GEM(002340)：1H22 RESULTS IN LINE;PRECURSOR AND BATTERY RECYCLING BUSINESSES STRONG GROWTH DRIVERS

　　1H22 results in line with our expectations
GEM announced its 1H22 results: Revenue grew 74.04% YoY to Rmb13.92bn, and attributable net profit rose 26.77% YoY to Rmb681mn, in line with our expectations.
　　Battery material production facilities operated at full capacity; business scale grew rapidly. Revenue from new energy battery materials rose 88.71% YoY to Rmb10.5bn, accounting for 75.57% of the firm’s total revenue in 1H22. Shipments of ternary precursor materials for EV batteries grew 57% YoY to 66,000t, with revenue contribution surging 147.82% YoY to Rmb7.52bn in 1H22.
　　Nickel-ultra-rich series made up majority of total shipments; export business offers a strong growth driver. Shipments of the firm’s ternary precursors stood at 66,000t in 1H22, with nickel-ultra-rich series (up 156% YoY to 43,000t) accounting for 65% of the total and exports (up 157% YoY to 38,600t) accounting for 58% of the total. GEM leads the industry in global expansion of the ternary precursor business, in our view.
　　EV battery recycling volume likely to exceed 20,000t in 2022. Revenue from EV battery recycling surged 368.64% YoY to Rmb257mn in 1H22. The firm recycled and dismantled 8,452t (1.08GWh) of EV batteries in 1H22, up 146% YoY. The firm has received orders from clients such as Sunward Intelligent Equipment, and has created diversified application scenarios related to battery recycling and reuse.
　　Trends to watch
　　Establishes integrated presence in industrial value chain; battery material business to maintain rapid growth. GEM has secured orders to supply 1.5mnt of precursors in the next 5 years. The firm announced in March that it will enhance cooperation with ECOPRO on nickel-rich precursors, and provide 700,000t of lithium nickel-cobalt aluminate (NCA) and lithium nickel cobalt manganate (NCM) in 2023-2026. In July, GEM signed a cooperation agreement with XTC New Energy Materials regarding the supply of around 500,000t of precursors to the latter. Construction of the firm’s project in Indonesia was completed at end-June, and all production facilities have entered the debugging stage. We expect this project to come online in October. The firm’s 10,000t joint venture project with Qingshan Holdings to produce iron phosphate and nickel sulfate from nickel-iron alloys entered operation in 1H22. We think this can help ease the shortage of nickel resources in the industry.
　　Diversified application scenarios for EV battery recycling and reuse; large-scale commercialization to start. The firm recycled 8,450t (up 146% YoY) of EV batteries in 1H22. R&D spending rose 110.65% YoY to Rmb760mn. GEM’s “Key Technology Project of Closed-Circuit Recycling of Retired Power Lithium Batteries” won first prize at a science and technology conference held in Wuhan. The firm boasts strong technological capability. We expect the firm’s battery recycling and reuse business to provide raw materials for and optimize the profit of its precursor business.
　　Financials and valuation
　　We leave our 2022 and 2023 earnings forecasts unchanged at Rmb1.61bn and Rmb2.23bn. The stock is trading at 28.0x 2022e and 20.2x 2023e P/E. Given the high growth potential of the firm’s battery material products, we maintain OUTPERFORM and lift our target price 20.8% to Rmb11.48 (36.4x 2022e and 26.2x 2023e P/E), offering 30% upside.
　　Risks
　　Capacity expansion disappoints; selling prices fluctuate.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。