CALB Earnings: Both Revenue and Net Profit Missed Due to Price Competition; Shares Fairly Valued

No-moat CALB’s second-half revenue and net profit were both weaker than we expected due to a decline in battery selling prices and a surge in operating expenses. The company posted 31% year-over-year revenue growth for the period, mainly driven by capacity expansion. While gross margin beat with a 5-percentage-point gain from a year ago, operating expenses surged 46% year over year, leading to a 72% plunge in net profit in the second half last year. We reduce our 2024-25 net profit forecasts due to higher operating expense ratio assumptions. We cut our fair value estimate to HKD 12 from HKD 17 per share, which implies a forward 2024 price/earnings ratio of 10 times. At the current price, shares are trading in 3-star territory, fairly valued, in our view.