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26 Aug, 2020 (Wednesday)

The company is a leading integrated express logistics service provider in China. As of the end of 2019, SF express has successfully deployed industrial park projects in 45 cities across the country, with a first-mover advantage. Among them, the layout of the logistics land area is 7089 acres, and the total planned construction area is about 4.182 million. The latest Securities Regulatory Commission and the National Development and Reform Commission jointly issued a document proposing to give priority to supporting infrastructure supplementary board industries, including storage and logistics, toll roads and other transportation facilities, to promote toll road REITs issuance.
Buy-in Price: RMB71.30, Target Price: RMB79.80, Cut Loss Price: RMB65.00

CATL (300750.CH) - Seasoned Offering and Production Expansion Boost Dynamic Growth; Make Progress to Advance the Strategic Layout

Investment Summary

2019 Result was in Line with Expectations, and Market Share Increased Significantly

According to the latest financial report data, in 2019, CATL recorded a revenue of RMB45.79 billion, up by 54.6% yoy, which was beyond expectations. The net profit attributable to the parent company was RMB4.56 billion, up by 34.6% yoy, and net profit attributable to the parent company excluding non-recurring items was RMB3.92 billion, up by 25% yoy. The EPS was RMB2.09, with a dividend paid of RMB0.22 per share. The weighted average ROE was 12.8%, up by 1 ppts yoy.

Among them, revenues of RMB9.98 billion (+168%yoy), RMB10.28 billion (+82%yoy), RMB12.59 billion (+29%yoy) and RMB12.9 billion (+23% yoy) were recorded in the four quarters, respectively. And net profits of RMB1.05 billion (+153% yoy), RMB1.06 billion (+112% yoy), RMB1.36 billion (-7.2% yoy) and RMB1.1 billion (+0.87% yoy) were recorded in the four quarters, respectively. The main reason for the decline in profitability in Q4 was that more impairment provision was made in Q4 (RMB1 billion).The Company's result was in line with expectations, mainly due to the increase in industry concentration, the expansion of the Company's market share, and the release of the production capacity resulting from the production line put into operation in the early stage. In 2019, the Company's power battery sales reached 40.96GWh (+92.2% yoy), the production volume reached 47.26GWh (+81.6%), and the year-end inventory was 10.53GWh (+89.7%). The capacity utilization rate was at a high level of 89%, and the production-sales ratio reached 87%. In the whole year, the Company recorded 32.3GWh of installed battery, up by 38.6% yoy, with a market share of 52%, up by 11 ppts yoy.

Meanwhile, the Company adopted extremely conservative accounting standards including accelerated depreciation and all expensing of R&D cost, and the unit price of battery dropped by nearly 20%. Although the unit cost of battery also dropped by about 10%, the gross margin of the Company's battery system decreased to 28.45%, down by 5.65 ppts yoy.

The Pandemic Impacted the Q1 Result, but will not Change the Long-term Trend

Due to the impact of the pandemic, in Q1 of 2020, CATL recorded a revenue of RMB9.031 billion, down by 9.53% yoy. The net profit was RMB0.742 billion, down by 29.14% yoy, and net profit excluding non-recurring items was RMB0.428 billion, down by 53.24% yoy..

In Q1 of 2020, due to the pandemic, the domestic sales volume of new energy vehicles dropped sharply. The installed capacity of power batteries was 5.7GWh, down by 53.8% yoy. The Company's installed capacity was 2.8GWh, down by 49% yoy, better than the industry average. The market share was down slightly to 49%, with LG Chem taking part of its share because of the popularity of the Tesla model3 in China. Meanwhile, insufficient capacity utilization caused by the pandemic impacted, to a certain extent, the gross margin, which fell to 25%, down by 3.6 ppts yoy.

CATL began to supply domestic Tesla from July, and as the domestic pandemic was first brought under control, industry supply and demand will gradually be improved. In November last year, BMW announced an additional order of EUR7.3 billion for the Company. In August this year, Mercedes-Benz announced that it will deepen its cooperation with the Company. CATL will become the head supplier of Mercedes-Benz's passenger vehicles. At present, CATL has the most extensive customer base among the peers, and the investment and construction of overseas factories will further open up overseas markets. With the successive launching of supporting models, the Company will gradually enter the order fulfilment period in the next few years.

Seasoned Offering and Production Expansion Boost Dynamic Growth; Make Progress to Advance the Strategic Layout

In July, the Company completed RMB19.7 billion of private placement, which was mainly used for the expansion of the Huxi Base Project (RMB4 billion), the Phase III of Jiangsu Times Power and Energy Storage Project (RMB5.5 billion), Phase I of Sichuan Base Project (RMB3 billion), R&D projects of electrochemical energy storage frontier technology reserves (RMB2 billion) and supplementary working capital (RMB5.2 billion). At present, the Company's battery production capacity is about 53GWh, and the capacity under construction is 22GWh. It is estimated that the Company's total production capacity will exceed 200GWh in 2023, and its leading position will be further consolidated.

In August, the Company issued an announcement stating that it intends to invest in high-quality listed companies in the upstream and downstream industry chain at home and abroad by means of securities investment, with an amount not exceeding RMB19.067 billion. We expect this will further strengthen the Company's collaboration with core equipment vendors, material vendors, and upstream and downstream core companies, ensure the supply of key resources, reduce costs, provide more opportunities for growth, and enhance the Company's global competitiveness.

Investment Thesis

At present, the electric vehicle policies of many countries in the world especially European were accelerated. Large car manufacturers would accelerate their new energy plans. With continuous expansion of follow-up scale and release of bonuses for engineers, the cost control advantages of leading enterprise would be highlighted, and power battery industry is expected to show a pattern that the strong would get stronger and stronger. CATL would benefit deeply from the global electrification trend and may exceed market expectations. Risks are unexpected sales volume of electric vehicles, sharp increase in raw material price or sharp decrease in product price.

As for valuation, we expected diluted EPS of the Company to RMB 2.2/3.23 of 2020/2021. And we accordingly gave the target price to RMB226, respectively 103/70x P/E for 2020/2021. "Accumulate" rating. (Closing price as at 21 Aug)


Progress of new production line is below expectations

Electric vehicle sales fall short of expectations

Macroeconomic downturn affects product demand

Sharply rising raw material prices or sharply falling product prices


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Recommendation on 26-8-2020
Price on Recommendation Date$ 192.230
Suggested purchase priceN/A
Target Price$ 226.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)

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