By Brian Lantier, CFA

NASDAQ:CBAT

READ THE FULL CBAT RESEARCH REPORT

CBAK Energy Reports 2nd Quarter Results

On Friday, August 9th, CBAK Energy Technology (NASDAQ:CBAT) released its second quarter results which were mixed relative to our expectations.

• Battery revenues of $35.6 million were sharply below our estimate of $45.8 million but still up 60% versus the second quarter of 2023. We believe that there is still some lumpiness to the battery cell business given the large orders from a handful of the company’s key customers. We continue to believe that the company’s focus on energy storage is helping it avoid the margin compression that is plaguing the much larger EV battery space.

• We are adjusting our forecasts slightly to account for a potential transition as the company introduces a new battery size and our full-year EPS forecasts are now $0.31/share in 2024 and $0.33/share in 2025 but we think the company could significantly outperform these estimates. Trading at just 3 times 2024 eps estimates, CBAK represents a good value for energy storage sector investors with longer time horizons.

Updates/Potential Catalysts

40135: The company indicated on its conference call that it has finalized the design and testing of a new 40135 (a larger diameter battery – 40mm diameter by 140mm in length) and they have ordered the manufacturing equipment to begin production.

While it will take some time to incorporate batteries of this size into finished products, we believe that the demand is clearly there in the marketplace for battery cells of this size that offer greater capacity and energy density so the company’s key customers may begin designing products around this new battery cell format soon. We expect that news on deliveries or orders of this battery cell format could be a catalyst for the shares.

The Indian LEV market: The company continues to explore options for tapping into the Indian LEV (scooters/e-bike) market which includes direct sales to battery and vehicle manufacturers as well as a potential licensing of the company’s manufacturing technology to a battery cell manufacturer in India. Any contract wins announced in this market could be a major catalyst for the stock in the second half of 2024.

Fast charging 32140 cell: In June the company announced a new battery design based on the existing 32140 cell format that enables a full charge in just 35 minutes as compared to 75 minutes for the standard 32140 cell. CBAK also indicated that despite the faster charging rate, this battery’s cycle life also doubled according to a company press release. The company has filed a patent in China for this technology and expects that it could begin production in the second half of the year.

VALUATION

CBAK continues to make slow progress in changing investor perception as the company posted its second consecutive quarter with positive EPS and margins in the battery business have remained very strong.

We have adjusted our assumption for battery sales for 2024 and 2025, but the company’s strong margins in its core products means that our EPS estimates are little changed at $0.31 for 2024 and $0.33 for 2025.

Based on comparable valuations of public battery companies and the strong growth and profitability of the battery business we are maintaining our target valuation to $2.50/share or roughly 8 times our current 2024 EPS estimate of $0.31/share.

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