CATL Q4 Margin Recovery Expected to Be on Track

Narrow-moat Contemporary Amperex Technology 300750, or CATL, will report fourth-quarter and full-year results after market close on March 9. We forecast the company to report 51% year-over-year growth in fourth-quarter net profit, driven by electric vehicle, or EV, battery sales and margin recovery from the trough-level first quarter last year. We estimate net profit to grow by 88% year over year for 2022. With faster capacity expansion partially offset by slightly lower EV battery price and margin assumptions, we lift our 2023-24 net profit forecasts by 4%-8%. We raise our fair value estimate to CNY 433 per share from CNY 424. Our fair value implies a forward price/earnings ratio of 25.8 times, which is justified by 49% three-year net profit CAGR.

For the fourth quarter, we estimate the company’s revenue to increase by 102% year over year and 18% quarter over quarter to CNY 115 billion, mainly driven by EV battery volume growth. With price adjustment on EV battery products since the second quarter of last year and higher-priced new orders for energy storage systems, or ESS, since the third quarter, we expect gross margin to reach 24% in the fourth quarter from an average 19% in the first three quarters. As a result, net profit for the period should grow 51% year over year and 31% quarter over quarter to CNY 12 billion, on our estimate. On a full-year basis, we forecast total revenue to reach CNY 326 billion, up 150% year over year, and net profit to CNY 30 billion, up 88% year over year. We estimate CATL’s battery sales to reach 250 gigawatt-hours, or GWh, in 2022, more than double the level of a year ago.