Everbright Securities: the demand for Lithium will improve in the Future to maintain the "overweight" rating of Tianqi Lithium Industry

Event: June 21, 2021, Tianqi Lithium Industry announced that the wholly-owned subsidiary "TLEA" to increase capital and shares to introduce strategic investors. In view of the fact that the Australian Inland Revenue Bureau's review and assessment of the above tax impact may take a long time, in order to complete the transaction as soon as possible, in consultation with IGO, the parties agreed to complete the delivery of the project on or before June 30, 2021 in accordance with the time agreed in the Investment Agreement.

Comments: the company's introduction of IGO war investment is basically on the ground, the two sides only need the Australian Inland Revenue Bureau to review and evaluate whether the internal restructuring implementation steps will generate capital gains tax. The funds obtained from this "TELA" capital increase will be used to repay the syndicated M & A loan of US $1.2 billion and related interest, and the rest will be reserved in TLEA as supplementary funds for the operation and commissioning of the Quinana Lithium hydroxide Plant, which is owned by its subsidiary TLK. At that time, the company will have a balance of $684 million in category C loans due on November 25, 2022 and $1.2 billion in category B loans on November 29, 2024. The company will continue to promote various financing programs.

The prices of lithium concentrate and lithium salt products are good, and the performance will reverse: thanks to the rapid development of downstream new energy vehicles, lithium demand will continue to improve in the future. The price of 5% grade lithium oxide has exceeded 715 US dollars / ton; the price of lithium hydroxide has risen for 26 consecutive weeks, exceeding 92,000 yuan / ton, mainly due to the strong demand for high nickel ternary; and the price of lithium carbonate has stopped falling and stabilized after falling for six consecutive weeks. at present, the high level of 865 million yuan / ton has been stabilized, and there is still room for further growth.

It is estimated that the market price of lithium salt center will reach 90,000 yuan / ton and 110,000 yuan / ton respectively in 2021 and 2022.

The guidelines for future capacity expansion are clear: according to the IGO announcement, Greenbush's technical grade + chemical grade lithium refined minerals can total 1.35 million tons in 21 years, and the total planned production capacity in the follow-up III period will exceed 2 million tons; lithium salt plate will add 48000 tons of lithium hydroxide production line and Suining 20,000 tons lithium carbonate production line in the follow-up period, and the medium-term lithium production capacity planning will exceed 110000 tons, double the current production capacity. It is estimated that the company's lithium refined minerals will reach 1.35 million tons and 1.63 million tons in 2021 and 2022, and the company's lithium salt production will remain about 45000 tons in 2021 and 2022.

Layout of the world's highest quality resources, seize the strategic highlands: the company is one of the few companies in the world that simultaneously distribute high-quality lithium mines and salt lake brine resources: in terms of minerals, the company's holding subsidiary Terlison owns Greenbush spodumene ore with a lithium oxide grade of 2.1%, while mining costs are at the far left of the global cost curve. In the salt lake, the company distributes the high-quality Atacama Salt Lake and China's Zabuye Salt Lake respectively by taking a 20% stake in Xigaze Zabuye and a stake in SQM25.85%.

Profit forecast and rating: in view of the increase in the company's future product prices and the decline in financial expenses, we raise our profit forecast. It is estimated that the EPS for 2021-2022 will be 0.30 yuan and 0.85 yuan respectively, an increase of 96% and 57% respectively, and a new forecast of 1.44 yuan for EPS in 2023. The corresponding 2021-2023PE is 192,67,39. In view of the company's leading position in the global industry and the gradual improvement in its capital structure, we maintain our "overweight" rating.

Risk tips: downstream demand is lower than expected; industry supply-side production capacity is released too quickly; debt liquidity risk; company project construction is not as expected; safety and environmental protection risk; overseas operation risk; technology path change risk and so on.