EVE Energy: Overseas customers improve profitability, so why did Nomura raise its earnings forecasts but cut its price target?
A higher contribution from overseas customers improved the third-quarter gross margin; the company raised its 2027 shipment targets, and Nomura consequently revised its earnings forecasts upward. But the tax burden, dilution from the trading business and cash spending on capacity expansion are constraints, while industry policy pressure also prompted Nomura to lower its valuation multiples.
Original source：Nomura International (Hong Kong) Ltd.First published on Unhidea：Original source date：
Key takeaway
Nomura is optimistic about the earnings improvement from overseas customers and shipment growth, but lower valuation multiples and greater funding needs for capacity expansion meant the earnings upgrades did not translate into a higher price target.
Was third-quarter profit growth driven by price increases or a change in customers?
EVE Energy reported third-quarter 2026 revenue of 27.7 billion yuan, up 65% year on year and 11% quarter on quarter. Net profit attributable to shareholders was 1.94 billion yuan, up 60% year on year and 5% quarter on quarter, slightly above the midpoint of the company's previous guidance for year-on-year growth of 49%–69%.
Gross margin reached 14.7%, up 1 percentage point year on year and 0.2 percentage points quarter on quarter. Nomura believes battery prices were broadly stable quarter on quarter and that the improvement came mainly from a higher contribution from overseas customers, offsetting pressure from the industry's additional tax burden.
The improvement in gross margin did not translate into a corresponding rise in net margin: the quarterly net margin was about 7.0%, down 0.4 percentage points quarter on quarter. Thus, the improved customer mix and revenue expansion have yet to produce an equivalent quarter-on-quarter increase in net profit.
Why were the 2027 shipment targets raised substantially?
At its earnings call, the company raised its 2027 shipment targets to year-on-year growth of about 100% for power batteries and about 50% for energy-storage batteries. The power-battery target is supported by demand for large cylindrical batteries from overseas automakers including BMW, and a doubling of commercial-vehicle battery shipments to domestic and overseas customers.
The increase in energy-storage shipments comes mainly from overseas demand. The newly announced Fluence order is expected to account for 16 GWh of shipments in 2027. This provides concrete order support for energy-storage growth, although delivery still depends on the necessary production capacity.
How much will capacity expansion for growing orders cost?
Domestic projects in Hefei, Jingmen, Chengdu and Huizhou will support growth in large cylindrical batteries and ease capacity constraints on energy-storage batteries. The Hungary plant is expected to begin production in the second half of 2027 to meet local production requirements in the European market; its capacity will take time to come online.
Nomura's model puts 2027 capital expenditure at 40 billion yuan, above operating cash flow of 23.472 billion yuan, implying negative free cash flow of 16.528 billion yuan. The model projects year-end cash falling to 7.965 billion yuan and net debt rising to 19.977 billion yuan, meaning profit growth and cash consumption will occur at the same time during expansion.
With a more optimistic shipment outlook, why were earnings forecasts raised by only 6%–8%?
Nomura raised its 2027 attributable net profit forecast from 9.862 billion yuan to 10.695 billion yuan, and its 2028 forecast from 12.229 billion yuan to 12.989 billion yuan, mainly reflecting higher shipments and a greater share of overseas customers.
But margin dilution from the trading business and a higher tax burden offset some of the benefits. The 2027 revenue forecast is 16% higher than in the previous model, while profit is only about 8% higher; the gross-margin forecast was instead cut from 16.5% to 15.3%. The improved customer mix is still insufficient to offset the full effect of other business and cost changes in the model.
Why did the price target fall from 100 yuan to 76 yuan after earnings forecasts were raised?
Nomura lowered its valuation because of industry policy pressure: the 2027 price-to-earnings multiple applied to the power and energy-storage battery businesses fell from 25 times to 18 times, and that for consumer batteries from 20 times to 12 times. The 31% stake in Smoore is included at its latest market value. The effect of lower valuation multiples exceeded that of the earnings upgrades.
Nomura maintained its buy rating. Its 76 yuan price target corresponds to a price-to-earnings multiple of 15.4 times 2027 earnings per share of 4.92 yuan, and is 71.4% above the 23 October closing price of 44.33 yuan. Its optimistic assessment is tempered by the risks of excess supply from overly rapid power-battery capacity expansion and intensifying price competition at home and abroad.
