SQM Sociedad Química y Minera de Chile S.A.

SQM — Model Update | Estimate Revision (Pre-Q1 2026)

Sociedad Quimica y Minera de Chile S.A. (NYSE: SQM) | 2026-05-26

Update Trigger & Summary

Estimate refresh ahead of Q1 2026 release scheduled for after market close 2026-05-26 (conference call 2026-05-27). Q1 actuals will be reviewed in a follow-on earnings note; this update integrates four developments since the April 28 initiation that warrant forward-estimate revisions, none of which alters the core SELL thesis on terminal valuation:

• Lithium spot rally — China battery-grade Li2CO3 sustained ~CNY 191k/t (~$26k/ton), peaking at CNY 200.5k (~$27.5k) on May 13. Up ~9% post-initiation; well above our $14k model assumption.
• ALB Q1 2026 peer read — Albemarle reported avg realized lithium price of $17/kg on May 7 with EBITDA +148% YoY. Confirms operating environment materially stronger than our conservative normalized case.
• Codelco JV (NovaAndino Litio) — Full completion confirmed January 26, 2026 after Tianqi appeal rejected. Terms locked: state takes 70% of operating margin to 2030, rising to 85% from 2031-2060. Already in model (Pillar 2 was already On Track / High conviction).
• Chile political backdrop — New center-right administration (inaugurated March 2026) committed to permitting simplification and 'legal certainty for investment.' Reduces Pillar 5 (royalty reform / political) tail risk; Chile country risk premium nudged 1.10% → 1.00% (-10bps).

Net effect: forward estimates raised modestly on near-term realized prices; terminal value untouched (management itself guides $15-18/kg for 2026 — below current spot, validating normalization view). Probability weights shift to 20/60/20 (from 25/55/20) reflecting reduced bear-tail risk. TP rises $57 → $60 (+5.3%); conviction held at Moderate-High; rating MAINTAIN SELL.

Key Reference Prices vs. Model Assumptions

Forward Estimate Revisions

Key Assumption Changes

• Lithium realized price FY26E: $14/kg → $16/kg (+14%). Spot has held above $20/kg since pre-initiation; ALB Q1 confirms $17/kg achievable. SQM Q1 mgmt guide: 'substantially above Q4 $10/kg'. We assume ramp from low teens early-year to high teens by H2.
• Lithium realized price FY27E: $13/kg → $14/kg (+8%). Normalization view intact — mgmt's own 2026 guide is $15-18/kg, well below spot. Surplus thesis through 2027 unchanged.
• Lithium terminal price (2030E): UNCHANGED at $13-14/kg. Core SELL thesis preserved. Australian/Argentine supply ramps and supply restarts at $200k CNY confirm price ceiling.
• Iodine realized price FY26E: $55/kg → $58/kg (+5%). Pillar 4 cushion firmer than modeled; 42% of FY25 gross margin signals structural premium pricing intact.
• Iodine demand CAGR: 3-4% UNCHANGED. Pricing strength is supply-driven, not demand-acceleration.
• FY26E lithium volume: ~85kt LCE UNCHANGED (vs SQM 2026 guide of 260kt total — Q1 already 15% above Q1'25). Volume thesis on plan.
• FY26E SPN volumes: +3% UNCHANGED. Iodine +5% UNCHANGED.
• Chile country risk premium: 1.10% → 1.00% (-10bps). New center-right gov't (March 2026) explicitly pro-investment; royalty reform tail risk reduced. CChEN already approved Salar concession 2031-2060.
• WACC (base): 9.87% → 9.77% (-10bps via lower CRP). Marginal positive to DCF; partially offset by raised cost-of-debt environment.
• Scenario probabilities: Bear 25% → 20% (JV terms confirmed, political risk eased); Base 55% → 60%; Bull 20% UNCHANGED. Bear case still viable if lithium retests $12k/ton.
• Capex: 2025-2027 plan of $2.7B UNCHANGED (revised down from $3.1-3.8B in FY25 call; discipline preserved).
• Share count: 285.6M (143.0M Series A + 142.6M Series B) UNCHANGED — no buyback announced; Tianqi may trim 1.25% (3.57M A shares) at appropriate time.
• Dividend: 50% payout policy ($1.0295/sh final declared April; pays May 14). UNCHANGED.

Valuation Impact

DCF base case mechanics: 5-yr PV(FCF) rises from $4,396M to $4,705M (+7.0%) on stronger near-term FCF. Terminal value (~76% of EV) essentially unchanged at ~$22.4B as 2030E EBITDA targets remain at $2,580M. Enterprise Value rises from $18,371M to $19,335M; equity value $16,329M → $17,293M; per share $57.18 → $60.50.

Thesis Pillar Status — Post Estimate Revision

Bottom Line — What Changes & What Doesn't

WHAT CHANGES:

(1) Forward earnings refreshed up — FY26E EPS $3.12 → $3.31 (+6.1%), FY27E $3.68 → $3.80 (+3.3%) on stronger realized lithium ($14 → $16/kg FY26) and iodine ($55 → $58/kg) prices, supported by ALB peer Q1 read and sustained spot. (2) Chile country risk eased 10bps on pro-investment government. (3) Probability weights shift to 20/60/20 — bear tail compresses on confirmed JV terms and political stability. (4) Target $57 → $60 (+5.3%), still -27% below current price.

WHAT DOES NOT CHANGE:

(1) Terminal price assumptions — $13-14/kg LCE 2030E retained; management's own 2026 guide ($15-18/kg) sits below spot, validating normalization view. (2) Pillar 1 — valuation gap widens, not closes: at $82.66, market still embeds bull-case lithium recovery + accretive JV + structural iodine premium simultaneously. (3) Pillar 2 — Codelco JV economics (state 70-85%) locked. (4) Stop-loss discipline: re-evaluate SELL only if lithium sustains >$30k/ton for 60+ days AND Q1 confirms <30% effective state margin pass-through.

ACTION:

MAINTAIN SELL, $60 target (was $57). Stock at $82.66 implies -27.4% to TP, -65% to bear, +9% to bull. Q1 2026 print (tonight, post-close) is the next material thesis test — watch effective NovaAndino margin split, realized Li ASP (>$22k = bull risk; $14-18k = on track; <$14k = bear acceleration), and any FY26 guidance update. Sizing: full short above $90; partial profit below $75 ahead of Aug 20 Q2 print.

Change Log

Disclaimer: This is not investment advice. Analysis is for educational/illustrative purposes. Past performance is not indicative of future results. Generated by Agentic Finance Chile.