We value Yunnan Energy at Rmb20.4/share using a P/B methodology as the net asset is more stable than the earnings per share. Our TP is based on 0.8x 25E P/B, in line with global peers. We think 2025 results could turn from loss into profit but still at the trough. Our TP implies 72x 2025E P/E and 12.8x 2025E EV/EBITDA.

The stock is High Risk based upon our quantitative model, but we believe assigning  High Risk is not supported by other qualitative factors such as the lithium-ion battery market’s growth prospects has become more evident, and being the global No. 1 producer with ~30% share, Yunnan Energy’s competitive advantage is not easily replicable by competitors. As such, a High Risk rating has not been applied. Downside risks that could mean Yunnan Energy shares fail to achieve our target price include: 1) shortage of equipment supply in a highly-competitive environment; 2) slower-than-expected EV penetration in a low oil price environment; and 3) higher-than-expected raw material costs. Conversely, if these factors turned favorably, the stock could exceed our TP.