CICC has initiated coverage on ZENERGY (03677) with an Outperform rating and a target price of HK$11.40, based on a PE valuation method, implying a 26.0x multiple (2026E) and 20.6% upside potential. The company is a leading Chinese power and energy storage battery manufacturer.

CICC forecasts EPS of RMB 0.20 and RMB 0.40 for 2025 and 2026, respectively, with a 2024-2026 CAGR of 236%. The firm believes ZENERGY has passed the inflection point for scaled profitability, with earnings expected to stabilize and improve. Potential catalysts include: 1) securing new orders, and 2) better-than-expected profit growth. Key insights from CICC:

**EV Penetration and Emerging Applications Drive Growth** According to Frost & Sullivan, China's power battery installations are projected to grow to 1,961.4GWh by 2029, with a 2024-2029 CAGR of 29.0%. Additionally, rapid demand growth in energy storage, electric ships, and electric aircraft is expanding long-term opportunities for lithium batteries. CICC expects second- and third-tier battery manufacturers to gain market share through technological innovation, scaled production, and customer advantages.

**Diversified Product Portfolio Meets Market Needs** ZENERGY has developed a multi-path product portfolio, covering LFP and ternary materials, BEV/PHEV power types, and applications like EVs, electric aircraft, and ships. In 2024, the company held a 2.0% domestic market share in LFP power batteries, 1.8% in PHEV batteries, and over 70% in HEV battery packs for Toyota via its partnership with XZY Toyota.

**Turning Point in Fundamentals Supported by Customer Base and Cost Control** Despite smaller revenue and shipment scales compared to peers, ZENERGY has achieved a fundamental inflection point due to flexible manufacturing, high utilization rates, and cost efficiency. CICC expects further customer expansion and economies of scale to drive sustained profit improvement.

**Risks**: Weak downstream demand, intensifying competition, slower customer expansion, high client concentration, raw material price volatility, technological shifts, and delayed capacity expansion.