CATL Earnings: In Line, Margin Recovery On Track

No-moat Contemporary Amperex Technology 300750 reported 83% revenue growth year over year in the first quarter. The margin recovery since the trough in the first quarter of last year remains on track, with a 6.8-percentage-point increase in the first-quarter gross margin from a year ago. With first-quarter revenue and net profit accounting for 21% and 24% of our full-year forecast, respectively, we consider the results in line with our expectation. As a result, we keep our financial forecast unchanged and keep our fair value estimate at CNY 433 per share, which implies a forward price/earnings ratio of 26 times.

First-quarter revenue grew 83% year over year to CNY 89 billion, underpinned by solid demand for lithium-ion batteries from electric vehicle and energy storage system players. Gross margin for the quarter improved 6.8 percentage points to 21.3% from 14.5% in the prior-year period. The margin contraction from 22.6% in the fourth quarter last year was likely due to smaller production scale in the low season for EV sales, which offset the benefit from the decline in lithium prices, in our view. With slower operating expenses growth than the top line and a CNY 1.5 billion gain from associates and other investments, first-quarter net profit grew 5.6 times year over year to CNY 9.8 billion.

We believe CATL will remain the largest integrated EV battery producer. Its large scale enables the company to invest heavily in battery technology to reinforce its leading position. Its higher energy density cell-to-pack battery (CTP 3.0) will be commercialized this year, with Geely’s Zeekr and highly integrated cell-to-chassis battery also under development with a target to release in 2025. In addition, CATL targets releasing solid-state battery technology in 2025 with energy density that doubles that of its current lithium-ion battery. As the largest lithium-ion battery producer, we believe CATL will continue to benefit from the global vehicle electrification trend.