Daiwa cuts Ganfeng Lithium stock target on expected losses

Published 04/12/2024, 16:36
Daiwa cuts Ganfeng Lithium stock target on expected losses

On Wednesday, Ganfeng Lithium Co., Ltd (HK:1772:HK) (OTC: GNENF) saw its stock rating downgraded by Daiwa Securities from "Outperform" to "Underperform," accompanied by a decrease in the price target from HK$29.00 to HK$23.00.

The downgrade was primarily due to a shift in valuation methodology, with Daiwa Securities now applying a price-to-book ratio (PBR) instead of a price-to-earnings ratio (PER), anticipating that the company will incur losses in the years 2024-2025.

Daiwa Securities has applied a 40% valuation discount to Ganfeng Lithium's stock compared with its A-shares. This discount reflects the less liquid market for H-shares, which has led to a new 12-month forward PBR target of 1.0x for Ganfeng Lithium's H-shares, as opposed to 1.6x for its A-shares.

The analyst from Daiwa Securities elaborated on the reasons behind the downgrade, noting that the change to a PBR valuation is due to the expectation that Ganfeng Lithium will not be profitable in the next two years. This projection is a significant factor in the reassessment of the company's stock value.

Despite the downgrade, Daiwa Securities acknowledged a key upside risk that could potentially benefit Ganfeng Lithium. The firm pointed out that a higher-than-expected average selling price (ASP) of lithium in China could positively impact the company's financial performance.

The revised price target of HK$23.00 reflects the new valuation approach and market expectations for Ganfeng Lithium. Shareholders and potential investors are now equipped with Daiwa Securities' latest perspective on the stock's future performance.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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