Key points of investment
Our opinion: China Innovation Aviation is the world's leading lithium battery manufacturer. The company's production capacity is being released, the product matrix is improving, customer resources are expanding, the market share of battery loading capacity is increasing, and power and energy storage batteries are expected to continue to be released. As scale effects become apparent, the share of pack shipments increases, and the pressure on raw material costs eases, the company's profitability is expected to increase. We are optimistic about the company's long-term development space and performance improvement. The company's net profit for 2023-2025 is estimated to be 20.29, 35.19, and 4.873 billion yuan respectively, +193.4%, +73.4%, and +38.5%, respectively. We gave the company a target price of HK$25.18 according to the PB and PE valuation method. The corresponding PE for 2023-2025 was 20.1x, 11.6x, 8.4x, and the corresponding PB was 1.1x, 1.0x, and 0.9x respectively. The target price had room for a 39.1% increase from the current price; the initial rating coverage gave the company an “increase in holdings” rating, which advises investors to pay attention.
The distribution of production bases is balanced, and production capacity expansion: The company has production bases in Changzhou, Xiamen, Chengdu, Jiangmen, Hefei, Wuhan, Meishan, etc., with a balanced regional distribution, leading to an effective production capacity of 90 GWh of power and energy storage batteries in 2023. Among them, the Changzhou and Xiamen bases are expected to contribute a lot of growth in 2023, and production capacity has also been released at bases such as Chengdu and Jiangmen.
The volume of power batteries installed is growing, customers and new models are advancing, and the product matrix is improving:
Power battery volume: According to SNE Research, in mid-2022, the global installed capacity of innovative aerodynamic batteries increased +151.6% to 20 GWh, and the global market share was +1.3 pcts to 3.9% year-on-year, ranking 7th; power battery sales revenue was +202.1% year-on-year to 18.32 billion yuan. According to the China Automobile Power Battery Industry Innovation Alliance, from January to May 2023, the company's domestic power battery installed +43.5% to 9.66 GWh compared to the same ratio, ranking third, and its market share advantage over fourth place increased.
Old models continue to be sold, and new models and overseas customers are advancing: the company deepened cooperation with GAC, Changan, Geely, Xiaopeng, Zero Run, etc., released old models, and continued to introduce new models; at the same time, new product targets for car companies such as NIO were added; overseas exports in 2022 were dominated by two brands, Smart and H model Honda, and currently continues to promote the targeting of major European car manufacturers.
One-stop battery mass production, and the product matrix is improving: On April 23, 2023, the company's Jiangmen base launched mass production of one-stop lithium iron phosphate batteries. Since then, the core and battery structure were innovated, using a rectangular short blade shape; the energy density of the system and battery cells reached 153 and 195 Wh/kg, respectively, which is currently the mass-produced lithium iron phosphate battery pack with the highest energy density; it supports a range of over 600 km; it is equipped with GAC Aian's first high-end mass-produced model, the Hyper GT. At this point, the company has formed a more complete product matrix including medium-nickel high-voltage ternary batteries, magazine batteries, full-pole ear-stack batteries, and one-stop batteries to match models with different range ranges and prices.
Strong energy storage business: In 2022, the company's energy storage and other business revenue increased 172.8% year-on-year to 2.05 billion yuan, with a shipment volume of about 2 GWh. The company's energy storage battery has a single capacity of 280 Ah, a rated energy of 896 Wh, a cycle life of 12,000 cycles, and an energy efficiency of 97%. It has cooperated with customers such as China Power Grid, China Southern Power Grid, Pinggao Group, China Power Investment Corporation, and Longyuan Electric Power.
There was a sharp increase in performance in 2022, and I am optimistic that the volume profit will rise sharply in 2023:
2022: The company's revenue, gross profit, and net profit of the mother were 203.75, 21.04 and 692 million yuan respectively, +198.9%, +311.7%, and +393.9%, respectively; gross profit margin and net profit margin to the mother were 10.3% and 3.4% respectively, +2.8 and +1.3 pcts, respectively.
The increase in revenue was mainly due to a sharp increase in battery sales, from 10.46 GWh in 2021 to around 23 GWh in 2022, followed by a year-on-year increase in battery market prices; the increase in gross margin was mainly due to scale effects.
2023:1) Volume: The company's effective production capacity has been greatly released, demand from downstream customers has increased, and shipments of power and energy storage batteries are expected to increase significantly in 2023. 2) Profit margins are expected to increase: first, the scale effect continues to be prominent; second, cost pressure is falling; third, the company previously shipped mainly batteries and modules, and the proportion of Pack shipments in 2023 is expected to increase, and the structure will be optimized.
Risk warning: product price fluctuations, rising costs, capacity expansion falling short of expectations, downstream demand falling short of expectations, etc.