Ganfeng Lithium's 2025 Earnings Forecast: The "Accounting Game" Behind the Turnaround to Profitability

Key Highlights

• Financial Performance: Net profit attributable to shareholders for 2025 is expected to reach RMB 1.1 billion to 1.65 billion, reversing the previous year’s loss; however, non-recurring net profit remains in the red at RMB 300 million to 600 million, narrowing by 32% to 66% year-on-year.

• Profit Reality: Approximately RMB 1.03 billion of fair value gains were derived from the increase in the stock price of PLS shares held by the company, while core operations have yet to emerge from difficulties.

• Accounting Treatment: Losses from the fair value changes of H-share convertible bonds and investment gains from the transfer of equity in Yichu Shuzhi are both classified as non-recurring items.

• Asset Impairment: Provisions for impairment of long-term assets showing signs of impairment were made, reflecting downward pressure in the industry.

• Key Focus Areas: When core business will truly recover, the real impact of lithium price trends on operations, the scale of asset impairment, and future capacity utilization.

When the market sees Ganfeng Lithium announce a turnaround to profitability in 2025, it should not rush to celebrate. This lithium giant's "profitability" resembles a carefully orchestrated financial magic show—beneath the seemingly impressive RMB 1.1 billion to 1.65 billion net profit attributable to shareholders, the core business remains mired in losses of RMB 300 million to 600 million after stripping out non-recurring gains.

Lithium Leader Saved by Stock Investments

Let us first examine the substance behind this earnings forecast. Ganfeng Lithium expects to achieve net profit attributable to shareholders of RMB 1.1 billion to 1.65 billion in 2025, compared to a loss of RMB 2.074 billion in 2024, representing a significant turnaround with growth ranging from 153% to 179%. However, the devil lies in the details: non-recurring net profit remains negative at RMB 300 million to 600 million, albeit narrowing from a loss of RMB 887 million in 2024, indicating that core businesses such as lithium salts and lithium batteries continue to bleed.

So where does the profit come from? The answer lies in approximately RMB 1.03 billion in fair value gains generated by the rise in the stock price of Pilbara Minerals Limited (PLS). The fluctuations in this Australian lithium miner's share price have become Ganfeng Lithium's "lifeline." Although the company used collar options for risk hedging, this essentially represents a financial investment gain unrelated to the operational capabilities of its core lithium business.

The 'Numbers Game' under Accounting Standards

More intriguing is the accounting treatment of H-share convertible bonds. According to accounting standards, Ganfeng Lithium designated its entire H-share convertible bond as a 'financial liability measured at fair value with changes recognized in profit or loss for the current period.' Influenced by a significant rise in the company's stock price and the fact that most bondholders exercised their conversion rights, a corresponding fair value change loss was recognized this period.

This represents a classic accounting paradox: while a rising stock price should be positive, under this accounting treatment, it results in a loss. Of course, this portion of the loss also falls under non-recurring gains and losses and does not affect the net profit excluding non-recurring items. However, it clearly reveals one fact — the company's profitability structure heavily relies on the shifting of accounting entries rather than actual operational improvements.

Strategic Contraction or Forced Loss Mitigation?

The earnings forecast also disclosed another key piece of information: the company transferred part of its equity in its controlling subsidiary, Shenzhen Yichu Digital Energy Group, and introduced strategic investors, recognizing corresponding investment gains. The specific amount of this transaction was not disclosed, but it was obviously included in non-recurring gains and losses.

Is the equity reduction in the energy storage business an active strategic adjustment or a forced loss mitigation? Against the backdrop of persistently low lithium prices and weak downstream demand, Ganfeng Lithium’s decision to sell its stake in Yichu Digital at this juncture inevitably raises concerns about cash flow pressures and the need to focus on core businesses.

More concerning is the fact that the company conducted impairment tests on assets showing signs of impairment (including long-term assets) and made provisions for asset impairment. Although the specific amounts were not disclosed, in an environment of industry overcapacity and persistently low lithium prices, large-scale asset impairment is almost inevitable. This indicates that the company's previous expansion investments are undergoing the painful process of value reassessment.

Core Business Recovery Still a Distant Prospect

The continued losses in net profit excluding non-recurring items show that Ganfeng Lithium’s core business has yet to emerge from the cyclical bottom. Although the loss narrowed by 32%-66% compared to 2024, the loss range of 300-600 million yuan remains substantial, reflecting that while there are signs of stabilization in lithium salt prices, they are still far from the break-even point.

Current lithium carbonate prices are fluctuating in the range of 70,000-80,000 yuan per ton, far below the highs of 2022-2023 and also below the full-cost line for most companies. The real turning point for the industry does not lie in adjustments to accounting entries, but in substantive improvements in supply-demand relations — either unexpected growth in new energy vehicle sales on the demand side or large-scale capacity exits on the supply side.

What should investors focus on?

For investors paying attention to Ganfeng Lithium, this earnings forecast provides limited information but sends a clear directional signal:

1. When will the core business become truly profitable: Non-GAAP net profit is the key indicator to measure operational capability, requiring continuous tracking of cost per ton and gross margin changes in the lithium salt business.

2. The specific scale of asset impairment: This will directly impact net assets and future depreciation and amortization, affecting long-term profitability.

3. Follow-up actions regarding PLS shares: Can the unrealized gain of 1.03 billion yuan be realized? Will there be an opportunity for reduction?

4. Capacity utilization and inventory levels: These operational metrics reflect the industry's real vitality better than financial figures.

Ganfeng Lithium’s return to profitability appears more like a 'bookkeeping recovery' rather than a fundamental improvement in its business foundation. Until lithium prices show a sustained upward trend, expecting the company to replicate its 2022 success may be premature. Investors need not profits created by accounting standards, but the restoration of tangible operating cash flow and core business profitability.

After all, a lithium company that earns profits by holding other companies’ stocks is fundamentally different from one that generates revenue by selling lithium salts.