NASDAQ:CBAT
READ THE FULL CBAT RESEARCH REPORT
On Tuesday, November 12th, CBAK Energy Technology (NASDAQ:CBAT) released its third quarter results which were mixed relative to our expectations. The third quarter results included the following highlights:
- Battery revenues of $33.5 million were sharply below our estimate of $45.9 million and down 6% sequentially from the second quarter of 2024. It appears as though a substantial portion of the underperformance can be attributed to a planned shutdown at the company’s Dalian manufacturing facility which paused production for a month during the quarter for maintenance, equipment upgrades and to address higher energy usage in the facility. We believe that had the company not undertaken this necessary pause in production battery revenues would have still been below our orecast but would have likely grown sequentially versus the second quarter.
- The quarterly fluctuations in revenues and earnings have made it difficult for the company to regain investor faith that the company can profitably navigate through challenging macro conditions. We think that if investors step back and recognize that CBAK is now a meaningful battery cell manufacturer on the cusp of more than doubling its manufacturing capacity in 2025, they may recognize that CBAK is one of the few values in the energy storage industry. However, we admit that the very weak performance of the Hitrans business makes it difficult to recognize this opportunity at times.
- We are adjusting our forecasts again to now reflect gross losses at Hitrans for the foreseeable future and gross margins that are more in line with the industry norms. We are not forecasting the new production lines at Nanjing to begin operating until the middle of Q3 2025 and the middle of Q4 2025 but if the company begins production sooner than our projection obviously that would positively impact our model. Our full-year EPS forecasts are now $0.19/share in 2024, $0.11/share in 2025 and we are introducing a $0.28/share estimate for 2026. CBAK continues to represent a good value for energy storage sector investors with longer time horizons.
Updates/Potential Catalysts
Nanjing Facility: The company’s management team noted that the Nanjing Facility (the company’s newest factory) operated on a profitable basis in the third quarter of 2024 less than three years after commencing operations. Management indicated that demand for the company’s output at Nanjing has exceeded the current production capacity despite running full-day operations on all production lines. Based on the strong current demand from its customers CBAK is moving forward quickly to enter phase two of its expansion of the Nanjing facility. This expansion is expected to add between 2.5 and 3.0 GWh of capacity by the end of 2025. For the moment we are projecting that the new production lines will launch in the middle of Q3 2024 and the middle of Q4 2025. We are being conservative with our forecasts for the moment, but it is clear that this expansion has the potential to materially change the outlook for the company in 2025.
Overseas Expansion: The company also highlighted for the first time the prospect of overseas expansion to meet the growing demand for cells closer to the end unit production. If the right partner in the EU or the US can be identified and sufficient government support existed to speed up the process of constructing a new battery plant, we could envision CBAK forming a joint venture potentially to expand production outside of China.
VALUATION
CBAK’s quarter-to-quarter results continue to be lumpy and while the company’s customer base remains committed to CBAK, the overall challenges facing the energy storage market globally are having an impact on CBAK as well. The company’s third-quarter EPS of $0.00/share was below our estimate of $0.07/share but we believe that had the company not had a shutdown for maintenance at Dalian and had a negative gross margin on the HiTrans raw material business, the core battery business would have generated EPS closer to our estimate.
We have significantly adjusted the gross margin assumption in our model as we believe the gross margin is likely to stabilize in the low 20% range for the battery business. As new higher-margin cells are introduced in late 2025 and 2026, we do think that the margins can rebound but for the moment we are electing to be conservative with our model. Principally as a result of these changes our 2024 EPS estimate is now $0.19/share, our 2025 estimate is now $0.11/share and we are introducing a 2026 estimate of $0.28/share.
Based on comparable valuations of various battery companies and the dip in profitability now forecast for 2025 we are adjusting our target valuation to $2.00/share or roughly 7 times our current 2026 EPS estimate of $0.28/share.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
