Company Reports

No-moat Gotion reported mixed first-quarter 2024 and full-year 2023 results. For the first quarter, the firm recorded 5% revenue growth year over year but a 9% net profit decline. Gross margin narrowed 1.1 percentage points in the quarter from last year, indicating increasing margin pressure amid price competition. For 2023, revenue and net profit were up 37% and 2 times year over year, respectively, both at the midpoints of the company’s preliminary announcement. We tweak our assumptions, slightly increasing our 2024-25 revenue and profit forecasts, leading to a marginal rise in our fair value estimate to CNY 17.30 from CNY 17.10 per share. Our fair value implies a forward price/earnings ratio of 67 times, fairly valued, in our view, with shares trading in 3-star territory.

Gotion High-tech is one of China's leading producers of lithium-ion rechargeable batteries for new energy vehicles. NEV batteries contributed over 70% of Gotion’s total revenue in 2023. According to China Automotive Battery Innovation Alliance and SNE Research, Gotion is ranked fifth in China, after Contemporary Amperex Technology, or CATL, BYD, and CALB, with a market share of 4% as measured by electric vehicle battery installed capacity in 2023 and eighth globally with 2% market share. Gotion’s major customers include some of the leading local-brand automakers such as Chery, SAIC Wuling, JAC, Chang’an, and Leapmotor. In addition, Huawei is the company’s largest customer for its energy storage battery segment.

We initiate coverage on Gotion High-tech, with a no-moat rating and a fair value estimate of CNY 17.10 per share. As the fourth-largest lithium-ion battery producer in China, we believe Gotion will benefit from the vehicle electrification trend. However, we think the company will face increasing pricing pressure to acquire new automobile customers, which will lead to low profitability in the next few years. Our fair value implies a 2024 price/earnings ratio of 70 times, and the Nov. 14 share price implies 97 times, so the shares are overvalued in our view.

Gotion High-tech is one of China's leading producers of lithium-ion rechargeable batteries for new energy vehicles. NEV batteries contributed 80% to Gotion’s total revenue in 2022. According to China Automotive Battery Innovation Alliance and SNE Research, Gotion is ranked fourth in China, after Contemporary Amperex Technology, or CATL, BYD, and CALB, with a market share of 5% as measured by electric vehicle battery installed capacity in 2022 and eighth globally with 3% market share. Gotion’s major customers include some of the leading local-brand automakers such as Chery, SAIC Wuling, JAC, Chang’an, and Leapmotor. In addition, Huawei is the company’s largest customer for its energy storage battery segment which was 15% of total revenue in 2022.