Zhengli New Energy 1H26 Net Profit Pre-increase of 64%, Exceeding Goldman Sachs Expectations by 20%

Overview

Goldman Sachs released an earnings review for Zhengli New Energy (3677.HK), interpreting the company's positive profit forecast for 1H26. The report points out that the company's H1 net profit guidance significantly exceeded market expectations, verifying the logic of shipment growth and the release of operating leverage. Based on the company's market share gains in the power battery sector and the strong momentum in its energy storage business, Goldman Sachs maintains a 'Buy' rating and a HK$13 target price, believing that as a high-growth platform, it offers an attractive risk-return ratio at current valuations.

Core views

Performance Significantly Exceeds Expectations, Operating Leverage Effect Emerges. Zhengli New Energy issued a positive profit forecast for 1H26, expecting net profit of RMB 320 million to 400 million, a year-on-year increase of 45.5% to 81.8%. Calculating based on the mid-point of RMB 360 million, this represents a year-on-year increase of approximately 64%, which is about 20% higher than Goldman Sachs' previous expectations. This performance exceeding expectations is mainly attributed to two factors: first, the ramp-up of new capacity and improved utilization rates drove strong shipments of power and energy storage batteries, especially significant growth in energy storage batteries; second, economies of scale combined with strict expense control effectively lowered expense ratios, thereby supporting margin improvement and profitability enhancement. Market Share Expands Against the Trend, Competitive Position Solidified. Amidst intensifying industry consolidation, Zhengli New Energy achieved a significant increase in market share. According to CABIA data, in the first half of 2026, its ranking in domestic passenger vehicle battery installations rose from 7th place in 2025 to 5th place, with market share increasing by 1.2 percentage points year-on-year. The report believes that as one of the few small and medium-sized manufacturers able to expand share during the consolidation period, the company benefits from customer diversification, increased capacity utilization, and early layout in the energy storage business, and is expected to achieve the fastest EBITDA growth within the coverage scope. Valuation Is Attractive, Balance Between Growth and Return Is Favorable. Although established in 2019, the company inherited Fuyao Glass's automotive parts manufacturing genes, maintaining robust return levels while expanding rapidly. Compared to most Tier 2/Tier 3 peers, Zhengli New Energy demonstrates a better balance of growth and returns. Currently, the stock price has a significant discount relative to peers, providing an attractive risk-return space. In terms of valuation, Goldman Sachs uses the Sum-of-the-Parts (SOTP) method, assigning an average EV/EBITDA multiple of 11x to the core business's 2026E/27E average EBITDA (referencing historical cycle means of H-share peers and considering a growth premium), and valuing long-term equity investments such as the Toyota Battery Pack Joint Venture Company at book value.

Analysis framework

The report adopts an analysis path of 'profit forecast breakdown + industry status verification + relative valuation'. First, it breaks down the unexpectedly high net profit into two driving factors: 'shipment growth' and 'operating leverage', confirming the quality of performance; second, it cites third-party CABIA installation data to verify the company's ability to gain market share during the industry reshuffle, which is a key indicator for judging whether Tier 2 battery manufacturers can break through; finally, through the SOTP valuation method, combined with the historical valuation center of comparable H-share companies and the company's own high-growth attributes (ROIC>WACC), it argues for the rationality of current valuations.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-Parts Valuation

  When a company's business includes assets with different natures or development stages (such as high-growth core battery business and mature joint venture investments), selecting appropriate valuation metrics (such as EV/EBITDA and book value) for independent valuation and then summing them up can more accurately reflect the company's intrinsic value than a single PE ratio.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating Leverage

  Refers to the phenomenon where when a company has a high proportion of fixed costs, a small increase in revenue leads to a larger increase in profit. This report attributes the unexpected performance to this, meaning the company has passed the peak investment period and entered a stage where improved capacity utilization drives rapid margin recovery.

• Industry/Industrial Analysis FrameworkIndustry Concentration Analysis

  Share Changes During Industry Consolidation

  During the consolidation period of manufacturing industries like power batteries, head effects usually intensify. The report focuses on changes in the installation ranking of Tier 2 manufacturers. If a company can reverse the trend and increase its share during the industry clearance phase, it often means that the enterprise possesses differentiated competitiveness or cost advantages, which is a core signal for screening Alpha targets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zhengli New Energy (3677.HK)

  Core Beneficiary: Performance beat verifies growth logic, valuation discount provides margin of safety

  Strengths

  Strong shipment growth, rapid release of operating leverage; Market share increases against the trend; Inherits Fuyao manufacturing genes, high return rate

  Weaknesses

  Short establishment time (2019); Still smaller in scale compared to Tier 1 leaders

  Comparison

  Compared to other Tier 2/Tier 3 peers, it has a better balance of growth and returns; Valuation is significantly lower than H-share peers

  Risks

  China EV demand falls short of expectations; Energy storage demand weakens; Fluctuations in upstream raw material costs; Intensifying competition in domestic power batteries; Energy storage capacity ramp-up falls short of expectations

Key data

• 1H26 Net Profit GuidanceRMB 320m-400mYear-on-year increase of 45.5%-81.8%
• 1H26 Net Profit Guidance Mid-pointRMB 360mYear-on-year increase of 64%, 20% higher than Goldman Sachs' expectation
• Domestic Passenger Vehicle Battery Installation Ranking5th PlaceUp 2 places from 7th place in 2025, market share +1.2ppt YoY
• Core Business Valuation Multiple11x EV/EBITDABased on 2026E/27E average EBITDA, benchmarked against historical median mean of H-share peers

Impact & implications

This profit forecast confirms Zhengli New Energy's transition from an 'investment period' to a 'harvest period', and the release of operating leverage has eliminated market concerns about the sustainability of its profitability. The increase in market share further consolidates its position as a Tier 2 leader, indicating that it can not only keep up with industry growth but also grab share in a zero-sum game. For investors, this means that the improvement in the company's fundamentals is faster than expected, and the current low valuation provides a high margin of safety.

Risks

• Slowing growth in China's electric vehicle demand
• Energy storage market demand falls short of expectations
• Severe fluctuations in upstream raw material prices affecting costs
• Further intensification of competition in the domestic power battery market
• Delays in energy storage business execution and capacity ramp-up progress

What to watch

• Subsequent quarterly energy storage battery shipment volumes and gross margin trends
• Changes in domestic passenger vehicle battery installation rankings and market share
• New capacity utilization and expense ratio optimization
• Progress in downstream EV customer expansion and order diversification