Huzhou Expansion And Battery Systems Will Unlock Future Opportunities

Key Takeaways

• Focus on innovation and expanding capacity aims to capture new markets, potentially boosting revenue and improving gross margins.
  
• Strategic realignment and cost-cutting are expected to improve net margins and operational efficiencies.
  
• The company faces financial sustainability risks due to liquidity constraints, operating losses, and increased competition, with significant revenue declines and widened net losses.

Catalysts

Provides battery technologies for electric vehicles and energy storage solutions.

• Microvast's Huzhou Phase 3.2 expansion project, which is set to add 2 gigawatt hours of production capacity, is likely to boost revenue and meet increasing customer demand in 2025.
  
• The company's focus on innovation with new product lines, such as the ME6 energy storage system and advancements in silicon-based and all-solid-state batteries, aims to capture new markets and expand market segments, potentially driving revenue growth and higher gross margins.
  
• Strategic realignment, including cost-cutting measures and operational adjustments, is expected to improve net margins by reducing expenses and increasing the company's operational efficiencies.
  
• Significant growth in the EMEA region, with a 123% increase in revenue in 2024, suggests continued strong commercial traction, which is anticipated to contribute to revenue growth and potentially improve net margins due to higher demand for high-performance products.
  
• The shift toward more profitable market segments in the Americas, especially through strategic partnerships and an accessible financing environment, could contribute to increased revenue and earnings as the company expands its electrification footprint.

Microvast Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Microvast Holdings's revenue will grow by 18.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -51.5% today to 4.7% in 3 years time.
• Analysts expect earnings to reach $29.5 million (and earnings per share of $0.07) by about May 2028, up from $-195.5 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 52.3x on those 2028 earnings, up from -3.3x today. This future PE is greater than the current PE for the US Machinery industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 2.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Microvast Holdings Future Earnings Per Share Growth

Risks

• The company faced a difficult financing environment in 2024, along with supply constraints and increased competition, particularly in the APAC region, which could affect future revenues and margins.
  
• There was a significant decline in revenue from the Asia Pacific region, decreasing 19% year-over-year, driven by strategic repositioning away from low-margin segments in China and India, which might impact overall revenue negatively if not offset by growth in other regions.
  
• Management has previously disclosed substantial doubt about the company's ability to continue as a going concern due to liquidity constraints and recurring operating losses, highlighting risks related to financial sustainability and potential impacts on earnings.
  
• Operating expenses increased for the full year, driven primarily by a noncash impairment charge, which could signal potential challenges in maintaining net margins if such charges persist.
  
• The company's net loss widened significantly in 2024 compared to the previous year, raising concerns about the ability to achieve profitability, which could impact earnings negatively.

Valuation

• The analysts have a consensus price target of $3.5 for Microvast Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $2.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $625.7 million, earnings will come to $29.5 million, and it would be trading on a PE ratio of 52.3x, assuming you use a discount rate of 8.1%.
• Given the current share price of $2.02, the analyst price target of $3.5 is 42.3% 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.