Why did profit continue to fall despite the recovery in shipments?

  • GEM’s net profit for the third quarter of 2026 was 137 million yuan, down 56% year on year and in line with Morgan Stanley’s expectations. The bank attributed the quarterly performance to lower nickel, cobalt and tungsten prices, high sulfur costs and intensifying competition.
  • Net profit for the first three quarters was 1.21 billion yuan, up 9% year on year; recurring net profit over the same period was 580 million yuan, down 29% year on year. For the third quarter alone, recurring net profit was 101 million yuan, down 9% year on year but an improvement from roughly break-even in the second quarter.

How far have nickel and precursor shipments recovered?

  • Including joint ventures, shipments from the Indonesian nickel project reached 30.8 thousand tonnes in the third quarter, up 318% quarter on quarter, returning to normal production levels after disruptions in the first quarter; shipments were still down 14% year on year.
  • Ternary precursor shipments exceeded 92 thousand tonnes in the first three quarters. Morgan Stanley estimates third-quarter shipments at approximately 32 thousand tonnes, up 28% quarter on quarter and down 6% year on year.
  • Cobalt output from the Indonesian project, including joint ventures, was 5500 tonnes in the first three quarters, down approximately 16% year on year; third-quarter output was 2900 tonnes, roughly flat year on year.

What conditions face the fourth quarter and the new nickel project?

  • Morgan Stanley expects metal price pressure to persist in the fourth quarter of 2026; although sulfur prices have eased somewhat, costs remain high and may limit further growth in nickel shipments.
  • GEM’s Indonesian IGIP project has nickel production capacity of 90 thousand tonnes. Construction is scheduled for completion by the end of 2026, with production set to begin in the first half of 2027. Project progress, nickel and cobalt prices, and precursor sales volumes are key variables in the bank’s assessment.

How does Morgan Stanley arrive at its valuation?

  • Morgan Stanley rates GEM Underweight, with a target price of 6.00 yuan per share; the closing price on 26 October 2026 listed in the report was 5.85 yuan.
  • The target price uses a discounted cash flow model incorporating earnings forecasts through 2030, with an assumed cost of equity of 12.2% and a perpetual growth rate of 3%. The bank lists better-than-expected nickel and cobalt prices, precursor sales volumes and output from upstream nickel projects as upside variables; opposite developments constitute downside risks.