Will CATL, which has returned to the trillion-yuan club with increased profits but not revenue, continue to rise? | Zhike

Author｜Ding Mao

Editor｜Zheng Huaizhou

After the market closed on October 18, 2024, CATL, the leading lithium battery manufacturer, released its third-quarter financial report for the fiscal year 2024.

According to the disclosed data, in 2024Q3, the company achieved a revenue of 92.278 billion yuan, a year-on-year decrease of 12.48%, and a net profit attributable to the parent company of 13.136 billion yuan, a year-on-year increase of 25.97%. The net profit after deducting non-recurring gains and losses was 12.122 billion yuan, a year-on-year increase of 28.58%.

Overall, CATL continued the trend of increasing profits but not revenues in this quarter. Under the circumstances of the reversal of supply and demand in the power battery and the continuous price reduction of lithium batteries, the company's revenue side is under pressure; however, benefiting from the premium of new products and new technologies as well as the scale effect of the industry leader, the company's unit gross profit and unit net profit remain stable, and the overall profitability is further improving.

Benefiting from the optimistic expectations of the quarterly report, during the trading session on October 18, CATL once again experienced a significant increase, with an intraday increase of nearly 8%; after the financial report was released, on the opening of the 21st, CATL's stock price rose and then fell back, ultimately recording an increase of 1.39%.

So, from the perspective of the quarterly report, how is CATL's performance? Is the current valuation reasonable?

Continuous Price Reduction, Revenue Under Pressure

From the revenue side, in 2024Q3, CATL recorded a revenue of 92.278 billion yuan, a year-on-year decrease of 12.48%. Among them, the battery revenue was 80.9 billion yuan, a year-on-year decrease of 8.17%, showing a year-on-year decline for four consecutive quarters. The main reason is still the continuous decline in the revenue of the power battery business. From Q1 to Q3, the company's cumulative revenue was 259.045 billion yuan, a year-on-year decrease of 12.09%.

Figure: Quarterly Revenue Performance of CATL Data Source: Wind, Compiled by 36Kr

According to the segmented business data, in 24Q3, the company's power battery revenue was 63.134 billion yuan, with a year-on-year decline of more than 15%, and the energy storage battery revenue was 17.737 billion yuan, with a year-on-year increase of 13%. However, from the perspective of sequential data, both the power battery and the company's overall revenue showed a sequential recovery for two consecutive quarters, indicating a relatively certain trend of overall industry recovery.

Through the breakdown of revenue, it can be seen that the continuous decline in CATL's revenue is still due to the decline in the unit price of batteries. According to the company's disclosure and calculation, in the first three quarters, the company's battery shipments were close to 330 GWh, and the quarterly shipments in Q3 were about 125 GWh, with a sequential increase of nearly 15%. Among them, the power battery shipments were about 94.5 GWh, with a sequential increase of 12%; the energy storage battery shipments were about 30 GWh, with a sequential growth rate of 20%. Overall, in terms of sales volume, whether in the third quarter or the cumulative volume in the first three quarters, the company has maintained a good momentum, and the battery shipments continue to grow.

Figure: Lithium Battery Shipments and Unit Profit of CATL Data Source: Dongwu Securities, Compiled by 36Kr

In terms of unit price, in 24Q3, the unit price of the company's power battery was about 0.75 yuan/Wh, a sequential decline of 5%, and the unit price of the energy storage battery was 0.67 yuan/Wh, a sequential decline of 4%. Although the average prices of both power and energy storage continue to decline, benefiting from the significant expansion of energy storage sales, the current price reduction of energy storage batteries has not directly impacted the revenue, while the continuous decline in the unit price of power batteries is the main factor leading to the continuous decline in revenue for four consecutive quarters.

Outstanding Profitability with New Product Premium

Although the revenue still remains in a downward trend, from the profit side, CATL's profitability in this quarter continues to be outstanding. The net profit attributable to the parent company in Q3 was 13.136 billion yuan, a year-on-year increase of 25.97%, and the cumulative net profit attributable to the parent company from Q1 to Q3 was 36.001 billion yuan, a year-on-year increase of 15.59%; during the same period, the net profit after deducting non-recurring gains and losses was 12.122 billion yuan, a year-on-year increase of 28.58%; the cumulative net profit after deducting non-recurring gains and losses was 32.176 billion yuan, a year-on-year increase of 19.26%.

Figure: Net Profit Performance of CATL Attributable to the Parent Company Data Source: Wind, Compiled by 36Kr

Behind the continuous high growth of net profit: On the one hand, it benefits from the significant improvement of the company's gross profit margin.

According to the calculation, in 24Q3, the gross profit margin of the company's power battery business is about 30%, and the unit gross profit is about 0.21 yuan/Wh, with a slight sequential increase; the gross profit margin of the energy storage battery is about 35%, and the unit gross profit is about 0.2 yuan/Wh, with a slight sequential increase.

The outstanding gross profit margin performance is due to the following reasons: First, under the basically stable unit gross profit of the company, the decline in the company's revenue side boosts the gross profit margin performance; second, it benefits from the landing of new technologies and new products such as Shenxing Battery, Kirin, and 314ah Battery, which have been recognized by downstream mainstream customers, bringing a certain product premium. According to the company's disclosure, in 24Q3, Shenxing + Kirin batteries have accounted for 30 - 40% of the domestic shipments, and it is expected to increase to 60 - 70% in 2025. In addition, CATL will continue to launch new products such as Qi Ji, Pan Shi, and Tian Xing to further strengthen the product competitiveness; third, the scale advantage and technological innovation continue to bring about a comprehensive cost reduction.

On the other hand, it is the continuous release of the scale effect. In 24Q3, the company's total period expenses were 9.1 billion yuan, a year-on-year decrease of 26%, and the period expense ratio was 9.8%, a year-on-year decrease of 1.8 percentage points. At the same time, according to the calculation of Dongwu Securities, in 24Q3, the company's scale reduction in unit depreciation was 0.007 yuan/Wh, which is also conducive to the increase of the overall profit.

In addition, it is worth noting that in this quarter, CATL once again made a large-scale provision for impairment, further enhancing the quality of profits. According to the quarterly report data, in 24Q3, the company made an impairment loss provision of 4.738 billion yuan, of which the larger parts were impairment provisions for fixed assets and construction in progress, which were 1.88 billion yuan and 602 million yuan respectively, mainly for lithium ore resource-related assets; the impairment provision for intangible assets was 2.017 billion yuan, mainly for mining/exploration rights. The company's cumulative impairment provisions in the first three quarters were 6.652 billion yuan, and the corresponding risks have been released relatively fully, indicating that the company's later profit stability is relatively high.

Figure: Impairment Provision Situation of CATL Data Source: Company Announcement, Compiled by 36Kr

Solid Leading Position, Positive Expectations for Q4

In this quarter, CATL's leading position in the lithium battery industry is solid, and its market share continues to increase.

In terms of power batteries, according to SNE data, from January to August 2024, the company's global power battery market share was 37.1%, a year-on-year increase of 1.6 percentage points; among them, the global commercial power battery share was 64.9%, a year-on-year increase of 4.6 percentage points, firmly ranking first; in the domestic market, according to the Power Battery Alliance data, from January to September 2024, the company's domestic power battery market share was 45.9%, a year-on-year increase of 3.1 percentage points.

In terms of energy storage, CATL's energy storage production from January to September 2024 was 76.6 GWh, with a year-on-year increase of 34%, and the market share was 35%, maintaining the global first.

In terms of the outlook for the fourth quarter, according to the company's disclosure and quarterly report information, the current capacity utilization rate of CATL continues to increase, with a more than 10% increase in the third quarter compared to the second quarter, and it is already close to full production. At present, the capacity utilization rate in the fourth quarter is also relatively saturated. At the same time, the inventory in Q3 was 55.2 billion yuan, an increase of 15% compared to Q2. Judging from the capacity utilization rate, it is likely to be preparing for the fourth quarter. In terms of construction in progress, combined with the data from the semi-annual report, the company's construction in progress capacity has increased in recent quarters. In Q3, the capital expenditure was 7.438 billion yuan, and the expansion is steadily advancing.

Figure: Quarterly Data of CATL's Capital Expenditure Data Source: Wind, Compiled by 36Kr

Returning to the Trillion Club, Is the Valuation Expensive?

After a rapid rebound since the end of September, the current total market value of CATL has returned to the trillion range, reaching about 1.1 trillion yuan, corresponding to a PE (TTM) valuation of 22 times.

Figure: PE Valuation Situation of CATL Data Source: Wind, Compiled by 36Kr

At the beginning of this year, under the continuous influence of supply and demand mismatch and price war, the market started with a relatively pessimistic outlook, and the profit expectation for CATL was around 40 billion yuan. However, from the performance within the year, CATL's profit performance has always exceeded the market expectations. The key reason lies in the company's strong technological innovation and scale advantage. With the continuous advancement of new products and new technologies, the company has not relied on continuous price wars to stabilize the market share, thereby ensuring the stability of the unit profit, so that under the overall industry price reduction, the company can still maintain a good profitability with a stable unit profit and scale advantage.

Under the continuous exceeding of profit expectations, the current market's expected net profit for CATL in 2024 is generally raised to around 50 billion yuan, which is also the key factor for the firm performance of CATL's stock price within the year.

Since its listing, the median PE of CATL has been around 50 times. Under the extremely pessimistic market sentiment at the end of last year and the beginning of this year, the company's valuation once dropped to around 15 times. Considering that the current market sentiment has significantly warmed up compared to the beginning of the year, we believe that a PE of 20 - 25 times is a relatively reasonable valuation range for CATL. Calculated based on the expected profit scale of 50 billion yuan, the corresponding market value is 1 trillion - 1.25 trillion yuan; if the bull market sentiment further ferments in the later period, the optimistic expected PE valuation is expected to reach 30 times, corresponding to a market value of 1.5 trillion yuan. In view of this, it can be said that the current valuation of CATL has basically fully reflected the current market expectations.

*Disclaimer:

The content of this article only represents the author's opinion.

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