Article by Li, Financial Industry
What really gives confidence to the market is Ningde Times. “Ningde Times is the era, and the era is Ningde Times” is a phrase that many people in the secondary market forwarded after the market closed yesterday.
Since the third quarter of this year, the new energy vehicle sector on the secondary market has been bearish. Especially for Ningde Times, it has been falling continuously since late August, and on the first trading day after National Day, it fell below the 400 yuan mark. Many institutions have lost confidence in Ningde Times because 400 yuan has always been regarded as the “bottom” for everyone.
Coincidentally, the Shanghai Composite Index also fell below the 3,000-point mark on the same day, and Ningde Times also released its third-quarter earnings forecast. With the A-share “3,000 Law” and its better-than-expected financial report, Ningde Times’ stock price was pulled back up in the following two trading days. Today, Li will talk with you about why 400 yuan is the life or death line in the eyes of institutions, why Ningde Times needs to focus on performance, and why the secondary market says it is the era of Ningde Times.
The 400 yuan mark in the eyes of institutions
Before discussing Ningde Times, Li wants to talk about CITIC Securities, formerly known as CITIC Guoan Information Industry Co., Ltd. Everyone knows that on October 6th, the second-tier leader of the domestic power battery, CITIC Securities, was listed in Hong Kong and became the first power battery company in the Hong Kong stock market.
CITIC Securities did not receive market recognition upon listing. In terms of IPO valuation, the market gave a low pricing, and CITIC Securities fell continuously in the first three days of listing. At the same time, new energy vehicle companies in the Hong Kong market during the National Day holiday did not perform well, including many companies such as WM Motor. Therefore, the performance of the Hong Kong stock market has set the stage for the new energy vehicle sector in the A-share market, and before the A-share market opened during the National Day holiday, everyone thought that Ningde Times would not perform well either.
Before the opening of the A-share market, many analysts were predicting the trend of Ningde Times, and their views were: “Be cautious about buying Ningde Times before the third quarterly report is released.” Li’s partners have also been studying Ningde Times, and have given several judgments on its post-holiday trend:
First, if the market is unstable, Ningde Times’ performance will not be good. If Ningde Times’ performance exceeds expectations, the market may buy Ningde Times again.
Second, if the market stabilizes, and there is a structural rebound, in the case of better-than-expected performance, Ningde Times will lead the way in rebounding.
Third, if the market stabilizes and rebounds generally regardless of whether the performance exceeds expectations or not, it will be difficult for Ningde Times to reverse.
The trend in the past two days after the holiday also confirms the first two statements of the partner. Personally, Lao Li believes that the second-tier market is not just worried about NINGDE Times, but the entire new energy vehicle sector for several reasons:
First, there is an excess of new energy vehicle production capacity. Whether it is a new force or a traditional enterprise, there is a situation of excess production capacity for new energy vehicles. Although leading enterprise BYD does not have an excess, it is very likely to be dragged down by the sector. There is also a view circulating in the market that if Tesla reduces prices in the fourth quarter or next year, it will be a fatal blow to BYD, and its market value will inevitably plummet and require adjustment.
Secondly, the era of high growth in demand for new energy vehicles is over. At least in terms of growth rate, power battery leading enterprise cannot achieve growth that is two or even three times the previous years. The market has a great concern about the power battery sector and needs to use good performance to verify the advantages of leading enterprises. With good performance, the market value will remain strong. With poor performance, the market value will weaken. Upstream resources and mid-stream material companies in the power battery industry chain are also under great pressure.
As the leading enterprise, the pressure on NINGDE Times is undoubtedly the greatest. The reasons why the secondary market researchers are currently not optimistic about NINGDE Times are nothing more than concerning profit margins and market share:
Regarding profit margins, upstream resource price hikes have prompted the decline in the gross profit margin of lithium electricity in the middle of the product chain. This is a problem faced by the entire industry. Compared with companies such as Contemporary Amperex Technology Co. Limited, NINGDE Times’ profit margin is actually affected to a lesser extent.
Regarding market share, NINGDE Times has many more competitors, including Fudi Battery, Honeycomb Energy, Lishen High-Tech, and the newly-entered Contemporary Amperex Technology Co. Limited. As for downstream customers, automakers are more cautious in choosing suppliers, and the undeveloped energy storage market has also restricted its market share.
Everything depends on performance
Many times, we also have to admire the acuteness of some researchers. The discussion during the National Day holiday was verified within two days after the opening.
After falling below the 400 mark on October 10, NINGDE Times announced its financial forecast that evening. The better-than-expected financial forecast pushed NINGDE Times to rebound significantly in the next two trading days, also driving a rebound across the new energy vehicle industry. This is the role of NINGDE Times as a leading enterprise.
Many friends in the secondary market joked that the market still depends on the big brother. If CATL continues to fall below 400 yuan, the valuations of all companies in the new energy vehicle sector will be revised downward, and the entire sector cannot stabilize. Zhong Chuang Xinhang brought down CATL, but the market is still driven by leading stocks. Zhong Chuang Xinhang also rebounded with CATL.
In addition, with the arrival of the 3000-point law, there is also an opportunity for a rebound in the market. In the history of A shares falling below 3000 points, among the first 48 times, only 2 times recovered lost ground in more than 1 year, and the other 46 times were within 1 year; among them, 30 times were within 10 days, and 9 times only took 1 day. In other words, once the Shanghai Composite Index falls below 3000 points, it will inevitably usher in a phased rebound.
What will spark CATL’s rebound? It’s still performance.
Perhaps the market fell too hard. On October 10th, CATL urgently released its third-quarter results forecast. In summary, Q3 performance exceeded expectations, and its global market share reached a new high. Let’s take a look at CATL’s performance in the third quarter:
From the perspective of shipments, the third quarter had a planned production of nearly 100GWh, and shipments are expected to reach 80-90GWh, a month-on-month increase of about 50%, of which power shipments are expected to reach 65-70GWh. From the forecast for the fourth quarter, CATL’s October production is expected to increase by about 8% month-on-month. As automakers ramp up production in the fourth quarter, CATL’s full-year shipments are expected to reach 300GWh, doubling year-on-year. Based on the forecast, CATL’s shipments are expected to further increase to 450GWh by 2023, a 50% increase year-on-year. As we can see, CATL’s growth rate in the future is not good.
From the perspective of profits, CATL’s net profit attributable to shareholders for the third quarter is expected to be in the range of RMB 8.8-9.8 billion, a year-on-year increase of 169-200% and a month-on-month increase of 32-47%; and its non-recurring profit is expected to be RMB 8.3-9.3 billion, an increase of 209-246% year-on-year and 37-53% month-on-month. This far exceeded the market’s general expectation of 8 billion+. Therefore, after the release of the third-quarter report, many securities firms continued to promote CATL’s expectation beats by 5-10%.
# Translation
Earlier, Mr. Li mentioned that the market is most concerned with the profit margin of CATL. However, the Q3 financial report dispelled market doubts. Based on the Q3 report, the expected gross profit margin of CATL’s power batteries is around 17-18%, higher than the 15% in the first half of this year. The profit per Wh has increased by nearly 0.07 yuan, which is an absolute advantage of CATL as a leading enterprise. Considering CATL’s layout in lithium and cobalt resources, especially the effective release of lithium next year, it is believed that the Q4 gross profit margin is expected to further increase to 20%.
Many friends might ask why Mr. Li talks so much about financial and performance indicators. It’s because, after experiencing this round of roller coaster, the secondary market found that in the context of aesthetic fatigue in the industry, the only thing that can prove CATL’s position is performance.
Regarding “CATL’s era, era’s CATL,” Mr. Li understands it as: In the long-term development track of new energy vehicles, CATL plays a critical position in the industrial chain. This is the golden stage which belongs to CATL’s era. Conversely, CATL’s market value will also be affected by external factors. In different periods of development, investors will have different evaluations of CATL’s market value. This is the CATL of the era.
In summary, although CATL is still the leader in the new energy vehicle sector, it is no longer the attractive investment it used to be. This is because the growth expectation of CATL is decreasing. We can see it from the financial growth rate and the predictions of the secondary market. In 2021, CATL achieved a revenue of 130.356 billion yuan, a YoY increase of 159.06%, and a net profit attributable to shareholders of the listed company of 15.931 billion yuan, a YoY increase of 185.34%. In H1 2022, CATL’s revenue reached 112.97 billion yuan, a YoY increase of 156.3%, and a net profit attributable to shareholders of the listed company of 8.17 billion yuan, a YoY increase of 82.2%. Although CATL’s Q3 report in 2022 exceeded expectations, it is foreseen that the growth rates of CATL’s financial indicators will not be as good as in 2021 for the whole year of 2022.
Many buyers and sellers in the secondary market have given research conclusions, and most analysts’ judgments are that the net profit growth rate of CATL will be about 120%, 60%, and 35% respectively from 2023 to 2025. It can be seen that the growth rate of CATL is declining. This is the CATL of the era because the external environment has changed. CATL’s “king status” is facing certain challenges.
When the track logic changes, the valuation logic will also change. In the new energy vehicle sector, the premium of US stocks is higher than that of Hong Kong stocks, and the premium of industrial development in the growth period is far higher than that in the mature period, and Ningde Times is no exception.
Lao Li has always said that Ningde’s benchmark for valuation is high growth rate and high market share. As long as Ningde maintains a market share of 50% or more and a growth rate, the secondary market will give it a premium of 30-50 times. However, once Ningde’s financial growth rate declines in the next three years, the market will surely lower the premium.
But from another perspective, Ningde Times also has new opportunities. The relevant indicators mentioned by Lao Li just now are mainly in the field of power batteries. In the next three years, energy storage batteries will be a new growth area.
In the third quarter of this year, Ningde Times’ energy storage shipments reached 15-20GWh, a MoM increase of 50%-100%. It is expected to ship 50GWh throughout the year, and the expected shipment by 2023 will be over 100GWh. At that time, Ningde Times’ market share in the global energy storage batteries market will exceed 40%. From the gross profit margin of the energy storage battery, Ningde Times’ gross profit margin in the third quarter is expected to be around 15%, and the gross profit margin in 2023 is expected to exceed 20%, and household energy storage is expected to have better profitability, which is expected to be close to 30%.
From this set of data, we can see that energy storage batteries are a field that is very similar to power batteries. The current energy storage battery is the power battery of five years ago. In the past five years, Ningde Times has achieved a market value of over one trillion yuan based on its dominant position in the field of power batteries. Lao Li also believes that in the next five years, relying on its market position in the field of energy storage batteries, Ningde Times will start a second growth curve.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.