How pronounced was the improvement in third-quarter profitability?

  • Enjie’s third-quarter 2026 revenue was 5.556 billion yuan, up 17% quarter on quarter and 47% year on year; net profit was 974 million yuan, up 74% quarter on quarter and in line with the midpoint of the range implied by the company’s earnings guidance.
  • Quarterly gross margin rose from 31.4% in the second quarter to 36.6%, an increase of 5.2 percentage points. Net profit per square meter, calculated from the area of separator shipments, rose from 0.13 yuan in the second quarter to 0.21 yuan, compared with 0.07 yuan in the first quarter.

Why did profit per square meter still rise when CATL had not accepted a price increase?

  • JPMorgan attributed the improvement to both product mix and selling prices: higher-margin coated separators accounted for a greater share, while price increases for second-tier battery makers began to take effect.
  • All separators the company sells to CATL are base films, and their share of shipments has fallen from around 35%–40% in the previous year to below 30%. Second-tier battery makers mainly purchase higher-margin coated separators. Management believes that as CATL’s share declines, its impact on overall profitability is also diminishing.
  • CATL’s purchase prices have not yet risen. Separator shipments totaled approximately 4.55 billion square meters in the third quarter, up 75% year on year; the improvement in profitability was therefore not entirely dependent on a price increase for this customer.

How do impairment, cash flow and valuation affect the assessment?

  • Third-quarter profit growth was achieved after recognizing an impairment loss of 107 million yuan, mainly from inventory write-downs; the impairment loss in the second quarter was 16 million yuan. Operating cash flow for the same period was 880 million yuan, approximately 90% of net profit attributable to the parent company.
  • Operating cash flow reached 2.04 billion yuan in the first nine months of 2026, up 133% year on year, mainly due to increased cash receipts from sales.
  • JPMorgan expects global wet-process separator capacity utilization to improve over 2026–2027, with the company’s earnings recovery driven mainly by higher unit profit. The bank also expects the profit pool across the battery supply chain to be redistributed in 2027 and considers the current valuation reasonable.
  • The bank maintains a neutral rating and a June 2027 price target of 50 yuan, corresponding to 13 times expected 2027 earnings. Industry demand, unit profit, price competition and new capacity will all affect this assessment.