Core subsidiary SQM’s performance exceeds expectations, Tianqi Lithium’s net profit in the first half of the year is expected to increase by 620 million yuan_Stock Channel_Securities Star

(Original title: The performance of the core subsidiary SQM exceeded expectations, and the net profit of Tianqi Lithium in the first half of the year increased by 620 million yuan)

As an important subsidiary of Tianqi Lithium (002466), SQM (Chile Chemical and Mining Company) has exceeded expectations in its latest quarterly report and is expected to increase the performance of listed companies. In the announcement on the evening of May 22, Tianqi Lithium predicted that the net profit of listed companies in the first half of this year would increase by 620 million yuan.

SQM thickens half-year results

On May 19, SQM disclosed its performance report for the first quarter of 2022, showing that the company achieved a net profit of US$796.1 million, equivalent to RMB 5.376 billion, exceeding the previous estimate of Tianqi Lithium’s first quarterly report, and it is expected that Tianqi Lithium will this year. The net profit in the first half of the year and the net profit attributable to shareholders of the listed company will therefore increase by about 620 million yuan.

Tianqi Lithium reminds that the above-mentioned estimated increase in net profit is the result of the preliminary calculation of the company’s financial department and has not been audited by an auditing agency; The semi-annual report shall prevail.

At present, Tianqi Lithium holds about 23.02% of SQM’s Class A shares and Class B shares, which are accounted for by the equity method as long-term equity investments. When Tianqi Lithium was preparing and submitting its first quarter report, SQM had not yet completed and submitted its first quarter report, and was unable to provide the company with its first quarter financial data due to compliance restrictions. Therefore, the listed company estimates SQM’s first-quarter operating profit and loss through the financial calculation model combined with the first-quarter EPS and other information predicted by Peng Bo News.

SQM has a significant impact on Tianqi Lithium’s performance. In the first quarter of this year, Tianqi Lithium achieved a net profit of 3.3 billion yuan, which exceeded the net profit of last year by about 2.1 billion yuan. The main factor for the year-on-year turnaround is that the performance of the associate company SQM in the first quarter of 2022 is expected to increase significantly year-on-year. The annual report shows that at the end of the period, the proportion of net assets held by listed companies in SQM corresponds to 4.869 billion yuan. Although the scale is smaller than other overseas asset targets, the investment income corresponding to SQM is as high as 760 million yuan.

On the day SQM disclosed its results, Tianqi Lithium’s stock price rose by 5.28 yuan per share on May 19, and the stock price fell on May 20.

Derivatives trading attracts regulatory attention

On the other hand, Tianqi Lithium’s prudence in SQM-related derivative transactions and accounting treatment has also aroused regulatory concerns.

Last year, Tianqi Lithium lost 49.6983 million yuan in derivatives investment. Some of the SQM Company B shares held by the company are pledged to Morgan Stanley to obtain a 3-year loan, and a put option equivalent to the amount of the pledged shares is purchased as a guarantee for the repayment ability of the loan. The call options with the same amount of pledged stocks are used to hedge part of the financing costs. The above put options will all expire in 2022, and the listed company will adjust and classify the relevant assets from other non-current financial assets to trading financial assets.

In this regard, the Shenzhen Stock Exchange, in the inquiry letter for Tianqi Lithium’s 2021 annual report, requested to explain the specific situation of hedging products and derivative financial instruments in the past three years, as well as the reclassification of put options from other non-current financial assets to trading The compliance of financial assets, and the proportion of net assets at the end of the reporting period, such as the amount of derivatives investment and the amount of impairment provision during the reporting period, are all 0, and it is required to explain whether there is any error.

On January 4th, Tianqi Lithium held a board of directors and agreed to authorize the company’s management to sell all pledged SQM Class B shares to complete the due repayment of collar option financing. Factors choose to take back some of the remaining stock or sell all of the remaining stock for cash. As of the disclosure date of the annual report on April 30, Tianqi Lithium has completed the delivery of some collar options and repaid Morgan with a financing amount of approximately US$88.354 million.

Lithium prices soar, capacity expansion

SQM is the world’s leading producer of lithium chemical products and the largest producer of iodine and potassium nitrate, as well as the world’s largest producer of lithium extraction from brine. In 2018, Tianqi Lithium bought a 23.77% stake in SQM, of which, through a syndicated loan And overseas raised funds to raise 3.5 billion US dollars, so the debt burden, coupled with the subsequent fall in lithium carbonate prices, SQM asset accrual losses, etc., dragged down the performance of listed companies, and the asset-liability ratio rose; until last year, lithium prices rose sharply, resulting in The earnings of listed companies have reversed, and SQM has accelerated capacity expansion.

By the end of 2021, SQM’s effective production capacity of lithium carbonate in Chile is 120,000 tons/year, and lithium hydroxide production capacity is 21,500 tons/year, and it is expected that the production capacity of lithium carbonate and lithium hydroxide will increase to 180,000 tons in the first half of 2022. And 30,000 tons, the production capacity in 2023 will further increase the production capacity of lithium carbonate and lithium hydroxide, reaching 210,000 tons and 40,000 tons respectively.

As SQM’s second largest shareholder, Tianqi Lithium said it is expected to gain higher investment returns from its rapid capacity expansion.

When receiving a survey from an agency a few days ago, Tianqi Lithium executives predicted that the expansion rate of downstream battery manufacturers in the next few years will be higher than the upstream lithium supply, and the downstream expansion cycle is shorter, and the upstream expansion cycle is longer. Therefore, Lithium supply will remain tight in the short to medium term. According to Wood Mackenzie’s forecast, supply and demand will tighten year by year since 2021. The supply gap will be about 100,000 tons by 2025, and will expand to more than 1 million tons by 2030.

At the same time, the lithium battery industry has also strengthened the upstream and downstream binding of the industrial chain. On May 9, Tianqi Lithium Industry signed a strategic agreement with Chuangxinhang, the third largest power battery factory in China. On the other hand, Tianqi Lithium Industry disclosed on May 20 that its subsidiary Tianqi Chuang Lithium Technology and Beijing Weilan New Energy Technology Co., Ltd. signed a “cooperation agreement”, and the two parties will invest in the establishment of a joint venture company to jointly Engaged in the research and development, production and sales of pre-lithiation anode materials and recycling, metal lithium anodes and lithium-based alloy (composite) anode materials, pre-lithiation reagents (raw materials) and pre-lithiation manufacturing equipment products.

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