Global sales of new energy vehicles are expected to grow at a compound annual growth rate of 29.8% between 2021 and 2026, reaching 22.87 million units in 2026. Global sales of new energy vehicles are expected to grow from 6.2 million in 2021 to 22.87 million in 2026, implying a compound annual growth rate of 29.8 per cent over the period. With the growth of global sales of new energy vehicles, the global penetration rate of new energy vehicles will rise from 9.7% in 2021 to 30.1% in 2026. At the same time, China is the world's largest market for new energy vehicles, with sales of 3.334 million vehicles in 2021, accounting for more than half of global new energy vehicle sales (53.8 per cent). Under the basic assumption, sales of new energy vehicles in China are expected to climb to 9.607 million units in 2026, meaning a compound annual growth rate of 23.6 per cent during the period, accounting for about 42.0 per cent of global new energy vehicle consumption. The penetration rate of new energy vehicles in China will rise from 15.5% in 2021 to 37.7% in 2026, an increase of 22.2 percentage points.

The new installed capacity of global power batteries is expected to grow at a compound annual growth rate of 36.4% between 2021 and 2026. Benefiting from the substantial growth of the global new energy vehicle market, the global power battery market has increased steadily every year, from 64.3 gigawatt hours in 2017 to 293.7 gigawatt hours in 2021, with a compound annual growth rate of 46.2 per cent. In line with the strong growth of the global new energy vehicle market, the new installed capacity of global power batteries is expected to grow at a compound annual growth rate of 36.4% between 2021 and 2026, reaching 1386.7 gigawatt hours in 2026. China's installed power battery capacity grew at a compound annual growth rate of 43.5% from 2017 to 2021, reaching 154.5 gigawatt hours in 2021, and is expected to grow at a compound annual growth rate of 37.6% from 2021 to 2026, reaching 762.0 gigawatt hours in 2026.

China's installed power battery capacity will continue to account for more than half of the global power battery installed capacity, and the global market share will increase from 52.6% in 2021 to 55.0% in 2026.

As one of the largest power battery suppliers in China, the company's growth will enter an accelerated period. China Chuangxin Airlines is the third largest power battery supplier in China, with a domestic market share of 5.9% in 2021 (the domestic market share climbed further to 6.7% from January to November 2022). Globally, the company ranked seventh in power battery installed capacity in 2021, with a global market share of 3.2% (from January to October 2022, the global market share further climbed to 4.2%). Through the company's current active expansion strategy, its battery capacity is expected to increase from 11.9 GWh in 2021 to 35.0 GWh / 90.0 GWh / 165GWh in 2022-2024. the year-on-year growth rate was 194.1%, 157.1%, 83.3%, and the compound annual growth rate from 2021 to 2024 was 140.2%. In addition, the company aims to have 500 gigawatt hours of battery capacity by 2025 and 1000 gigawatt hours by 2030. According to our forecast, we expect the company's power battery sales from 2022 to 2024 to be 24.3GWh / 67.3GWh / 116.0 GWh respectively, accounting for 4.6% of the global market share, 9.3% and 14.2% of the global market share, respectively, or 7.4% of the domestic market share, 14.8% and 21.3% of the domestic market share in the same period.

The price adjustment mechanism is expected to continue to boost the company's profitability, and our investment rating is "buy". The company has adopted a cost-leading strategy, and the pricing of its power battery products is very competitive in the market, which has proved to be successful in helping the company seize market share from existing market participants. However, the company's profitability has been affected by the rise in raw material prices over the past two years. At present, the market is worried that although the company's production capacity and sales have increased in the next few years, it will not be able to improve profitability. We believe that the company will maintain its cost-leading strategy and will strictly implement the recently adopted price adjustment mechanism (cost-plus method) to maintain its gross profit margin above 10%. The price adjustment mechanism will help the company to resist the risk of raw material price fluctuations, maximize the interests of the company and customers (product prices will also be reduced with the decline of raw material costs), and ensure the profitability of products. The price adjustment mechanism launched in the first quarter of 2022 began to bear fruit in the first half of 2022, with quarterly profit margins improved in the first two quarters of 2022 (2021 gross profit margin: 5.55% gross profit margin for the first quarter of 2022:

8.24% gross profit margin for the second quarter of 2022: 9.50%). Therefore, we estimate that the comprehensive gross profit margin of Innovation Airlines in 2022-2024 is 10.1%, 10.6%, 11.4%, respectively, and the net profit of shareholders is expected to be 595 million yuan / 1.797 billion yuan / 3.474 billion yuan, respectively, an increase of 325.2%, 2011.8% and 93.4% respectively over the same period last year. In addition, we also believe that the company can generate sufficient cash flow (longer payment periods and strong earnings growth) to finance its rapid capacity expansion without always turning to the capital markets for project financing. We currently have a "buy" investment rating on the company, with a target price of HK $38.00. The target price is equivalent to 2.8x / 1.0x / 0.6x 2022-2024 price-to-sales ratio (EV/EBITDA S), or 37.2x / 17.1 times / 10.0x 2022-2024 EV/EBITDA.