Summary
- Ganfeng Lithium is the world's largest lithium metal producer.
- In its latest quarterly report, the company grew net earnings by 640% from a year earlier from $69 million to $511 million.
- Earnings per share grew 580% from a year earlier.
- Price Target: $23.
Ganfeng Lithium ( GNENY ), based in Xinyu City, China, is the world’s largest lithium metal producer. It is the only company in the lithium industry that has the commercial scale technologies to extract lithium from brine, ore and recycled materials providing it with diversified sources of lithium to meet the increasing demand for electric vehicles over the next decade. These diverse sources of lithium provide the company with a competitive advantage in securing the raw material for electric batteries as the cost of sourcing lithium varies over time.
Diversified Sources of Lithium
In general, lithium extracted from brine (salt lakes), primarily in South America, is more economical to produce than mining ore out of the ground, which is mostly out of Australia . However, time to market is faster out of Australia than South America, which gives the company options in terms of its source of lithium over short, medium and long time frames. In the long term, recycled materials will also serve as a source of lithium for the company once more batteries are in the market and have reached their full life cycle.
Ganfeng Lithium
Benefiting from the rise in lithium prices this year, the company grew net earnings by 640% from a year earlier from $69 million to $511 million, and earnings per share increased 580% over the same period.
Ganfeng Lithium
Hub of EV Supply Chain
With the third largest lithium compound capacity in the world and the largest in China, Ganfeng Lithium is positioned well as the hub of the EV supply chain. It manufactures electric batteries and supplies them to car makers in China and across the world. Even though almost 80% of its sales are currently in China, the growth of its sales overseas can be seen in the contracts the company has secured with some of the largest car makers such as BMW ( OTCMKTS:BMWYY ), Tesla ( NASDAQ:TSLA ) and Volkswagen ( OTCMKTS:VWAGY ).
Currently, the company’s product revenue mix comprises 18% from lithium batteries while the majority (76%) comes from lithium metal and compounds. As demand for lithium batteries for electric vehicles increases over the next decade, this product mix will shift more evenly towards batteries.
According to the company’s annual report , demand for lithium will continue to increase.
“It is estimated that the total demand for lithium hydroxide (the main type of lithium compound used for batteries) will increase significantly to 704,000 tons throughout the world in 2025, representing a CAGR (compounded annual growth rate) of approximately 37% from 2021 to 2025.”
Minmetals Securities Institute
According to Bloomberg , sales of electric vehicles worldwide will rise to 21 million cars by 2025 from 6.6 million sold in 2021, representing a compounded annual growth rate of over 30%.
Increasing Competition
With increased global demand for electric batteries, comes increased competition. Just in the last week, Honda ( NYSE:HMC ) and Toyota ( NYSE:TM ) announced that they would add capacity to their electric battery production in the U.S., spending billions of dollars to diversify and scale their operations. This would certainly add competition to Ganfeng's offerings.
However, with a significant supply gap for lithium estimated over the next 20 years, Ganfeng's addressable market will continue to grow even with increased competition, which is to be expected so long as demand outstrips supply.
Analysis
Buy Rating: I have a Buy rating for Ganfeng Lithium’s stock with a five-year target price of $23 per share.
In my analysis, I believe the company can grow its annual revenues at 40% per year over the next five years as demand for electric batteries grows. I anticipate Ganfeng to achieve a 30% net margin as they continue to improve its lithium extraction methods and processing techniques. With the stock currently trading at 23 times earnings (based on 2021 fiscal year-end earnings), it is trading at a discount considering its growth. I am estimating that the stock’s P/E ratio can maintain this multiple and expand slightly over this time frame as the company’s profitability is proven long-term.
Below is a table contrasting the company’s current metrics and stock price to the 5-year estimate:
Ganfeng Lithium | Current (as of 8/31/22) | 5-Year Estimate |
Revenue (in millions Yuan) | $11,160 | $42,872 |
Net Margin (%) | 46.86% | 30% |
Net Income (in millions Yuan) | $5,230 | $12,862 |
# Outstanding Shares | 1,966,000 | 2,016,000 |
Net Income per Share (Yuan) | $2.66 | $6.38 |
Price/Earnings (P/E) Ratio | 23.18 | 25 |
Stock Price (currency conversion $1:6.89 Yuan) | $8.95 | $23 |
Source of company metrics: Morningstar & Gangfeng Lithium
To better understand how to read the table above, read my previous article: Meta: Attractive Valuation .
For investors looking for companies that will benefit from the global transition to electric vehicles, Ganfeng Lithium is one company that will be at the center of this coming boom.
For further details see:
Ganfeng Lithium: The Hub Of The EV Supply Chain