With rising demand for lithium in the global market, Yabao plans to resume work on the mine in 2022 and start generating profits in 2023. Located in Atacama Salt Lake, Chile, with a large-scale and high concentration of lithium resource endowment, Abel reached an agreement with Chile's CORFO at the end of 2016 to expand the company's lithium extraction quota to further expand the company's lithium resource exploitation. At present, the nominal production capacity of Atacama Salt Lake is 44000 tons of lithium carbonate equivalent. As a supplementary resource, Silver Peak Salt Lake in the United States provides relatively little production capacity, with an annual production capacity of 6000 tons of lithium carbonate equivalent.
The production capacity of the Yabao lithium compound processing plant lags slightly behind that of mines and salt lakes, and is continuing to promote the capacity expansion of the processing plant. Arbor has three lithium carbonate plants and three lithium hydroxide plants worldwide, and the lithium compound plant has a capacity of about 85000 tons of lithium carbonate equivalent in 2020. Among them, there is a La Negra factory near Atacama Salt Lake in Chile, which is responsible for processing brine extracted from the salt lake into lithium carbonate and lithium chloride, with a current production capacity of 40000 tons of lithium carbonate equivalent. Yabao is building the third and fourth phase of the La Negra expansion project, which is expected to be put into production in 2022, with an additional capacity of 40000 tons of lithium carbonate equivalent when completed. The lithium hydroxide processing project of Phase I and Phase II of Kemerton in Western Australia is also under construction and is expected to be put into production in 2022, with an annual production capacity of 50000 tons of lithium hydroxide. Yabao has set up lithium compound processing plants in China since 2017, and shipped Greenbushes lithium ores mainly to Meishan and Xinyu, Sichuan Province, China for lithium compound production and processing. At present, it has reached an annual production capacity of 35000 tons of lithium carbonate equivalent. In the second half of 2021, Yabao signed investment agreements with the Yangtze River International Chemical Industrial Park (Zhangjiagang City) and Pengshan Economic Development District (Meishan City). The two projects plan to invest US $500 million each. 50000 tons of lithium hydroxide capacity is planned to increase the production capacity of Yabao lithium compounds.
Yabao mainly adopts the long-term association model to determine the pricing of lithium compound products and resist the risk of lithium price fluctuation in the market. Judging from the historical data, Yabao mainly supplies stable quantities of lithium compound products at a fixed price through long-term strategic cooperation. In this model, the sales price of lithium products is mainly affected by the market lithium price and demand quantity at the time of signing the contract, and the price is inelastic. When the market lithium price fluctuates greatly, the company's lithium business income will be relatively small and there will be a certain lag.
The development of non-lithium business is more mature. On the one hand, Yabao has the world's top bromine resources and bromine chemical plants, has a high degree of integration and has a significant cost advantage, accounting for about 30% of bromine revenue in 2016-2020. the EBITDA rate is stable at 30%. After the outbreak of novel coronavirus, the income of bromine business declined slightly, but the global GDP growth rate has returned to growth since 2021, and the warming of consumption level will drive the market demand for bromine to rise. It is expected that bromine business will maintain a stable growth rate in the next few years. On the other hand, Yabao's catalyst business ranks second in the world, with more than 11 catalyst plants all over the world; the average EBITDA rate from 2016 to 2020 is 25%, which is declining year by year under the influence of the prosperity of the petrochemical industry. Due to the impact of the novel coronavirus epidemic and the impact of epidemic prevention and control on travel restrictions in 2020, the demand for fuel dropped, resulting in a decline in the EBITDA rate to 16%. As the epidemic is gradually brought under control, the global oil market is expected to return to normal in 2023.
Driven by the rising demand for lithium products, Yabao's future revenue growth will mainly come from the lithium business. From 2016 to 2020, Abel lithium business accounted for about 38 per cent of the total company's business. With the formal commissioning of the Kemerton I phase and Guangxi Tianyuan lithium compound processing plant expansion project and the rise in global lithium prices, the proportion of lithium business revenue to total revenue is expected to rise to 55.7 per cent in 2022, while the proportion of EBITDA will reach 72 per cent. We expect that although the growth rate of lithium revenue will slow in 2023, it will still account for 60.5% of total revenue and 78.8% of EBITDA.
Main risk
The rise in labor costs in the exploitation of lithium resources may affect the progress of capacity expansion and have an impact on profits. On August 12, 2021, there was a strike at the salt lake and processing plant in Atacama, Chile. A total of 135 workers, accounting for nearly 50% of the factory population, went on strike. The strike ended in September of that year by re-signing a labor agreement with the workers. At the same time, Western Australia is facing a tight labor supply, which has delayed Kamerton's second phase of expansion by three months and has had to raise workers' wages in order to ensure the smooth expansion. The strike in Chile and wage increases in Western Australia have had an impact on the progress of lithium mining at Abel, which will face rising labor costs and squeezed profits if capacity expansion continues in Western Australia and Chile.
Profit forecast, valuation and investment advice
We use the segment valuation summary method to value the company. We believe that the reasonable price-to-earnings ratio of Yabao in 2023 is 30.59x, corresponding to a reasonable value of $377.91 per share, based on:
1. The reasonable price-to-earnings ratio of lithium business is 35X, which is mainly due to the long-term growth of lithium resource industry, the resource advantage of Yabao and the stable effect of long-term association price mechanism on gross profit margin.
two。 The reasonable price-to-earnings ratio of bromine business is 20X, due to the rigidity of industrial demand for bromine and the stable profit level formed by Yabao in this business.
3. The reasonable price-to-earnings ratio of the catalyst business is 15X, and the performance of Yabao's catalyst business is low due to the drag on the prosperity of the oil industry.
Accordingly, Yabao's reasonable share price in 2022 is $302.33 (based on an one-year required return of 25 per cent), corresponding to a reasonable price-to-earnings ratio of 34.36x in 2022. As the latest stock price of Yabao is lower than the reasonable valuation, we think that the share price of Yabao has been undervalued and the potential increase is 43%. We suggest you pay attention to it.
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