Introducing Model 40135 Will Capture New Markets In Home Energy Storage

Key Takeaways

• Expanded production capacity and new product lines position CBAK Energy Technology for substantial revenue growth and increased market share in key sectors.
  
• Overseas expansion and favorable supplier terms improve financial leverage and liquidity, enhancing net margins and future earnings.
  
• Declining revenues and challenges in the raw materials unit, along with geopolitical risks, may impact CBAK's profitability and strategic stability.

Catalysts

CBAK Energy Technology, Inc., together with its subsidiaries, manufacture, commercialization, and distribution of lithium ion high power rechargeable batteries in Mainland China, the United States, Europe, and internationally.

• CBAK Energy Technology is in the process of expanding production capacity by commissioning two new production lines for the model 32140 in Nanjing by the end of 2025 and upgrading its Dalian facility to produce the larger model 40135 cylindrical battery. This will add a total of 5.3 gigawatt hours of capacity, positioning the company for substantial revenue growth in 2026.
  
• The introduction of new product lines, particularly the model 40135 battery, is projected to replace older models and gain new market share in the home energy storage and portable power supply sectors, which is expected to drive net revenue growth as current customers transition to these larger and newer models.
  
• Strong demand for its current production, especially the model 32140 large cylindrical cell, highlights the potential for increased revenues once additional production capacity is operational, with current output fully booked and leading the company to anticipate continuous strong demand in the market.
  
• Overseas production capacity expansion is planned to address geopolitical risks and tariffs, potentially leading to increased orders and prepayments from major global customers, thus positively impacting future net margins and revenue.
  
• Favorable terms with equipment suppliers, allowing the company to delay payments, and persistent demand from major clients indicates a favorable financial outlook by facilitating operational expansions with better financial leverage and liquidity, likely bolstering earnings in upcoming years.

CBAK Energy Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CBAK Energy Technology's revenue will grow by 30.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.7% today to 5.6% in 3 years time.
• Analysts expect earnings to reach $22.0 million (and earnings per share of $0.24) by about April 2028, up from $11.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from 5.4x today. This future PE is lower than the current PE for the US Electrical industry at 19.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.95%, as per the Simply Wall St company report.

CBAK Energy Technology Future Earnings Per Share Growth

Risks

• The company's net revenues declined by 13.61% in 2024 due to poor performance from its raw materials unit, Hitrans, which could impact overall earnings if this trend continues.
  
• Challenges in the raw materials industry, such as declining lithium-ion battery prices and industry-wide overcapacity leading to operational difficulties for Hitrans, may place further pressure on net margins and profitability.
  
• Geopolitical risks and existing tariffs are pushing the company to explore overseas production capacity, which may lead to increased operational costs and impact financials if the strategy does not effectively mitigate these challenges.
  
• Slow transition from current order volumes to the anticipated production capacity increase (operational by end of 2025) may lead to missed revenue opportunities and lower earnings in the interim.
  
• Uncertainties related to integration and investment strategies for overseas factories and the potential divestiture of Hitrans could affect the company's financial stability and strategic focus.

Valuation

• The analysts have a consensus price target of $2.0 for CBAK Energy Technology based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $389.2 million, earnings will come to $22.0 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 10.0%.
• Given the current share price of $0.71, the analyst price target of $2.0 is 64.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.