SINOMINE RESOURCE GROUP(002738)：ON THE ROAD TO FULL SELF-SUFFICIENCY

机构：中金公司
研究员：Jiaming ZHANG/Ding QI/Yan CHEN

　　Investment positives
　　We initiate coverage on Sinomine Resource Group Co Ltd (Sinomine) with an OUTPERFORM rating and a TP of Rmb124.92, implying 18x 2022e P/E.
　　Why an OUTPERFORM rating?
　　Through two strategic transformations, Sinomine Resource has three main businesses, i.e., geological prospecting, rubidium and cesium salts, and lithium salts. We believe the rapid growth of the lithium salts business is mainly driven by its flexible governance mechanism and synergy with the original core business. Looking ahead, we believe the rubidium and cesium business may remain stable, and the lithium salts business may serve as the key growth driver.
　　Lithium salts: Production capacity and self-sufficiency rate may improve substantially. The mining and dressing capacity of Tanco mine in Canada from 700,000 tonnes/year to 1.2mn t/yr by end-2022, which can in theory support 4,000t/yr of lithium salt production capacity. The Shaft mining area at Bikita in Zimbabwe currently has a petalite extraction and dressing capacity of 700,000t/y, and this figure may expand to 1.2mnt/y by the end of 2022, which can supply about 15,000t/yr of lithium salt production capacity. The SQI6 spodumene mining area of Bikita involves the construction of mining and dressing capacity of 2mnt/y, and lithium concentrate production capacity of 300,000t/yr, which can support about 40,000t/yr of lithium salt production capacity. In terms of refining capacity in China, the 25,000t/yr-lithium salt production line has reached designed production capacity, and the firm expects a 35,000t/yr-lithium salt production line to be put into production by the end of 2023. Overall, the firm plans to have 60,000t/yr of lithium salt production capacity and to be self-sufficient in related resources by end-2023.
　　Rubidium and cesium: Twin M&A deals help Sinomine become global leader in this business. Through acquisitions of Dongpeng New Material and Cabot’s Specialty Fluids Business, the firm obtained high-quality cesium ore resources of Tanco and Bikita, and cesium salt production capacity of 1,361t/yr. These deals have helped Sinomine become a leader in global rubidium and cesium resources, and rubidium and cesium salt smelting markets. The GM of the rubidium and cesium salt products reached 64.2% in 2019, 64.3% in 2020 and 66.25% in 2021. In our opinion, Sinomine may achieve steady earnings growth by improving its product mix and increasing prices, amid increasing demand for rubidium and cesium, and rising industry concentration.
　　How do we differ from the market? While the market pays great attention to the firm’s capacity expansion plan, we are more optimistic about potential growth over the long-term, driven by its flexible governance mechanism and synergy between the three main businesses.
　　Potential catalysts: Sustainable high prices for lithium salts; lithium resource development and lithium salt smelting projects progress steadily; global lithium resource production capacity continues expanding.
　　Financials and valuation
　　Our EPS forecasts are Rmb6.94 for 2022, Rmb12.46 in 2023 and Rmb18.92 for 2024, a CAGR of 65%, which implies 15.2x 2022e, 8.5x 2023e and 5.6x 2024e P/E. We initiate coverage with an OUTPERFORM rating and a TP of Rmb124.92 (18.0x 2022e P/E,10.0x 2023e P/E), offering 18% upside.
　　Risks
　　Progress of lithium resource development is slower than expected; lithium price falls more than expected; policy risk in overseas resources.