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CATL Buy (300750 CH ) (Initiate ) [China] Batteries June 23, 2021 CATL Buy (300750 CH ) (Initiate ) Still plenty of upside ahead TP: CNY570 Upside: 27.5% Mirae Asset Securities Co., Ltd. Yongdai Park [email protected] Investment recommendation Initiate coverage with Buy and TP of CNY570 Our DCF-derived target price on CATL implies 27.5% upside from the current share price. The stock is currently trading at 2021F and 2022F P/Es o f 120x and 86x, respectively. These levels represent a significant premium to the three major Korean battery names (average 2021F and 2022F P/Es of 39x and 27x, respectively). We believe CATL deserves its premium, given its: 1) position as a pure battery maker; 2) robust EV ecosystem (battery materials, equipment, charging infrastructure, self-driving, etc.); 3) high profit margins; 4) aggressive capacity expansions; and 5) dominant market position in China. We see further upside potential to the stock, driven by: 1) rapidly rising EV penetration; 2) global ex-China battery market share gains; 3) the development of new technologies; and 4) potential battery supply for the Apple Car. Investment points Moving beyond China CATL has made rapid advances in the global market, capturing 9.9% of the EV battery market outside of China in 1Q21 (vs. 0.4% in 2019 and 6.5% in 2020). We expect further market share gains, fueled by: 1) exports of China-made Tesla EVs (e.g., Model 3) to Europe; and 2) the operation of CATL’s Germany plant (supply to German automakers and Gigafactory Berlin). CATL also has a diversified customer portfolio (rather than relying on just a handful of OEMs), which translates to a stable revenue structure. Of no te, major customers include a number of OEMs that are poised to gain market share (Tesla, NIO, Li Auto, XPeng, etc.). We believe CATL is well-positioned to maintain its dominant position in China (50% market share), as its cost competitiveness, superior technology/product quality, and large production capacity should allow it to continue to benefit from the growth of the Chinese EV market. We forecast China’s EV penetration to rise from 6% in 2020 to 20% in 2025 and 40% in 2030 (10% as of May 2021). CATL has achieved cost competitiveness through: 1) higher capex efficiency; 2) low labor costs; 3) economies of scale and cost savings (through supply chain management); and 4) higher utilization rates. Risk factors 1) Potential b attery quality issues; 2) delays to the operatio n of the German plant; and 3) a lower - than-expected EV penetration rate Key data 800 CATL CSI 300 Current price (6/22/21, CNY) 450.23 Market cap (CNYbn) 1,048.8 700 Exchange Shenzhen Market cap (Wtr) 183.84 600 500 EPS growth (21F, %) 51.4 Shares outstanding (mn) 860.2 400 300 P/E (21F, x) 119.2 52-week low (CNY) 163.52 200 100 Market P/E (21F, x) 15.8 52-week high (CNY) 457.84 0 19.6 19.12 20.6 20.12 21.6 Dividend yield (%) 0.1 Share performance Earnings and valuation metrics (%) 1M 6M 12M FY (Dec.) 2018 2019 2020 2021F 2022F 2023F Absolute 19.9 43.5 172.9 Revenue (CNYmn) 29,611 45,788 50,319 91,582 133,550 177,662 Relative 13.7 23.0 94.8 OP (CNYmn) 4,110 5,722 6,289 10,701 15,431 19,679 OP margin (%) 13.9 12.5 12.5 11.7 11.6 11.1 NP (CNYmn) 3,387 4,560 5,583 8,624 12,243 15,493 EPS (CNY) 1.64 2.09 2.49 3.78 5.26 6.52 ROE (%) 11.0 11.8 10.0 11.5 14.0 15.0 P/E (x) 44.8 50.8 140.8 119.2 85.6 69.0 P/B (x) 4.3 5.5 11.4 12.8 11.1 9.5 Source: Company data, Mirae Asset Securities Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. June 23, 2021 CATL I. Investment points 1. Moving beyond China China-based CATL has been rapidly emerging as an EV battery powerhouse in markets outside of China <Figures 1 and 2>, thanks to growing sales of global EV models equipped with CATL batteries (including Tesla’s China-made Model 3, the Peugeot e-2008, and the Opel Corsa). With the new Germany plant slated to come online at end-2021, we expect the firm to see a gradual increase in the contribution of overseas revenue. The plant in Germany, in which CATL has invested EUR1.8bn (roughly W2.5tr), is intended to meet growing EV battery demand in Europe. Around 14GWh of capacity will go online initially, and CATL aims to expand annual capacity to 100GWh by end-2025. Given that Germany is home to a number of major global automakers, we believe the plant is more favorably located than Korean battery makers’ plants in Poland and Hungary. Figure 1. Global ex-China: EV battery installed capacity growth by supplier (GWh) 10 1Q20 (L) 1Q21 (L) YoY (R) 250% 8 204% 200% 6 150% 108% 4 100% 82% 58% 2 53% 50% 0 0% LG Energy Solution Panasonic Samsung SDI CATL SK Innovation Source: Press reports, SNE Research, Mirae Asset Securities Research Figure 2. Global ex-China: EV battery M/S chg. by supplier 1Q20 1Q21 34.2% 31.3% 31.1% 28.8% 10.6% 10.0% 9.9% 9.6% 7.7% 5.5% LG Energy Solution Panasonic Samsung SDI CATL SK Innovation Source: Press reports, SNE Research, Mirae Asset Securities Research Mirae Asset Securities Research 2 June 23, 2021 CATL CATL is already engaged in proactive collaboration with a number of German automakers. In Jul. 2018, the firm signed a EUR4bn supply contract with the BMW Group (with order volume expanded to EUR7.3bn in Nov. 2019). In Aug. 2020, the firm forged a strategic partnership with Daimler; under the deal, battery cells supplied by CATL for use in Mercedes-Benz EVs are assembled into battery packs/systems at Daimler’s Stuttgart factory. CATL is also expected to see growing orders from Volkswagen, which announced a switch to prismatic-type batteries. Tesla is another key driver of CATL’s overseas revenue growth. China-made Model 3 exports will likely continue to grow, and Tesla is also reportedly considering exporting some China- made Model Y vehicles to Europe beginning in 3Q21. Furthermore, we expect EVs produced at Gigafactory Berlin (located 320km from CATL’s plant) to adopt CATL batteries. Figure 3. Adoption of CATL batteries rising in European EV Figure 4. Since March, CATL has surpassed Samsung SDI in the market European EV battery market (MWh) (MWh) 1,600 2020 2021 4,000 LG Energy Solution CATL surpassed Samsung SDI Samsung SDI in Mar. 2021 CATL 1,200 3,000 800 2,000 1,480 1,027 923 400 1,000 796 0 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. 2021 Feb. 2021 Mar. 2021 Apr. 2021 Source: EV-Volumes, Mirae Asset Securities Research Source: EV-Volumes, Mirae Asset Securities Research Figure 5. Growing adoption of CATL batteries by BMW Group Figure 6. CATL battery adoption in Tesla vehicles (produced in and Daimler EVs Shanghai) (MWh) (MWh) 600 BMW Group 551 700 APAC ex-China Europe Daimler 500 600 500 400 362 400 300 519 300 200 162 200 333 100 100 17 7 110 0 0 2019 2020 4M21 2020 4M21 Source: EV-Volumes, Mirae Asset Securities Research Source: EV-Volumes, Mirae Asset Securities Research Mirae Asset Securities Research 3 June 23, 2021 CATL Figure 7. CATL: Domestic vs. overseas revenue Domestic Overseas 100% 80% 60% 96% 40% 84% 20% 0% 2015 2016 2017 2018 2019 2020 Source: Company data, Mirae Asset Securities Research Figure 8. Global EV battery M/S trends 40% CATL LG Energy Solution Panasonic BYD Samsung SDI SK Innovation 30% 20% 10% 0% 2017 2018 2019 2020 1Q21 Source: Press reports, SNE Research, Mirae Asset Securities Research Mirae Asset Securities Research 4 June 23, 2021 CATL 2. Diversified customer base CATL boasts the most diversified customer base among global battery suppliers. As the company is not overly reliant on a handful of OEMs, it enjoys a stable revenue structure <Tables 1 and 2>. Most of China’s best-selling EV models are equipped with CATL batteries. We also find it positive that CATL’s major customers include EV makers that are poised to gain market share (Tesla, NIO, Li Auto, XPeng, etc.). Furthermore, once the plant in Germany comes online at end-2021, CATL should have opportunities to collaborate further with European OEMs. Table 1. Relationships between automakers and battery suppliers Chinese OEMs BYD ●●●●● BAIC ●●● ● Changan ●●● ● Chery ● Li Auto ●●● Dongfeng ● FAW ● GAC ● Geely ●●● ● Great Wall ● Hozon ● Leapmotor ● NIO ●●●● SAIC ●●●● WM Motor ●●● XPeng ●●● Indian OEMs Tata/Jaguar Land Rover ●●● ● Korean OEMs HMC/Kia ● ●●● ●●●●● Japanese OEMs Honda ● ● Mazda ● Subaru ● Suzuki ● Toyota ● ●● US OEMs GM ●●● ●●● Ford ● ● Tesla ●●● ●●●●● ●●●●● European OEMs BMW ●●● ●●● Daimler ● ●●● ● ●●● Stellantis ●●●● ●●● ● Renault ● ●●●●● Volvo ● ●●● VW ●● ●●●●● ●●●● Notes: Based on 2020 installed battery capacity; ● = less than 500MWh; ●● = 500-1,000MWh; ●●● = 1,000-3,000MWh; ●●●● = 3,000-5,000MWh; ●●●●● = more than 5,000MWh Source: EV-Volumes, Mirae Asset Securities Research Mirae Asset Securities Research 5 June 23, 2021 CATL Table 2. Global battery suppliers: Mix of top five customers (based on installed battery capacity) 1 NIO 13% VW 32% VW 54% Tesla 95% BYD 99% HMC 80% 2 Stellantis 13% Tesla 22% BMW 34% Toyota 2% Daimler 1% Daimler 19% 3 SAIC 12% Volvo 9% Ford 4% Mazda 1% Changan 0% BAIC 1% 4 XPeng 7% R-N-M 8% Stellantis 4% Honda 1% 5 Tesla 6% Daimler 8% Tata-JLR 3% Suzuki 0% Top 5 50% 79% 98% 100% 100% 100% Source: EV -Volumes, Mirae Asset Securities Research Figure 9.
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