Key insights
- CATL's Q1 earnings significantly exceeded expectations, driven by growth in energy storage and AI data center power solutions, not just EV batteries. The large premium of its H-shares over A-shares suggests global investors are pricing in this shift, which standard China tech ETFs are missing. While operating cash flow growth lagged profit growth and a major shareholder is selling shares, the company's pivot towards AI-related applications could present new growth opportunities.
CATL dropped Q1 last week and the gap between the numbers and what the sell side was modeling is genuinely weird. Net profit up 48.5%, revenue up 52.5%, against a Reuters poll looking for around 20.9% on profit. Hello China Tech pointed out that roughly a dozen brokerages missed the revenue line by 40%. When a name this widely covered gets mismodeled at that scale, I think the question stops being whether the quarter was good and starts being whether the sell side is still tracking a battery company when the growth is actually coming from somewhere else.
The other thing catching my eye is the H share premium. It's sitting around 38% above the A, which for an A+H name is almost never how it trades. BYD's H is a few points below its A. ICBC's is close to 20 below. Something about how global money is pricing this is clearly out of sync with mainland.
What I think is actually going on is the mix. Storage shipments roughly doubled in Q1 on Huatai's numbers. They just put around 570 million dollars into Zhongheng, a domestic 800V HVDC supplier, which only makes sense if you're betting on AI data center power. Super Tech Day on April 21 was the loudest version of that pivot, swap stations, condensed batteries, sodium going to mass production. Models built for an EV cycle aren't going to catch that.
Worth flagging that operating cash flow only grew 2.5% against the 48% profit print, which is a real divergence. Morningstar's been pretty public that dual sourcing will eventually compress unit margins. And the fourth largest shareholder filed to sell 58 million shares basically at the highs.
One thing that surprised me when I started looking into this is that most US accessible China tech ETFs don't actually hold CATL. KWEB, CQQQ, HSTECH all skip it or barely carry it because they're built around internet and HK listed names. I ended up finding CNQQ, which holds it as its third largest position alongside stuff like BYD and Cambricon that also don't show up in the usual suspects. Not saying it's the only way in, the H share (3750.HK) trades directly, but for a passive wrapper it was the only one I could find that actually gave me the A share exposure.
Curious if anyone here has a read on why the A/H gap is holding instead of closing, or if you're playing this through a different vehicle.