Company Reports

No-moat CALB’s respective first-half revenue and net profit growths of 1.3% and 70% year on year were weaker than we expected due to a decline in electric vehicle battery selling prices and a surge in operating expenses. The company posted muted year-over-year revenue growth for the period, with shipment increase offset by sluggish battery prices. Gross margin beat with 6 percentage points gain year over year, but operating expenses more than doubled from a year ago.

CALB is one of the leading producers of lithium-ion rechargeable batteries for electric vehicles, or EVs, in China. According to China Automotive Battery Innovation Alliance and SNE Research, CALB is ranked third in China, after Contemporary Amperex Technology Co. Limited, or CATL, and BYD, with a market share of 8% as measured by EV battery installed capacity in 2023 and sixth globally with 5% market share. CALB’s major customers include leading automakers such as Guangzhou Automobile, Xpeng, and Chang’an.

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.

CALB is one of the leading producers of lithium-ion rechargeable batteries for electric vehicles, or EVs, in China. According to China Automotive Battery Innovation Alliance and SNE Research, CALB is ranked third in China, after Contemporary Amperex Technology Co. Limited, or CATL, and BYD, with a market share of 8% as measured by EV battery installed capacity in 2023 and sixth globally with 5% market share. CALB’s major customers include leading automakers such as Guangzhou Automobile, Xpeng, and Chang’an.

No-moat CALB’s first-half revenue and net profit were both weaker than we expected due to lower power battery selling prices and margin contraction. The company posted 34% year-over-year revenue growth for the period, which was mainly driven by capacity expansion, while gross margin missed, falling 1.4 percentage points half on half. We reduce our 2023-25 net profit forecasts due to lower price and margin assumptions and cut our fair value estimate to HKD 17 from HKD 20 per share. Our fair value implies a forward 2024 P/E ratio of 12 times. At the current price, the shares are trading in Morningstar 3-star territory and are fairly valued, in our view.

CALB is one of the leading producers of lithium-ion rechargeable batteries for electric vehicles, or EVs, in China. According to China Automotive Battery Innovation Alliance, CALB is ranked third in China, after Contemporary Amperex Technology Co. Limited, or CATL, and BYD, with a market share of 7% as measured by EV battery installed capacity in 2022 and seventh globally with 4% market share. CALB’s major customers include leading automakers such as Guangzhou Automobile, Xpeng, and Chang’an.

No-moat CALB reported its first set of financial results after listing in Hong Kong last year. The company posted 4 times year-over-year net profit growth for 2022, which was helped by capacity expansion and margin improvement. While revenue was largely in line with our expectation, gross margin beat with a 3-percentage-point increase from a year ago. We reduce our 2023 and 2024 net profit forecasts by 11% and 2%, respectively, despite higher margin assumptions, to reflect lower government grants, and we maintain our fair value estimate at HKD 20.0 per share. Our fair value implies a forward price/earnings ratio of 13 times. At the current price, the shares are trading in Morningstar 3-star territory, fairly valued in our view.

CALB is one of the leading producers of lithium-ion rechargeable batteries for electric vehicles, or EVs, in China. According to China Automotive Battery Innovation Alliance, CALB is ranked third in China, after Contemporary Amperex Technology Co. Limited, or CATL, and BYD, with a market share of 7% as measured by EV battery installed capacity in 2022 and seventh globally with 4% market share. CALB’s major customers include leading automakers such as Guangzhou Automobile, Xpeng, and Chang’an.

We initiate coverage on CALB, with a no-moat rating and a fair value estimate of HKD 20 per share. As the third-largest lithium-ion battery producer in China, we believe CALB will benefit from the vehicle electrification trend. However, we think the company will face increasing pricing pressure to acquire new automobile customers, which leads to low profitability in the next few years. Our fair value implies a forward price/earnings ratio of 11 times. At the current share price, we prefer a larger risk buffer before buying.

CALB is one of the leading producers of lithium-ion rechargeable batteries for electric vehicles, or EVs, in China. According to Frost & Sullivan, CALB is ranked third in China, after Contemporary Amperex Technology Co. Limited, or CATL, and BYD, with a market share of 6% as measured by EV battery installed capacity in 2021 and seventh globally with 3% market share. CALB’s major customers include leading automakers such as Guangzhou Automobile, Xpeng, and Chang’an.