Goldman Sachs Upgrades Leading Intelligence A-Shares to Buy, Bullish on ESS and New Business Drivers

Overview

Goldman Sachs upgraded Leading Intelligence (300450.SZ) A-share rating from 'Neutral' to 'Buy', primarily due to 23% upside implied by the target price at current valuations, and a more attractive risk-reward profile relative to the average -8% downside risk across its coverage of China’s industrial technology sector. The firm maintained its 'Buy' rating on the H-share (0470.HK). The report forecasts compound annual growth rates (CAGRs) of 28% for revenue and 34% for net profit from 2026 to 2030, driven by accelerated battery capital expenditures, surging demand for energy storage systems (ESS), and long-term catalysts from sodium-ion and all-solid-state battery equipment. Additionally, gross and net margins are expected to meaningfully recover from recent troughs as the industry cycle rebounds.

Core views

Strong core business, ESS as the new engine. The report notes that Leading Intelligence’s core battery equipment business remains robust, with an ESS-led upcycle exhibiting greater sustainability. New order growth is expected to exceed 60% year-on-year in Q2 2026 — at least as strong as Q1 levels. ESS is identified as the pivotal driver: ESS orders are projected to grow ~2.5x year-on-year in 2026, shifting the ESS-to-power-battery order mix from 30/70 in 2025 toward 50/50. Management indicated that this capex cycle is structurally more durable than the 2022 cycle, as expansion is concentrated among the top 5–8 players and constrained by high utilization rates (UTR, typically >90%) and National Development and Reform Commission (NDRC) approvals — resulting in a flatter peak and a longer growth runway. Profitability recovery and operational efficiency gains. As the battery cycle rebounds, equipment acceptance has accelerated since H2 2025, alleviating prior cost pressures from delayed customer acceptances (e.g., excess labor and commissioning costs previously expensed). This supports gross margin’s return toward the contract-implied level of ~40%. Gross profit margin (GPM) and net profit margin (NPM) are projected to improve from troughs of 33% and 11% in 2025 to 37% and 15% by 2030. On operating leverage, headcount has remained stable at ~15,000 since 2024, yet output per employee has risen to RMB 1.7–1.8 million annually — above the industry average — reflecting higher automation and engineering capability. New businesses building the second growth curve. The company is actively expanding beyond batteries: 1) Sodium-ion battery equipment: Early technology leadership positions it advantageously; significant benefits are anticipated if CATL achieves its target of tripling to quintupling sodium-ion battery ESS sales; 2) All-solid-state batteries (FSSB): Among the few global providers capable of delivering turnkey FSSB solutions; guidance suggests FSSB orders may double in 2026 (from a low base of RMB 1 billion in 2025); 3) 3C consumer electronics: Supplies 3D-printed hinge and mid-frame equipment for foldable smartphones and has partnered with multiple leading brands; 4) Humanoid robots: Signed a three-tier agreement with the Beijing Humanoid Robot Innovation Center as both an assembly equipment provider and application explorer; initial commercial milestones include ~1,000 units/systems sold, and joint development of transition pathways from manual to automated mass production lines.

Analysis framework

Goldman Sachs employed a combined top-down and bottom-up analytical framework. First, it dissected order composition (power batteries vs. ESS) to assess near-term cyclical strength and long-term structural shifts — particularly ESS’s role in smoothing cyclical volatility. Second, it conducted deep analysis of profitability quality, linking equipment acceptance cycles (UTR) and client capex discipline to explain gross margin fluctuations and their recovery path, while validating operating leverage using metrics such as output per employee. Finally, on valuation, it anchored on 2027 forward P/E multiples: assigning 30x P/E to A-shares and applying a 20% discount (24x P/E) to H-shares based on regression analysis, then benchmarking these against peers within China’s industrial technology sector growth-valuation matrix to justify current valuation appeal.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative valuation based on 2027 forward P/E

  The institution derived target prices by multiplying forecasted 2027 earnings per share by specific multiples (30x for A-shares, 24x for H-shares). This approach is commonly applied to growth-oriented manufacturing firms, emphasizing forward two-year earnings potential rather than static current-period performance.

• Industry / Sectoral Analysis FrameworkSupply-demand framework

  Structural constraints on capacity expansion

  The report emphasizes that this battery capacity expansion differs from prior cycles, being constrained by both high utilization rates (UTR >90%) and policy-level approvals, and concentrated among industry leaders. Such supply-side structural changes imply no sharp overcapacity peaks but instead a prolonged, sustainable growth runway.

• Corporate Fundamentals & Financial FrameworkOperating / Financial Leverage Analysis

  Operating leverage and per-employee productivity

  By observing stable headcount alongside rising output per employee, the analysis reveals declining fixed-cost absorption per unit of revenue — indicating latent margin expansion potential during scale-up. This is a critical indicator for assessing whether a manufacturer’s profitability can flex upward during growth phases.

• Event-Based Game Theory & Behavioral FinanceExpectation Gap / Expectation Management

  Impact of equipment acceptance timing on profit recognition

  The report identifies delayed equipment acceptance by customers — causing extra labor and commissioning costs to be expensed immediately — as a key contributor to prior margin weakness. With restored acceptance discipline, these suppressed profits will flow through, creating an expectation gap and potential for earnings upside or re-rating.

Asset mapping & comparison

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

• Leading Intelligence (300450.SZ)

  Primary direct beneficiary — global leader in lithium-ion battery equipment, main vehicle for accelerating ESS orders and new business breakthroughs.

  Strengths

  Approximately 25% global market share; high-quality customer base (concentrated among Tier-1 and Tier-2 battery makers); leading technological positioning in sodium-ion and solid-state batteries; improving operational efficiency.

  Weaknesses

  Still highly dependent on the domestic power battery market (~50% of orders linked), making it sensitive to EV sales volatility.

  Comparison

  Offers 23% upside versus the sector’s average -8% downside risk, implying greater valuation appeal.

  Risks

  Severe slowdown in EV development globally and in China; slower-than-expected ESS expansion; delays in new business execution.

• Leading Intelligence (0470.HK)

  H-share listing of the same company; identical fundamentals to A-shares, but trading at a valuation discount.

  Strengths

  Lower valuation (2027E 24x P/E), higher potential dividend yield, and stronger margin of safety.

  Weaknesses

  Lower liquidity relative to A-shares; typical H/A discount persists.

  Comparison

  Regression-based analysis indicates a 20% H-share discount versus A-shares, yet maintains the 'Buy' rating.

  Risks

  Same as A-shares, plus foreign exchange and Hong Kong market liquidity risks.

Key data

• 2026–2030 Revenue CAGR28%Forecast compound annual growth rate
• 2026–2030 Net Profit CAGR34%Forecast compound annual growth rate
• 2026 ESS Order Growth~2.5xYear-on-year projected growth
• Gross Margin (GPM) Forecast33% (2025) → 37% (2030E)Gradual recovery from trough toward contract-implied level
• Net Margin (NPM) Forecast11% (2025) → 15% (2030E)Driven by gross margin improvement and operating leverage
• A-Share Target PriceRMB 61.0Based on 2027E 30x P/E
• H-Share Target PriceHKD 55.6Based on 2027E 24x P/E (20% discount to A-share)

Impact & implications

The report posits that Leading Intelligence is transforming from a single-focus power battery equipment supplier into a platform-type premium equipment company. The rise of ESS not only offsets potential slowdowns in power battery demand but also optimizes order structure, enhancing earnings resilience. While new businesses (sodium-ion, solid-state batteries, humanoid robots) remain small in absolute scale, they offer substantial long-term valuation optionality. For investors, current A-share valuations trade below historical averages and offer superior upside potential versus peers — presenting an attractive entry point. H-shares, though discounted due to liquidity factors, provide additional safety margin.

Risks

• A significantly deeper slowdown in China’s and global electric vehicle (EV) development: Sustained EV sales decline would directly impact ~50% of power battery equipment orders.
• Slower-than-expected ESS capacity expansion: ESS demand is critical to offsetting power battery deceleration; any delay would impair revenue recognition and cash flow.
• Slower-than-anticipated expansion of new business segments (e.g., solar, consumer electronics, humanoid robots): If non-battery businesses fail to generate meaningful revenue promptly, the company remains overly exposed to cyclical battery equipment demand.

What to watch

• Q2 2026 new order trends, especially ESS order share and growth rate.
• Actual quarterly progress on gross margin (GPM) recovery toward the contract-implied 40% level.
• Order traction and scaling timelines for sodium-ion battery and all-solid-state battery (FSSB) equipment.
• Commercial milestone achievement under the humanoid robot partnership (e.g., delivery of first 1,000 units).