West Niu Securities released a research report, downgrading its rating on China Shipbuilding Industry Group Power (03931) to hold and cutting its target price to HKD 15.7 per share. The bank has been paying close attention to the group's sales performance, market share, and future production capacity planning, as well as the free cash flow performance under huge capital expenditures and interest expenses. However, given that the headwinds facing the group have not improved, and may even worsen, especially with the uncertainty of the group's customers, its long-term visibility is reduced.
According to the report, in the 2023 fiscal year, the company recorded a total revenue of CNY 27.01 billion, up 32.5% year-on-year, of which about 80% came from power battery sales, which grew 21.4% year-on-year to CNY 22.25 billion, and the proportion of energy storage system product sales further increased. According to the data from the China Power Battery Industry Innovation Alliance, in 2023, the China Shipbuilding Industry Group Power's power battery installed capacity grew by more than 70% year-on-year to 32.9 GWh, and its market share increased from 6.5% in 2022 to 8.5% in 2023. In terms of installed capacity, GAC (02238), Xiaopeng (09868), and Leapmotor (09863) are still the group's main customers. However, the group's market share has continued to decline since the fourth quarter of last year, and the group's power battery installed capacity only increased by 3.6% year-on-year in the first four months of 2024, but the market share fell sharply to 6.4%, returning to the level of 2022.
The bank mentioned that China Shipbuilding Industry Group Power's capacity continues to grow, but the growth of downstream demand has slowed down, and the adjustment risk of the order volume of major customers may lead to low capacity utilization. However, the high depreciation cost of newly added capacity and the heavy financing cost of expansion, as well as the sales growth, are crucial for the group. However, the group's pricing strategy is relatively aggressive, and price reduction for volume will further squeeze the group's profit level, putting the group in a dilemma. Therefore, the bank is quite concerned about the group's sales volume, especially the uncertainty brought by its major customers.