CATL Earnings: Sequential Margin Recovery Trend Intact Despite Battery Pricing Competition

Second-quarter revenue for no-moat Contemporary Amperex Technology, or CATL, grew 56% year over year and net profit for the quarter increased 63% year over year. Gross margin gained 0.7 percentage points in the quarter from last quarter, indicating the margin recovery trend since the trough level last year remains on track. With the first-half revenue and net profit accounting for 46% and 51% of our previous full-year forecast, respectively, we consider the results are slightly ahead of our expectation. As a result, we increase our financial forecast and raise fair value estimate to CNY 257 from CNY 240.56 per share, which implies a forward price/earnings ratio of 25 times.