How should current investors view the investment value of lithium mines?

It just so happened that Ganfeng Lithium released a financial report notice two days ago. Let’s talk about how to go down the lithium mine. Just looking at this financial report, it is quite satisfactory. There is no thunder and it does not exceed expectations. To 22 billion yuan, +244.27% to 320.78% year-on-year. The overall price fluctuation of lithium salt last year was indeed not small. In addition, the price of lithium carbonate fell in Q4, and the life of lithium salt enterprises was a little worse. The most noteworthy thing is that in 2022Q4, Ganfeng's net profit attributable to its parent has declined month-on-month.

The most important thing for us to judge the stock price trend of lithium mining companies is to analyze and clear the lithium price trend, because in this way we can estimate the company's performance:

Looking back at the trend of lithium prices in 22 years, the main logic is that the price rise caused by the shortage of supply, because the incremental demand for lithium is driven by new energy vehicles, and the industrial chain is composed of lithium mines-battery factories-automobile factories, supply exceeds demand The problem is that the expansion cycles of the three are different. In 21 years when the financing of new energy car companies got soft, they expanded their production significantly, and battery manufacturers such as Ningde Times in the midstream also expanded their production accordingly. The expansion cycle of upstream lithium mine production capacity is relatively slow, resulting in a shortage of lithium carbonate.

However, this year’s situation has changed in two aspects: on the one hand, the production capacity of lithium carbonate previously launched will be gradually released. For example, the production capacity of Ganfeng’s Mount Marion project will be expanded to 900,000 tons per year. Other overseas companies such as Albemarle, SQM, etc. The company's new production capacity has also begun to be released one after another: Yabao's lithium salt production in 2021 will be 88,000 tons. In 2022, the company expects the production to increase by 20%-30%, or 106,000-114,000 tons. By 2025, the lithium salt production will increase to 200,000 tons , CAGR exceeds 20%. On the other hand, the demand for lithium carbonate has weakened: due to the difficult life of downstream OEMs, the demand for orders from battery factories has weakened, resulting in battery factories starting to destock in the fourth quarter of last year, such as Ningde.

The most clear point of analysis is that the basis for the sharp rise in lithium carbonate prices no longer exists. It is difficult to expect Ganfeng to return to the previous high valuation, and we look at PEband. In 22 years, the performance and stock price have deviated greatly. The market thinks that the penetration rate of new energy vehicles has reached 30-35%, at most doubled times to 70%, the demand for lithium carbonate will not be as strong as before, and now the lithium battery recycling industry has begun to improve.

In summary, it is expected that the logic of lithium mining companies will change from the logic of growth stocks to the logic of cyclical stocks (it was also a cyclical stock before 19 years anyway), and the valuation of cyclical stocks cannot be based on PE, but needs to be based on PB. value. Judging from the PB-band, Ganfeng Lithium’s PB is at a historically low level, but according to the PB investment method, it needs to be sold at a low valuation and bought at a high valuation, because the price fluctuation of resource products must be considered. The current company’s BPS is It is reflected in the price of 450,000-500,000 lithium carbonate, which is not sustainable, so it is still not recommended to buy lithium mining companies at present, and you can consider using futures to short lithium carbonate.