Investment logic:
Why price a company from a cash flow perspective? The company is in a period of rapid growth. Operating cash flow is increasing year by year. It reached 8 times the level of 18 in '23, and is still growing rapidly. Under the high growth situation of the industry, the market's valuation and pricing of the company is easily affected by marginal changes and fluctuates greatly, making it difficult to reflect the true long-term value level. We re-examined the bottom market value of the company under pessimistic assumptions from a cash flow perspective, so that investors can more clearly judge the bottom value range of leading companies. Under various scenarios, the valuation center of the company's forward cash flow discount and final present value is far higher than the current market value, showing a significant underestimation from a forward value perspective.
Based on steady profit before interest and after tax, the company's cash flow achieved a positive cycle through the cycle, and the DCF valuation center was far higher than the current one:
1. Cost and technical barriers are deep, and profits before interest and after tax have grown steadily. Currently, batteries are facing fierce competition. The number of power battery manufacturers has shrunk by nearly 30% in 20-23. Facing drastic elimination, the company has been the global leader for 10 consecutive years, and its share has increased year by year. Mainly thanks to deep cost moats and technical moats, products have developed overseas and high-end, increasing share and price differences with the industry, and profits before interest and after tax have maintained steady growth over a long period of time.
2. Don't be concerned about changes in the industry cycle, and cash flow is in a positive cycle. The company's free cash flow and monetary cash were 351/264.3 billion yuan (23A) respectively, showing a year-on-year growth trend, while ROE far surpassed that of peers. Based on steady profit before interest and after tax, the company's cash flow maintains a positive circulation capacity through the cycle. When the industry sentiment declines, the company maintains reasonable capacity utilization, and capital expenditure is drastically reduced to support cash flow; when the industry accelerates expansion, the bargaining power of the company's industrial chain increases, and changes in non-cash working capital increase cash flow by negative values.
Under the extreme zero growth scenario, the company is still at an absolute bottom. We disagree with the market about the company's pessimistic profit expectations that the company will soon enter a decline in quantitative profit. Driven by overseas and new technology in recent years, the cost and price differences between the company and the second and third tier have both increased. At the same time, the gross profit gap has been maintained, and the profit structure has shown a positive upward trend. However, under extreme assumptions, the current value of the company's forward cash flow discount and final value is over 1.1 trillion yuan. The company's market capitalization is at an absolute bottom.
Profit forecasts, valuations, and ratings
The company has been the global leader in power and energy storage batteries for ten consecutive years. Long-term high-intensity R&D and industrial chain integration have brought a strong moat. Even if pessimistic assumptions are made that the industry's growth rate has slowed drastically, the current market value is seriously underestimated. However, we believe that the power and energy storage circuit where batteries are located is currently in the early stages of rapid development, and the company is a scarce R&D leader in high growth. In 24-26, the company's profit is expected to be 470/542/62.3 billion yuan, YoY +6.5%/15.4%/15.0%, corresponding to PE 18/16X in 24 and 25, respectively, maintaining a “buy” rating.
Risk warning
Demand falls short of expectations, fluctuating raw material prices, commercialization of new technology falls short of expectations, etc.