DBS: Cuts Contemporary Amperex Technology (03750) target price to HK$695, maintains "Buy" rating.

DBS issued a research report stating that Contemporary Amperex Technology's (03750, 300750.SZ) profitability is expected to weaken due to rising tax rates, with unit profit forecast to decline quarter-on-quarter, though long-term growth potential remains. The bank maintains its "Buy" rating, cuts the H-share target price from HK$736 to HK$695 and the A-share target price from RMB484 to RMB438, and lowers next year's earnings per share forecast from RMB24.2 to RMB21.9. Contemporary Amperex Technology's third-quarter revenue was RMB165.2 billion, up 58.6% year-on-year and 11.8% quarter-on-quarter; battery shipments exceeded 260 GWh, up 58% year-on-year and 12% quarter-on-quarter. Gross margin fell 5.1 percentage points year-on-year and 2.5 percentage points quarter-on-quarter to 20.7%; net margin attributable to shareholders fell 4.9 percentage points year-on-year and 2.4 percentage points quarter-on-quarter to 12.9%. The company's third-quarter profit attributable to shareholders rose 14.5% year-on-year but fell 5.8% quarter-on-quarter to RMB21.2 billion, while unit profit fell 16% quarter-on-quarter to RMB0.082 per Wh, below market expectations, mainly due to higher tax rates and a lower-end product mix. The export VAT refund rate for battery products was cut from 9% to 6% starting in April this year, with the adverse impact mainly reflected in the third quarter; the 2% battery consumption tax effective from September this year was largely absorbed by battery makers at tax-inclusive prices, as repricing with customers could not be completed in time. The bank expects industry profitability to remain under pressure next year, as China's battery export VAT refund rate will be cut from 6% to zero in 2027, and the battery consumption tax will rise further to 4% in September 2027, so unit profit pressure may persist. However, the company continues to target 20% to 30% year-on-year shipment growth in 2027 and expects sales to expand steadily through 2030. If overseas demand for electric vehicle and energy storage batteries is stronger than expected, continued shipment growth should partially offset the decline in unit profit.