China Securities Co., Ltd.: Initiates ZENERGY (03677) with a "buy" rating. The unit's profit center is expected to gradually move up.

China Securities Co., Ltd. released a research report stating that ZENERGY (03677) achieved positive net profit and operating profit for the first half of 2024 and 2025 respectively, entering a turning point in profit. It is expected that the revenue for 2025, 2026, and 2027 will be RMB 80.28 billion, RMB 128.05 billion, and RMB 182.15 billion respectively, with net profits of RMB 5.44 billion, RMB 12.37 billion, and RMB 17.30 billion respectively, corresponding to PEs of 38, 17, and 12 times. The valuation for 2026 and 2027 is lower than the industry average, considering the strong profit growth potential of the company and its shipment and profit growth rates far exceeding the industry average, a "buy" rating is given for the first time. Key points from China Securities Co., Ltd.: - Performance: In 2024, the company achieved a total revenue of RMB 4.16 billion, a year-on-year increase of +10.8%, and a net profit attributable to shareholders of RMB 90 million, marking the first profit turnaround. For the first half of 2025, the revenue was RMB 3.17 billion, a year-on-year increase of +71.9%, with a net profit attributable to shareholders of RMB 220 million. In the first half of 2025, operating profit was RMB 87.3 million, turning positive for the first time. - Volume: Continuous increase in shipment volume for designated vehicle models, with shipment growth rate consistently higher than the industry. 1) Shipment: Continuous increase in shipment volume from new designated customers drove a year-on-year growth of 99.2% to 7.82GWh in the first half of this year, increasing market share from 0.03% in 2022 to 2%. Looking ahead to the second half of 2025 and 2026, the bank expects that the production increase of models from Zongrao and GAC will continue to drive shipment volume growth, with an expected shipment of 18.89GWh and 30.04GWh in 2025 and 2026, respectively, representing a 59% year-on-year increase far exceeding the bank's expectation of a 17% year-on-year increase in global electric vehicle sales next year. 2) Capacity: The bank forecasts that the utilization rate will increase to 76.2% in 2025 to ensure customer shipment, with peak production expected during the peak season. In 2026 and 2027, an additional 10 and 15GWh of capacity are expected to accommodate the production increase of new designated projects. - Profit: Continued increase in economies of scale and utilization rate will drive the company's unit profit margin upwards. The bank reviewed the process of the company's battery unit profit turning positive, attributing it to the decrease in R&D and management expenses brought about by economies of scale as the core factor, followed by the reduction in unit depreciation resulting from the increase in utilization rate. Looking ahead to the second half of 2025 and 2026, with shipment volume expected to increase far above the industry growth rate, economies of scale are expected to drive further decrease in R&D and management expenses; considering the upcoming commissioning of the additional 10GWh capacity in 2026, the bank expects the utilization rate to increase from 62.9% in the first half of 2025 to 76.2% and 86.3% in 2026, resulting in further reduction in depreciation and unit profit margin expansion. - Second growth curve: Mass production and delivery of aviation batteries is expected to create a second growth curve in volume and profit. As the first power battery company in the China Shipbuilding Industry Group to simultaneously obtain AS9100D aerospace quality management system certification and the Civil Aviation Administration of China (CAAC) airworthiness certification, the company is also one of the first low-altitude economic navigation enterprises in Suzhou. The company's high-power and fast-charging batteries have achieved mass production and delivery of power batteries for fixed-wing manned electric aircraft, with aviation batteries requiring higher energy density and safety requirements than automotive power batteries. The expected volume and profit levels of bulk deliveries are expected to be higher than automotive power batteries, potentially becoming the company's second growth curve in profit.