Behind the hot capital market of CATL: net profit growth rate increased from 1609.94% to 35.98%

Recently, every step of CATL (300750) in the capital market has attracted a lot of attention and enthusiasm. However, its dream of becoming a giant in the capital and power battery fields is still mixed.

It took only 24 days from the submission of the prospectus to the approval of the meeting, breaking the record of the time it took for a listed company to pass the meeting. On May 29, CATL released the prospectus and the GEM IPO issuance announcement, and launched online subscription on May 30. The prospectus shows that the issue price per share is 25.14 yuan, the number of shares issued is about 217 million shares, and the total amount of funds raised is expected to be 5.46 billion yuan. Although this figure is more than 50% less than the 13.12 billion yuan previously disclosed in the draft prospectus, it still broke the highest record since the establishment of the GEM.

On the evening of May 30, CATL issued an announcement stating that since the initial effective online subscription multiple was 3,201 times, higher than 150 times, the issuer and the joint lead underwriters decided to activate the call-back mechanism and call back 60% of the shares issued from offline to online. After the call-back, the final number of shares issued offline was 21.72 million, accounting for 10% of the total issuance; the final number of shares issued online was 196 million, accounting for 90% of the total issuance. After the call-back, the winning rate of this online pricing issuance was 0.093736%, and the subscription multiple was 1,067 times.

The earnings forecast given by Shanghai Securities Research Institute is that a price-to-earnings ratio of 20-25 times CATL's 2018 earnings per share is relatively reasonable, corresponding to a valuation range of 29.00 yuan to 36.25 yuan.

Previously, Foxconn Industrial Internet, which has the halo of "unicorn", has completed its subscription, and WuXi AppTec has landed on the A-share market. The popularity of these two companies has stunned the industry. CATL, which also has the title of "unicorn", has also landed on the ChiNext board, which has aroused high expectations in the industry.

On May 31, it was reported that, given the positive correlation between the winning rate of new shares and the upper limit of online subscription for new shares, CATL is expected to become the new share with the highest winning rate on the ChiNext. "Based on the 16 daily limit gains of WuXi AppTec, winning one share of CATL would earn you nearly 100,000 yuan." This shows the enthusiastic response of the market.

CATL is highly sought after in the capital market due to its rapid development in the field of power batteries in recent years. In 2017, its power battery sales ranked first in the world, surpassing Panasonic and BYD. Its customers include BMW, Volkswagen, Geely, Dongfeng, Yutong and other well-known domestic and foreign automakers. The number of new customers in 2015-2017 was 96, 58 and 119 respectively, and the new customers contributed revenues of 1.79 billion yuan, 650 million yuan and 1.80 billion yuan. However, the company's customer concentration has been declining. According to data from the Shanghai Securities Research Institute, the sales amount of the top five customers decreased from 82.62% in 2015 to 51.90% in 2017.

Data shows that from 2015 to 2017, CATL's operating income was 5.703 billion yuan, 14.879 billion yuan and 19.997 billion yuan, respectively, with an average annual compound growth rate of 87.26%; net profit was 951 million yuan, 3.089 billion yuan and 4.288 billion yuan, respectively, with an average annual compound growth rate of 112.39%. From 2015 to 2017, CATL's annual net profit growth rate also declined dramatically. In 2015, CATL's net profit margin increased by 1609.94% year-on-year, but in 2016, this figure became 206.43%, and in 2017, this figure became 35.98%.

From the outside, it is somewhat surprising that CATL's orders in the market have been increasing and decreasing over the past few years, but the scale of fundraising was greatly reduced when it went public.

Guo Yingying, managing director of CITIC Construction Investment's investment banking department and sponsor representative, said, "The scale of funds raised this time is determined based on the number of shares issued and the expected issue price, which is in line with the regulations of the regulatory authorities." Zeng Yuqun, chairman of CATL, responded that the company's fundraising reduction will not affect the implementation of the project. "We also raise funds through various financing channels, including our own funds and bank loans, to ensure the smooth implementation of the project."

"These are several signals released by relevant departments for the development of the power battery industry." Yu Qingjiao, Secretary General of the Zhongguancun New Battery Technology Innovation Alliance and Chairman of the Battery Hundred People's Association, said in an interview with the Economic Observer reporter that the first signal is the vigilance against the risks of capacity expansion. CATL's prospectus stated that the funds will be used for the CATL Huxi lithium-ion power battery production base project; as well as CATL's power and energy storage battery research and development projects.

Obviously, reducing costs, standardizing products, and improving cost-effectiveness are all inseparable from capacity expansion. Expansion has become an established move for all battery companies in recent years. However, if you simply aim at the current market supply shortage and expand wantonly, there are still certain risks. "The relevant departments have reduced the approval of its fundraising amount, which should be out of the idea of ​​limiting excessive expansion of production capacity, hoping that it can focus on improving competitiveness." Yu Qingjiao said that the recent capacity expansion investment of battery companies is indeed hot, and the China Securities Regulatory Commission also wants to control the pace in this regard and not blindly follow the trend.

In addition, the decline in profit margins found in the audit, leading to valuation changes, and concerns about future profits are also considerations for reducing the amount of funds raised.

Yu Qingjiao said that even as a "unicorn" enterprise, CATL could not avoid the market dilemma of "being squeezed from both ends" faced by the battery industry. CATL's net profit margin was 20.97% in 2017, 19.61% in 2016, and 16.67% in 2015. Under the scale effect, its profit margin has been increasing year by year. However, its non-net profit growth rate has also been declining. In 2017, CATL's non-net profit growth rate was -14.74% year-on-year, in 2016, this figure was 216.61%, and in 2015 it was a staggering 6619.47%.

As for the upstream, the government's subsidies for vehicle manufacturers are gradually declining, which has a great impact on the industry. In addition, the crackdown on fraud requires that new energy vehicles can only be applied for subsidies after operating for 30,000 kilometers. The payment cycle of vehicle manufacturers has been lengthened, which has also caused an increase in receivables in the battery industry. In the upstream, the prices of various raw materials have been rising. Since last year, the high price of upstream cobalt energy has led to a surge in profits for cobalt energy companies.

Under the joint pressure from upstream and downstream, the profits of battery companies have shrunk significantly. According to the annual reports of listed companies in 2017, the net profits of Sichuan Chengfei Integrated Technology Holding Co., Ltd. ("Chengfei Integration", 002190.SZ), Hefei Guoxuan High-tech Power Energy Co., Ltd. (Guoxuan High-tech, 002074.SZ), and Guangdong Mengshi New Energy Technology Co., Ltd. (Mengshi Technology, 002684.SZ), to which AVIC Lithium Battery belongs, all showed negative growth.

"Battery companies are in a sandwich. On the one hand, raw material prices are rising, and on the other hand, car companies have to significantly reduce costs. In the end, the burden falls on battery companies." Previously, an executive of Shenzhen Watma Battery Co., Ltd. told the Economic Observer reporter.

This is exactly the problem facing battery companies. With the adjustment of the subsidy policy for new energy vehicles, the domestic power battery prices generally fell in 2017; at the same time, the prices of upstream raw materials rose rapidly. Due to this double pressure, the profit margins of battery companies have been continuously compressed.

At the same time, competition among power battery companies is also intensifying. Last year, BYD announced the independence of its power battery business. After the independence, BYD Battery has obviously increased its market development efforts. Recently, BYD Group's head Wang Chuanfu has met with the heads of vehicle companies such as Great Wall and BAIC. The industry believes that this is probably to promote its own battery business. The sales volume of power batteries in April showed that BYD Battery surpassed CATL with an installed capacity of 1.32Gwh, becoming the industry leader again.

Another potential risk is that the technical route of power batteries has not yet been clarified. If disruptive materials and technologies emerge in the next three to five years, the current leaders will face greater challenges. With technological advances, the battery energy density and cost-effectiveness of other technical routes such as fuel cells and sulfur-lithium air batteries will surpass ternary lithium batteries. The ternary lithium batteries that currently dominate the market are also facing the risk of being replaced.

Driven by the dual promotion of performance expansion and industrial development prospects, power battery companies have recently entered the capital market. For example, China Power Shen took over ST Jialing, and BAIC New Energy took over SST Qianfeng. Judging from the individual IPOs, only CATL has successfully passed the test, and there are still three or five companies waiting in line. "Overall, under the background of capacity expansion, all major companies are short of funds." Industry insiders suggested that they should not squeeze the single-plank bridge of IPO. Mergers and acquisitions, reorganizations, and backdoor listings, including asset mergers and acquisitions, are also a good way of financing and development. "The listing of CATL is of great significance for my country's battery industry to improve its international competitiveness and participate in the competition in the international market." Yu Qingjiao said. He believes that at present, we still have a certain gap compared with Japan's Panasonic, South Korea's LG Chem, and Samsung SDI power batteries. Therefore, the country provides support at different levels, hoping to compete with Japanese and Korean battery companies in technology, export volume and market share in the future.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.