Summary: What's the whole (welcome to pay attention to the leverage game)
Written by Zhang Yinyin & Editor | Xin Xinran
A piece of news made Tianqi Lithium's Hong Kong stocks plummeted by 19.15%, and A-shares fell at the opening of the limit, of course, the leverage game is not surprising at all, I saw the relevant news last night.
On the evening of April 23, 2024, Tianqi Lithium released its performance forecast for the first quarter of 2024, with an expected loss of 3.6 billion yuan to 4.3 billion yuan and a profit of 4.875 billion yuan in the same period in 2023.
Chart source: Baidu Stock Market Connect (thanks in advance)
In the announcement, Tianqi Lithium explained that due to the impact of market fluctuations in lithium products, the sales price of its lithium products has decreased significantly compared with the same period in 2023, and the gross profit of lithium products has dropped significantly, while the net profit of Tianqi Lithium's associate company SQM in the first quarter is expected to decrease by about US$1.1 billion, resulting in a significant decline in its investment income in the associate company compared with the same period in 2023.
In response to the huge shock in Tianqi Lithium's performance, the Shenzhen Stock Exchange sent a letter of concern to it.
What's going on with this industry giant?
1. Behind the thunderstorm in the first quarter
On the evening of April 23, Tianqi Lithium announced that it expects a negative net profit in the first quarter of 2024. The estimated attributable net profit is a net loss of 3.6 billion yuan to 4.3 billion yuan, compared with a net profit of 4.875 billion yuan in the same period in 2023.
If you look at the first quarter of Tianqi Lithium in recent years, except for the first quarter of 2020 and 2021, there are few losses. In comparison, it only lost about 5 yuan in the first quarter of 2020, and the net loss in 2021 was less than 250 million yuan.
Compared with the loss of 3.6-4.3 billion yuan, the above figures are simply too far behind.
By the way, if you look at the first quarter of 2022 and 2023, Tianqi Lithium's performance can be said to be very good. The attributable net profit for the first quarter of 2022 was 3.328 billion yuan, compared to 4.875 billion yuan for the first quarter of 2023.
What is the matter with such a staggering number?
Tianqi Lithium said in the announcement:
This earnings forecast has not been pre-audited by a certified public accountant.
Of course, the absence of a pre-audit does not mean that there is not so much to lose. In the announcement, two major reasons were explained, and the above leveraged game also briefly said:
1) Affected by the fluctuation of the lithium product market, the sales price of the company's lithium products decreased significantly compared with the same period last year, and the gross profit of lithium products decreased significantly;
2) The net profit of the associate SQM in the first quarter is expected to decrease by approximately US$1.1 billion, resulting in a significant decrease in its investment income in the associate compared to the same period in 2023.
On the second point in particular, Tianqi Lithium, whose important associate Sociedad Química y Minera de Chile S.A. (hereinafter referred to as "SQM"), has not yet announced its first quarter 2024 results. Taking into account the reliable information available, it has used the usual methodology to calculate the company's investment in SQM for the same period, based on information such as Bloomberg's forecast of SQM's Q1 2024 earnings per share.
In addition, SQM announced that the Court of Santiago, Chile, ruled in April 2024 on its tax proceedings for the 2017 and 2018 tax years, reversing the decision of the Tax and Customs Court on November 7, 2022, in the case. SQM is reviewing the accounting treatment of all tax dispute amounts based on the latest ruling and expects that it may reduce its net profit for the first quarter of 2024 by approximately US$1.1 billion.
Based on the principle of prudence and repeated arguments, Tianqi Lithium believes that the recognition of the impact of the above-mentioned SQM tax dispute ruling in the investment income of the associate company in the reporting period is more in line with the accounting standards, and this matter is expected to reduce the company's net profit attributable to the parent company.
At the same time, according to the aforementioned Bloomberg forecast data, combined with the impact of SQM's tax dispute ruling, SQM's performance in the first quarter of 2024 is expected to decline significantly year-on-year, so Tianqi Lithium said in the announcement that its recognized investment income in the associate company has decreased significantly compared with the same period in 2023.
The media has paid attention to the fact that in 2023, the price of battery-grade lithium carbonate will fall from 520,000 yuan/ton at the beginning of the year to around 100,000 yuan/ton at the end of the year, a decline of more than 80%. The price of lithium hydroxide dropped from 540,000 yuan/ton at the beginning of the year to 92,000 yuan/ton at the end of the year. Up to now, the low price of lithium salt has not improved much.
At the same time, according to public information, SQM is a globally important manufacturer of potassium and lithium products, listed on the New York Stock Exchange in Santiago, Chile and the New York Stock Exchange in the United States, and Tianqi Lithium holds 22.16% of its equity. At this time, SQM has not announced its first-quarter earnings report. Tianqi Lithium is a forecast of performance based on the agency's forecast data and SQM's ruling.
It sounds very reasonable, there is a nose and an eye, but the Shenzhen Stock Exchange still has to ask.
2. The Shenzhen Stock Exchange issued a letter of concern
Based on Tianqi Lithium's performance forecast for the first quarter of 2024, on April 23, the Department of Management of Listed Companies of the Shenzhen Stock Exchange issued a letter of concern to the board of directors of Tianqi Lithium.
The main purpose of this letter of concern is to require Tianqi Lithium to quantitatively analyze the reasons for the significant increase in losses in the first quarter of 2024 compared with the fourth quarter of 2023 in combination with the specific changes in the development of its main business, product production and sales, product prices, raw material purchase prices, costs and expenses, impairment provisions and other factors, and explain whether there is a risk of continuous losses.
In detail, the Shenzhen Stock Exchange asked Tianqi Lithium to answer:
1) The net profit in the fourth quarter of 2023 was a loss of 801 million yuan. One of the main reasons for the loss in the first quarter of 2024 was that "due to the fluctuation of the lithium product market, the selling price of lithium products decreased significantly compared with the same period last year, resulting in a significant decline in the gross profit of lithium products".
Then, please quantitatively analyze the reasons for the significant increase in the loss in the first quarter of 2024 compared with the fourth quarter of 2023 in combination with the specific changes in the development of the main business, product production and sales, product prices, raw material purchase prices, costs and expenses, impairment provisions and other factors, and explain whether there is a risk of continuous losses.
The question of whether to continue to lose money is really a bit scary.
At the same time, Tianqi Lithium is required to answer whether the changes in operating conditions are in line with the trend of industry changes and whether they are consistent with the changes in the performance of comparable companies.
2) As stated in the announcement, Tianqi Lithium's associate SQM has reviewed the accounting treatment of all tax dispute amounts based on the latest rulings and expects to reduce its net profit for the first quarter of 2024 by approximately US$1.1 billion.
The Shenzhen Stock Exchange requested Tianqi Lithium to explain the specific situation and subsequent progress of the SQM tax dispute ruling, the amount of impact on the net profit in the first quarter and the basis for calculation, and whether the impact of the relevant tax dispute ruling was confirmed in the first quarter in accordance with the relevant provisions of the Accounting Standards for Business Enterprises.
3) According to the 2023 annual report, the closing balance (book value) of Tianqi Lithium's long-term equity investment in SQM is 26.163 billion yuan. Recent media reports have reported that SQM has signed a Memorandum of Understanding (MoU) with Chile's National Copper Company (Codelco). Tianqi Lithium is requested to verify and explain the specific circumstances of the relevant matters, assess the impact on Tianqi Lithium and explain the countermeasures to be taken, and fully indicate the relevant risks.
The Shenzhen Stock Exchange requires Tianqi Lithium to make a written explanation on the above issues, and submit the relevant explanatory materials to the management department of listed companies on the Shenzhen Stock Exchange before April 26, 2024 (that is, this Friday) and disclose them to the outside world, and at the same time send a copy to the dispatched agency.
At the same time, Leveraged Games noted that the Shenzhen Stock Exchange reminded Tianqi Lithium and all directors, supervisors and senior management personnel to strictly abide by the Securities Law, the Company Law and other laws and regulations, as well as the Stock Listing Rules and other provisions of the Exchange, and fulfill their information disclosure obligations in a true, accurate, complete, timely and fair manner.
3. Misfortune is not a one-way street
1) As we mentioned above, in the first quarter of 2023, Tianqi Lithium's first quarterly report was very good, but in fact, the first three quarters were good. But it's not so good all year round.
In the first three quarters of 2023, the attributable net profit will be nearly 8.1 billion yuan, and the annual net profit will only be about 7.3 billion yuan.
On the one hand, it decreased by 69.75% from 24.125 billion yuan in the same period of 2022, and the net profit after deducting non-profits was 7.177 billion yuan, down 68.88% from 23.059 billion yuan in the same period of 2023.
On the other hand, it is also written in the leverage game above that Tianqi Lithium's net loss in the fourth quarter of 2023 will be about 800 million yuan, and the net loss after deducting non-profits will be 806 million yuan.
At the same time, Tianqi Lithium's 2023 annual report disclosed that its revenue in 2023 was 40.5 billion yuan, an increase of 0.13% from 40.449 billion yuan in the same period in 2023.
In other words, Tianqi Lithium's performance thunderstorm has long been foreshadowed, and the loss in the first quarter of 2024 will further expand.
2) At the same time, the agency lowered the target price of Tianqi Lithium.
Citi released a research report saying that Tianqi Lithium held a briefing on April 10, and the bank lowered its earnings per share forecast for this year and next year by 22% and 32% in response to the latest information in the briefing, and lowered the target price of its A shares to 43 yuan, which is equivalent to a price-earnings value multiple of 8 times. Based on the 30% premium of A-shares to H-shares, the target price of H-shares was lowered from HK$44 to HK$40, and the H-shares were rated "neutral".
Citi pointed out that investors in the briefing on the day focused on how the company digested the company's inventory of more than 400,000 metric tons of spodumene by the end of 2023, the outlook for the lithium market this year and the increase in Kwinana's lithium hydroxide production capacity.
The bank quoted management as saying that the high inventory of spodumene was partly due to the decline in outsourced orders in the second half of 2023 due to the market environment. Management will increase outsourcing to digest inventory. In terms of Kwinana's production capacity, the report quoted management as saying that the production ramp-up in the first phase was slower than expected, and the second phase of the project is currently in the preliminary possibility study stage, and the design work is expected to be completed in the second half of the year.
Recently, CITIC Securities also issued a report pointing out that the pricing mechanism of Greenbushes lithium mine and the decline in lithium prices have dragged down Tianqi Lithium's performance in 2023, believing that the company still maintains a leading cost advantage, and the long-term lithium production capacity growth will offset the decline in profits caused by the decline in lithium prices to a certain extent. should
The bank expects net profit from 2024 to 2026 to be 3.738 billion, 4.708 billion and 5.054 billion yuan respectively, with a target price of HK$49 for H shares, and the rating has been downgraded from "buy" to "overweight".
CITIC Securities pointed out that Tianqi Lithium's performance declined year-on-year, and its performance turned negative in the fourth quarter, mainly due to the loss of inventory decline and the profit and loss of minority shareholders.
3) The $4 billion investment in Chilean SQM could get out of hand. According to Alfa Works, on December 27, 2023, SQM and Chile's National Copper Company jointly announced that the two companies have reached a memorandum of understanding to form a government-controlled joint venture to jointly develop lithium resources, and SQM's lithium business will be divested into a joint venture with Codelco, which will hold 50% plus one share.
The joint venture could dilute Tianqi's existing interest in SQM's lithium business and potentially deprive it of further exposure to high-quality lithium resources. If the deal goes ahead, Tianqi will hold a diluted stake in the lithium joint venture, which will limit its influence over the company.
According to an official letter issued by the Chilean Financial Market Commission, SQM considers it appropriate for the Board of Directors to approve such a transaction if it meets the terms of the previous negotiations and does not require the approval of the General Meeting of Shareholders.
Recently, Tianqi Chile requested to convene an extraordinary general meeting to vote on the transaction, but SQM rejected it on the grounds that the partnership agreement had not yet been finalized, stressing that "the views expressed by shareholders are not binding on the company's management and shall not be relieved of management's responsibility".
Regarding the issue of SQM's public-private partnership, Tianqi Lithium said that it has paid attention to the recent announcement issued by SQM, a shareholding company of the company, and its specific content is subject to the relevant information of SQM's announcement.
Fans who know Tianqi Lithium should know that it has today's status, and the leverage process in the development process is quite magical. How will it be resolved this time? We'll see.
The financial charts not attributed to the source in this article are all from the relevant announcements of Tianqi Lithium, and are hereby explained and acknowledged
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