CATL (.SZ)_ 4Q24 results in line, maintain Buy (on CL) expecting unit GP recovery from 1Q25

Summary of CATL (300750.SZ) Conference Call Company Overview - Company: CATL (Contemporary Amperex Technology Co., Limited) - Ticker: 300750.SZ - Market Cap: Rmb1.1 trillion / $158.8 billion - Industry: Battery manufacturing, specifically for electric vehicles (EVs) Key Financial Results - 2024 Revenue: Rmb362.0 billion, down 10% year-over-year (YoY) - 2024 Net Profit: Rmb50.7 billion, up 15% YoY - 4Q24 Revenue: Down 3% YoY - 4Q24 Net Profit: Up 14% YoY - Dividend: Cash dividend of Rmb25.4 billion for 2024, implying a payout ratio of ~50% [1][3] Core Insights 1. Unit Gross Profit (GP) Weakness: The decline in unit GP for 4Q24 is attributed to product mix volatility, with expectations for recovery in subsequent quarters as the product mix improves [2][20]. 2. Sustainable Dividend Policy: The company is expected to maintain a ~50% payout ratio, significantly higher than the historical average of 10% since its listing [3]. 3. Stock Performance Drivers: - Strong monthly battery shipments are correlated with share price performance. - Anticipated unit GP expansion supports the thesis of CATL's battery superiority. - Increased demand for new energy vehicles (NEVs) in Europe is expected to bolster CATL's high-margin overseas market [4][30][41]. Earnings Forecast Adjustments - Revised Net Profit Forecasts: Decreased by 4%/5%/5% for 2025-2027 due to US tariffs and increased R&D expenses, yet still 19%/34%/42% above Visible Alpha consensus [5][48]. - Target Price: Adjusted to Rmb367 from Rmb378, reflecting a P/E of 21x/15x/12x for 2025E-2027E, compared to a historical average of 33x [17]. Market Dynamics - Product Mix Changes: The product mix has shifted, impacting unit GP, with a notable increase in battery inventory to 106 GWh by the end of 2025 [19]. - Export VAT Rebate Changes: The reduction in export VAT rebate from 13% to 9% has inflated costs but had minor implications on overall performance [18][20]. - European Market Outlook: Despite regulatory uncertainties, CATL management remains optimistic about demand growth in Europe, anticipating a recovery in BEV penetration [41][43]. Financial Metrics - Revenue Growth: Expected to rebound with a forecast of Rmb477.9 billion in 2025, representing a 32% growth [15]. - EBITDA Growth: Projected to grow from Rmb77.5 billion in 2024 to Rmb107.9 billion in 2025 [15]. - EPS Growth: Expected to increase from Rmb11.58 in 2024 to Rmb17.51 in 2025 [15]. Conclusion - CATL is positioned for recovery in unit GP and revenue growth, supported by strong demand in the battery market and strategic adjustments in product offerings. The company's commitment to a sustainable dividend policy and optimistic outlook for European NEV demand further enhance its investment appeal.