Citi Raises CATL Target Price to RMB 603, Maintains Top Pick Status

Overview

Citigroup released a research report updating its financial model for Contemporary Amperex Technology Co., Limited (CATL). Based on Q1 2026 performance and management guidance, the firm raised its earnings forecasts for 2026-2028, primarily driven by strong battery sales growth, despite a downward revision in expected unit gross margins. The report believes CATL will maintain strong output and shipments in the second half of 2026, with the energy storage business being a key highlight. Consequently, Citi raised CATL's A-share target price from RMB 576 to RMB 603, and significantly increased the H-share target price from HKD 621 to HKD 888, while maintaining a 'Buy' rating and 'Top Pick' status.

Core views

The core views revolve around sales milestones and earnings resilience. Citi expects CATL's 2026 battery production to reach 1.2 TWh and sales to reach 1.0 TWh, representing year-over-year increases of 61% and 54%, respectively. Although unit gross margin forecasts were lowered, the substantial increase in sales volume is sufficient to drive overall profit growth, leading to a 9%, 9%, and 7% upward revision in net profit forecasts for 2026-2028 to RMB 103 billion, RMB 126 billion, and RMB 149 billion, respectively. These forecasts are 7%-8% higher than the Bloomberg consensus. On the demand side, the report notes that there will be no demand destruction in the short term, with lithium carbonate prices above RMB 200,000/ton actually proving the solidity of demand. Energy Storage System (ESS) demand is seen as the main growth point for the future. For Q2 2026, Citi previews an estimated net profit of RMB 24.3 billion, battery sales of 260 GWh (up 77% YoY and 29% QoQ), and unit net profit of RMB 0.09/Wh, slightly down QoQ. Regarding competitive advantages, Citi emphasizes that CATL maintains strong competitiveness through continuous R&D investment, effective cost management, a solid global customer base, and a robust capacity expansion pipeline. Expansion strategies in Europe (100 GWh plan in Hungary) and the US market (cautious technology licensing model) are viewed as positive factors. Additionally, the company leads peers in the frequency of new battery product launches, and its vertical integration strategy continues to release dividends throughout the cycle.

Analysis framework

Citi employed a typical analytical framework combining 'volume-price decomposition' with 'relative valuation'. First, it derived sales forecasts through top-down industry demand judgments (such as lithium price signals) and bottom-up company capacity planning (such as the Hungary factory and quarterly output guidance). Second, on the profit side, although unit gross margin assumptions were lowered to reflect cost pass-through and industry competition, the final net profit upward revision was calculated through the sales volume leverage effect. In terms of valuation methodology, for A-shares, the institution chose the EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) multiple method, reasoning that this method eliminates the impact of changes in capital structure. Specifically, it assigned a 2026E EV/EBITDA multiple of 17.5x, which is 0.25 standard deviations above the historical average (previously 0.15 standard deviations, adjusted to reflect considerations of lower unit gross margins). For H-shares, the 'A/H share premium method' was used, applying a 28% historical average premium to the A-share target price, reflecting the valuation premium characteristics of H-shares as scarce assets in the offshore market.

Methodology notes

• Valuation MethodEV/EBITDA valuation

  EV/EBITDA Valuation Method

  Valuation using Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation, and Amortization. The report selected this method because it eliminates the impact of differences in capital structure (such as debt ratios) between companies, making it more suitable for horizontal comparison of manufacturing giants with heavy assets and large capital expenditures.

• Valuation Method

  H/A Share Premium Valuation Method

  For companies listed on both A-shares and H-shares, the historical premium rate of H-shares relative to A-shares is referenced to determine the H-share target price. The report used CATL's historical average 28% H-share premium over A-shares, combined with the A-share target price, to derive the H-share value, reflecting the scarcity premium in the offshore market.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition Analysis

  Decomposing revenue and profit drivers into 'sales volume' and 'unit price/unit profit'. Against the backdrop of lowered unit gross margin expectations, the report argued that total profits can still grow by significantly raising sales volume forecasts (reaching 1 TWh in 2026).

• Event Gaming and Behavioral FinanceExpectation Gap/Expectation Management

  Comparison with Consensus Expectations

  Comparing internal forecasts with market consensus (Bloomberg Consensus). The report pointed out that its 2026-2028 earnings forecasts are 7%-8% higher than market consensus, aiming to show investors a positive expectation gap that supports upside potential for the stock price.

Asset mapping & comparison

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

• CATL-A (300750.SZ)

  Direct beneficiary, global power battery leader

  Strengths

  Continuous R&D investment, effective cost control, solid global customer base, steady expansion in Hungary and technology licensing model in the US

  Weaknesses

  Downward revision in unit gross margin forecast, facing fierce market competition

  Comparison

  Compared to peers, has the highest frequency of new product launches and obvious vertical integration advantages

  Risks

  EV demand below expectations, high raw material costs, loss of market share

• CATL-H (3750.HK)

  Offshore listed shares of the same entity, enjoying scarcity premium

  Strengths

  Scarce asset in the offshore market, historical H/A premium supports valuation

  Weaknesses

  Quantitative models flag as 'high risk' due to short trading history (report deems this unreasonable)

  Comparison

  Valuation is usually higher than A-shares (calculated by premium), liquidity structure differs from A-shares

  Risks

  Same risks as A-shares, plus exchange rate fluctuations and offshore market liquidity risks

Key data

• 2026E Battery Sales Forecast1.0 TWhUp 54% YoY, reaching a milestone high
• 2026E Net Profit ForecastRMB 103 BillionUp 9% from previous forecast, 7% higher than Bloomberg consensus
• A-Share Target PriceRMB 603Raised from RMB 576, implying 26.8x 2026E P/E
• H-Share Target PriceHKD 888Raised from HKD 621, implying 34.3x 2026E P/E
• 2Q26E Estimated Net ProfitRMB 24.3 Billion+77% YoY, +29% QoQ
• 2025 Actual SalesEV Batteries 541 GWh / ESS Batteries 121 GWhUp 42% and 30% YoY, respectively

Impact & implications

The report believes that as the global battery leader, CATL's earnings stability exceeds market expectations. Even in the face of raw material cost fluctuations, it can effectively pass through costs through supply chain vertical integration and technology licensing models. The upward revision of the target price reflects market recognition of its scale effects and consolidation of global market share. In particular, the significant increase in the H-share target price suggests that institutions believe Hong Kong investors are willing to pay a higher premium for such scarce global leader assets. Maintaining the 'Top Pick' status indicates that among the stocks covered by Citi, CATL remains one of the highest priority allocation targets.

Risks

• Electric Vehicle (EV) demand lower than expected
• Intensified battery market competition, leading to CATL's market share being lower than expected
• Raw material costs higher than expected

What to watch

• Battery output and shipment data in the second half of 2026
• Growth in Energy Storage System (ESS) demand
• Lithium carbonate price trends (whether maintained above RMB 200,000/ton)
• Progress of the 100 GWh capacity expansion in Hungary
• Implementation of the technology licensing model in the US market