Lithium hexafluorophosphate spread weighed on second-quarter profit, but improving supply-demand conditions and volume expansion support Tinci Materials' future earnings

Overview

The report focuses on Tinci Materials' operating performance in 1H26 and 2Q26, analyzes the short-term profit impact of the pricing mismatch between lithium hexafluorophosphate and lithium carbonate, and evaluates the potential for subsequent improvement from electrolyte sales volume, new materials capacity, overseas expansion, and changes in supply-demand conditions. UBS believes the second-quarter spread pressure is easing and maintains its Buy rating and RMB61.00 price target.

Core views

Tinci Materials' revenue increased 109% YoY to RMB14.7 billion in 1H26, while net profit attributable to shareholders was RMB2.86 billion. In the second quarter alone, net profit attributable to shareholders was RMB1.21 billion, down 27% QoQ. UBS mainly attributes the profit decline to a mismatch between raw-material and product price trends: the average market price of lithium hexafluorophosphate fell 19% QoQ to RMB107,000/tonne, while the average market price of lithium carbonate rose 15% QoQ to RMB170,000/tonne, narrowing the lithium hexafluorophosphate spread and profit margin. The lithium battery materials business continued to grow rapidly. Revenue from this business increased approximately 117% YoY to RMB13.7 billion in 1H26; electrolyte sales volume reached 440,000 tonnes in the first half and 240,000 tonnes in the second quarter, up approximately 20% QoQ. Net profit per tonne of electrolyte was approximately RMB5,000, with profit mainly contributed by lithium salts and additives. The cathode materials business may have recorded a loss of approximately RMB20 million in the first half but turned profitable in the second quarter; the company expects the segment's profitability to improve HoH in 2H26. Revenue from the personal care materials business increased 12% YoY to RMB690 million in the first half, but gross margin fell 3 percentage points YoY to 28%. UBS believes the short-term pressure on the lithium hexafluorophosphate industry is easing. Its market price has stabilized and rebounded moderately since July 2026, while lithium carbonate prices have declined, helping restore the spread between the two. The company expects lithium hexafluorophosphate supply to tighten from September 2026, providing a basis for further improvement in prices and profitability. The report's short-term quantitative assessment also assigns a score of 4 to the industry structure over the next six months, indicating a bias toward improvement; the regulatory environment, the company's situation over the past 3–6 months, the next EPS update relative to market consensus, and the risk bias of the next earnings results relative to UBS forecasts all receive a score of 3, indicating broadly unchanged conditions, results in line with expectations, or balanced upside and downside risks. Sales volume expansion is the key medium-term growth theme. The company targets electrolyte sales volumes of approximately 1 million tonnes and 1.6 million tonnes in 2026 and 2027, respectively, and plans to achieve sodium-ion electrolyte sales of 150,000–200,000 tonnes in 2027. Overseas electrolyte sales may increase from 2H26, electrolyte capacity in Morocco is planned to commence production in 2028, and the company is also pursuing a Hong Kong listing. In new materials, the company plans to commission 50,000 tonnes/year of LiFSI capacity by the end of 2026 and expects the LiFSI content in electrolytes to increase from the current 2% to approximately 6% by the end of 2027. Its 100-tonne/year Li2S capacity has entered trial production. UBS views these projects as progress in expanding the company's lithium salts, additives, and other battery material products beyond lithium hexafluorophosphate, although the report does not provide standalone earnings forecasts for these projects. Regarding competitiveness, the report states that Tinci Materials is the world's largest producer of electrolytes and lithium hexafluorophosphate by capacity and has a highly integrated electrolyte materials value chain and economies of scale, giving it a cost advantage over peers. The company is also a major electrolyte supplier to CATL and is planning overseas capacity. These integration and scale advantages form the operational foundation for UBS's positive view on its volume growth and earnings recovery. UBS forecasts that the company's revenue will increase from RMB16.650 billion in 2025 to RMB35.596 billion in 2026, RMB40.942 billion in 2027, RMB43.056 billion in 2028, RMB45.141 billion in 2029, and RMB47.231 billion in 2030; EBIT over the same period is forecast at RMB1.834 billion, RMB7.602 billion, RMB10.378 billion, RMB11.065 billion, RMB11.663 billion, and RMB12.263 billion, respectively. UBS forecasts net profit to rise from RMB1.362 billion in 2025 to RMB6.364 billion in 2026, RMB8.776 billion in 2027, RMB9.424 billion in 2028, RMB9.987 billion in 2029, and RMB10.553 billion in 2030. For diluted earnings per share, UBS forecasts RMB3.13, RMB4.32, and RMB4.63 for 2026–2028, respectively, versus market consensus of RMB3.39, RMB3.98, and RMB4.74 over the same period; UBS's 2026 forecast is therefore below consensus, its 2027 forecast is above consensus, and its 2028 forecast is slightly below consensus. UBS further forecasts earnings per share of RMB4.91 and RMB5.19 in 2029 and 2030, respectively, and net dividends per share of RMB1.40, RMB1.93, RMB2.08, RMB2.20, and RMB2.32 for 2026–2030, respectively. The company's net debt/cash position is expected to shift from net debt of RMB1.002 billion in 2025 to net cash of RMB4.173 billion in 2026, increasing to RMB10.540 billion, RMB15.864 billion, RMB21.462 billion, and RMB27.375 billion in 2027–2030. For valuation, UBS uses a DCF model with an 8.6% weighted average cost of capital to derive a 12-month price target of RMB61.00, corresponding to forecast P/E multiples of 19x and 14x for 2026 and 2027, respectively. Based on the share price of RMB37.08 on August 20, 2026, the report forecasts price upside of 64.5% and a dividend yield of 3.8%, for a total stock return of 68.3%; assuming a market return of 6.8%, the forecast excess return is 61.5%, supporting the maintained Buy rating. The report also notes that key downside risks include frequent changes in electrolyte formulations resulting in the replacement of intermediates, changes in battery technology pathways causing significant shifts in electrolyte usage and prices, potential new entrants reshaping the competitive landscape, uncertainty surrounding new energy vehicle-related policies, and the company's earnings being highly sensitive to lithium hexafluorophosphate prices and exhibiting pronounced cyclicality.

Analysis framework

UBS first breaks down changes in revenue, profit, and product prices in 1H26 and 2Q26, explaining profit fluctuations through the QoQ trends in lithium hexafluorophosphate selling prices and lithium carbonate costs; it then analyzes sales volume, profit per tonne, and gross margin across lithium battery materials, cathode materials, and personal care materials. The report subsequently assesses future growth by considering lithium hexafluorophosphate supply-demand conditions, capacity additions, increased product content, overseas expansion, and sales volume targets. Finally, it derives the price target through earnings forecasts, DCF valuation, and implied P/E multiples, supplemented by a short-term quantitative questionnaire assessing industry and earnings risks over the next six months.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  DCF valuation

  The report discounts the company's future cash flows to present value and applies an 8.6% weighted average cost of capital to derive a 12-month price target of RMB61.00.

• Valuation MethodPE/PEG valuation

  Price target-implied P/E

  The report presents forecast P/E multiples of 19x and 14x for 2026 and 2027 to show the earnings valuation corresponding to the DCF-derived price target, providing a cross-reference for the valuation result.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of sales volume, product selling prices, and raw-material prices

  The report separately examines electrolyte sales volume growth, the decline in lithium hexafluorophosphate selling prices, and the increase in lithium carbonate prices to explain why revenue growth and the QoQ decline in second-quarter profit occurred simultaneously.

• Competition and Strategy FrameworkValue chain analysis

  Integrated electrolyte materials value chain

  The report uses the company's integrated presence across lithium salts, additives, electrolytes, and other stages to illustrate its cost-control and product-synergy advantages.

• Competition and Strategy FrameworkEconomies of scale / learning curve

  Capacity-driven economies of scale

  The report believes that, as one of the world's largest producers of electrolytes and lithium hexafluorophosphate, the company can leverage its capacity scale to reduce unit costs and strengthen its competitiveness relative to peers.

• Quantitative/Factor/Portfolio Theory

  Quantitative Research Review short-term factor scoring

  UBS uses a 1–5 questionnaire to assess the industry structure, regulatory environment, recent company conditions, and earnings expectation risks over the next six months; this short-term assessment uses a different time horizon from the report's 12-month stock rating.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Guangzhou Tinci Materials Technology (002709.SZ)

  The report believes the company will benefit from expanding electrolyte sales volume, improving lithium hexafluorophosphate supply-demand conditions, new materials capacity ramp-up, and overseas business growth.

  Strengths

  Globally leading electrolyte and lithium hexafluorophosphate capacity, a fully integrated materials value chain, economies of scale, and cost competitiveness relative to peers.

  Weaknesses

  Lithium hexafluorophosphate selling prices declined while lithium carbonate costs rose in the second quarter, narrowing the spread; the gross margin of personal care materials declined YoY, and cathode materials still recorded a loss in the first half.

  Comparison

  The report believes the company's integrated value chain and economies of scale give it better cost competitiveness than peers; it does not provide quantitative comparisons with specific peer companies.

  Risks

  Earnings are relatively sensitive to lithium hexafluorophosphate prices, while the company also faces changes in formulations and battery technology pathways, potential new entrants, and uncertainty surrounding new energy vehicle policies.

Key data

• 1H26 revenueRMB14.7 billionUp 109% YoY
• 1H26 net profit attributable to shareholdersRMB2.86 billionReported figure
• 2Q26 net profit attributable to shareholdersRMB1.21 billionDown 27% QoQ
• Average market price of lithium hexafluorophosphate in the second quarterRMB107,000/tonneDown 19% QoQ
• Average market price of lithium carbonate in the second quarterRMB170,000/tonneUp 15% QoQ
• First-half revenue from lithium battery materialsRMB13.7 billionUp approximately 117% YoY
• Electrolyte sales volume440,000 tonnes in the first half; 240,000 tonnes in the second quarterUp approximately 20% QoQ in the second quarter
• Net profit per tonne of electrolyteApproximately RMB5,000/tonneMainly contributed by lithium salts and additives
• First-half profit/loss from cathode materialsLoss of approximately RMB20 millionTurned profitable in the second quarter
• First-half performance of personal care materialsRevenue of RMB690 million; gross margin of 28%Revenue increased 12% YoY, while gross margin fell 3 percentage points YoY
• Electrolyte sales volume targetsApproximately 1 million tonnes in 2026; approximately 1.6 million tonnes in 2027Company targets
• 2027 sodium-ion electrolyte sales volume target150,000–200,000 tonnesCompany target
• Planned LiFSI capacity50,000 tonnes/yearPlanned to commence production by the end of 2026
• LiFSI content targetIncrease from the current 2% to approximately 6%Target date is the end of 2027
• Li2S capacity100 tonnes/yearTrial production has commenced
• UBS 2026–2028 diluted EPSRMB3.13, RMB4.32, RMB4.63Market consensus over the same period is RMB3.39, RMB3.98, RMB4.74
• DCF valuation parametersWACC 8.6%The price target corresponds to forecast 2026/2027 P/E multiples of 19x/14x
• Forecast stock return68.3%Price upside of 64.5% plus forecast dividend yield of 3.8%
• Forecast excess return61.5%Assuming a market return of 6.8%
• Market capitalizationRMB75.4 billion/US$11.02 billionTrading data in the report

Impact & implications

UBS believes the second-quarter profit decline mainly reflects a temporary mismatch between lithium hexafluorophosphate selling prices and lithium carbonate costs rather than weakening sales volume. As lithium hexafluorophosphate prices stabilize, lithium carbonate prices decline, and supply tightens from September, the spread and cathode materials profitability are expected to improve; higher electrolyte sales volume, the LiFSI and Li2S projects, overseas sales, and capacity in Morocco provide medium-term growth support. Conversely, the company's earnings remain highly sensitive to lithium hexafluorophosphate price cycles and changes in industry technology.

Risks

• Frequent changes in electrolyte formulations could result in the replacement of existing electrolyte intermediates.
• The replacement of battery technology pathways could cause significant changes in electrolyte usage and prices.
• The industry remains at an early stage of development, and potential new entrants could significantly reshape the competitive landscape.
• There is uncertainty surrounding new energy vehicle-related policies and subsidies.
• The company's earnings are highly sensitive to lithium hexafluorophosphate prices and exhibit strong cyclicality.

What to watch

• Monitor whether lithium hexafluorophosphate supply tightens from September 2026 as the company expects, as well as changes in prices and spreads.
• Monitor whether the profitability of the cathode materials business improves HoH in 2H26.
• Monitor progress toward the electrolyte sales volume targets of approximately 1 million tonnes in 2026 and approximately 1.6 million tonnes in 2027.
• Monitor the growth of overseas electrolyte sales from 2H26.
• Monitor whether the 50,000-tonne/year LiFSI capacity commences production as planned by the end of 2026 and whether LiFSI content rises to approximately 6% by the end of 2027.
• Monitor the progress of trial production for the 100-tonne/year Li2S capacity and the 2027 sodium-ion electrolyte sales volume target of 150,000–200,000 tonnes.
• Monitor whether the electrolyte capacity in Morocco commences production as planned in 2028.
• Monitor progress on the company's Hong Kong listing.