PILBARA MINERALS(PLS.AU)：TURNING POINT OF BMX PRICE EMERGED;EARNINGS MAY START TO RETREAT IN 4QFY23

Action
We downgrade our rating on Pilbara Minerals to NEUTRAL. We believe that Pilbara Minerals’ Battery Material Exchange (BMX) auction and its market-driven pricing mechanism is a double-edged sword amid volatile lithium price movements. Following the production ramp-up of its Ngungaju plant completed in September 2022, the firm is likely to have no further growth in production volume until an additional 100,000t/yr capacity from the P680 expansion comes online in 1HFY24.
What’s changed?
Pilbara Minerals completed another spodumene concentrate (SC) auction on the BMX platform. The company is to ship 10,000 dry metric tonnes (dmt) of 5.5% Li2O grade SC to the bidder from late-January 2023. The auction received the highest bid of US$7,552/dmt (SC5.5, FOB Port Hedland basis), equivalent to US$8,299/dmt (SC6.0, CIF China basis), down 3.2% over the price on November 16. Shipping costs remain stable as the implied freight is flat at US$60/t (vs. the freight implied by the price on November 16).
We expect SC price to follow the correction in lithium salt prices in China. The lithium carbonate price implied by the latest BMX price is Rmb546.7/kg, vs. the Rmb560.5/kg spot price for battery grade lithium carbonate. The April 2023 forward price of lithium carbonate on the Liyang Zhonglianjin platform has dropped by 24% to Rmb432.0/kg since November 22, which indicated the traders’ price expectations. We expect that the bearish outlook on lithium salt prices will continuously put pressure on the SC price. However, given a potential lag between the spot price of lithium salt in China and the SC price, we expect that the firm’s ASP will stay high in 2-3QFY23, while major downward correction will start in 4QFY23. We expect a 30% YoY decrease in Pilbara’s FY24 top line, given that new production volume from P680 expansion may only slightly offset the potential ASP decline.
Financials and valuation
We trim our FY23e and FY24e EPS forecast by 8.9% and 41.8% to AU$0.74 and AU$0.48 to reflect the more bearish lithium price outlook indicated by the drop in BMX price and the recent correction in lithium salt prices in China. The stock is trading at 5.5x FY23e P/E and 8.3x FY24e P/E. We downgrade our rating to NEUTRAL and cut our DCF-based target price by 34.4% to AU$3.64 (4.8x FY23e P/E and 7.3x FY24e P/E) based on the revised earnings forecasts. Our target price offers 9.7% downside.
Risks
Weakened downstream lithium demand; delay in capacity expansion; major customers unable to perform as contracted.
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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。