[institutional comments] Ganfeng Lithium Industry has significantly expanded the profitability of lithium salt and the layout of the industrial chain is becoming more and more perfect.

Event: the company released the 2021 China report. The company achieved revenue of 4.064 billion yuan in the first half of 2021, + 70.27% year-on-year; net profit of 1.417 billion yuan, + 805.3%; non-return net profit of 835 million yuan, + 380.62%; basic earnings per share, 1.04 yuan, + 766.67%.

The supply advantage of diversified lithium raw materials continues to be consolidated. The company continues to obtain high-quality lithium resources around the world, and gradually focuses on the development of brine and lithium clay resources. During the reporting period, the company plans to increase its stake in the Sonora lithium clay project to 100% and to acquire a 50% stake in the Goulamina spodumene project in Mali. In the future, the company will gradually build and improve the resource combination of "pyroxene (Marion+Pilgangoora+Goulamina) + clay (Sonora) + salt lake (Cauchari+Mariana+ Qinghai)". The amount of lithium resources (proven) is expected to exceed 50 million tons, and the amount of equity resources is more than 27 million tons (discount LCE), provides stable guarantee for the middle and lower reaches of business.

The third phase of Mahon is smoothly full production, with a long-term production capacity of more than 600000 tons of LCE. Benefiting from the full production of 21H1 Mahon Phase III and the transformation of Ningdu production line, the company has formed a smelting capacity of "43000 tons of lithium carbonate + 81000 tons of lithium hydroxide + 2000 tons of metal lithium". Currently under planning and construction, the company has a total lithium processing capacity of 150000 tons of carbonic acid (equivalent) + 20 million tons of lithium chloride + 7000 tons of lithium metal (including wholly-owned and joint venture projects such as Cauchari, Sonora, Fengcheng, Yichun, etc.). It is expected to form a supply capacity of 200000 tons of LCE lithium products by 2025, while the long-term plan will exceed 600000 tons.

The rise in the volume and price of lithium salt drives the growth of performance, and the record profit of 21Q2 in a single quarter is expected to continue. Lithium salt is the company's core business (21H1 accounts for 73% of revenue and 86% of gross profit). In the first half of 2021, thanks to the sharp rise in domestic lithium prices (the average price of lithium carbonate + 76%, lithium hydroxide + 33%) and the release of production, lithium revenue was + 66.1% to 2.961 billion yuan, gross profit increased 236% to 1.225 billion yuan, and gross profit margin increased 21pct to 41.37%. Driven by this, the company's overall profit level has been significantly improved, H1 gross profit increased to 35.13% Q2 deducted non-return net profit of 542 million yuan is the highest quarterly profit since the establishment of the company. In addition, the fair value change income generated by the company's Pilbara and other financial assets led to the increase of non-operating profit and loss. Taking into account the rapid rise in Q3 lithium prices, the company's overseas long order prices are likely to rise, and its performance is expected to continue to increase month-on-month in the second half of the year. High concentrate self-sufficiency helps the company maintain a gross profit margin of more than 40% in the medium and long term, and its profit flexibility is better than that of its peers.

Battery and recycling business continues to increase, and the integrated layout of the industrial chain is becoming more and more perfect. 21H1 lithium battery plate revenue from the same period last year + 84.27% to 764 million yuan, gross profit + 96% to 129 million yuan, continued to show a rapid growth trend. The company plans to build a total of 15GWh lithium battery projects (lithium iron phosphate, polymer battery, etc.) in Jiangxi and Chongqing, assuming full production in 2024, when revenue is expected to contribute more than 12 billion yuan. In addition, the company has formed 34000 tons of decommissioned battery disassembly and recycling capacity, laying the foundation for expanding the production capacity of the ternary precursor project. The integrated layout of the company's lithium material industry chain is becoming more and more perfect.

Profit forecast and rating: the demand for new energy vehicles continues to improve, the shortage of ore and lithium salt link is difficult to solve, driving the rising lithium price, the company's performance will benefit from the resonance of many factors such as upward lithium price, capacity expansion and cost advantage. Taking into account the high business cycle of the industry and the company's leading position, we raise the company's profit forecast. It is estimated that the revenue from 2021-2023 will be 108.01 billion yuan, and the net profit from home will be 23.61 billion yuan. The net profit will be 4.365 billion yuan, and the EPS will be 1.762.62 pounds, respectively, and the corresponding PE will be 124.9, 84.1, 67.5X, maintaining the "recommended" rating. Profit forecast and rating: the demand for new energy vehicles continues to improve, the shortage of ore and lithium salt link is difficult to solve, driving the rising lithium price, the company's performance will benefit from the resonance of many factors such as upward lithium price, capacity expansion and cost advantage. Considering that the industry is in a high business cycle and the company is in a leading position, we raise the company's profit forecast. It is estimated that the revenue from 2021-2023 will be 108.01 billion yuan, and the net profit of homing will be 23.61 billion yuan, 3.56 billion yuan and 2.62 billion yuan respectively, and the corresponding PE will be 3.26 billion yuan. 124.9Accord 84.1 Compact 67.5X, maintaining the "recommended" rating.

Risk hint: the production and sales of new energy vehicles are not as expected; the project is not as expected; lithium prices fluctuate greatly.