GF Securities Co.,Ltd. (HKEX: 01776) released a research report noting that the lithium battery industry chain in 2026Q3 is in a state of strong reality and weak expectations. The firm is optimistic that pessimistic expectations for lithium battery demand will gradually recover, leading to valuation repair for leading battery makers. Additionally, it favors copper foil and separator segments where supply expansion is relatively restrained, as well as aluminum foil benefiting from sodium-ion batteries.

The main points from GF Securities Co.,Ltd. (HKEX: 01776) are as follows:

26Q3 Lithium Battery Boom Continues, Batteries Affected by Taxes, Copper Foil, LFP, Electrolyte, and Separator Stand Out

The lithium battery industry chain maintained high prosperity in 2026Q3, with batteries significantly affected by export tax rebate and consumption tax policies, while copper foil, LFP, electrolyte, and separator segments showed outstanding profitability. According to Tonghuashun data, in 2026Q3, revenue growth for battery/LFP/electrolyte/anode/separator/copper foil/aluminum foil was 33.56%/154.16%/92.12%/44.44%/38.44%/80.39%/27.04% year-on-year, with net profit attributable to parent growth of 8.08%/1079.43%/855.60%/45.77%/284.14%/1593.17%/185.68%. Profits in the lithium battery chain are mainly concentrated in the battery segment, which holds a dominant position, but as supply-demand dynamics improve, midstream material segments are seeing rapid profit recovery.

Battery Profitability Under Pressure Mainly Due to Consumption Tax and Export Tax Rebate; Midstream Material Profits Diverge, Copper Foil and Separator Improve QoQ, 6F and LFP Decline QoQ

Battery segment gross margins are under pressure mainly due to consumption tax and export tax rebates. According to the Ministry of Finance website, a 2% consumption tax was levied starting September 1, impacting one month; export tax rebate rate dropped from 9% to 6% on April 1, affecting the entire quarter. Midstream material gross margins diverged, with copper foil and separator improving quarter-on-quarter, while 6F and LFP declined quarter-on-quarter. This is believed to be related to the pace of supply-side releases in different segments and their cyclical profit positions. Copper foil and separator improved QoQ mainly because unit profits remain at low levels, manufacturers are reluctant to expand capacity, and there is still room for further price increases; electrolyte and LFP declined QoQ, highly correlated with falling lithium carbonate prices.

Rising Prosperity + Corporate Stockpiling, Short-Term Cash Flow Tight

Most companies in the industry saw their debt-to-asset ratios rise year-on-year, with individual stock performance diverging. In 2026Q3, among 60 sample companies in the lithium battery chain, 48 saw debt-to-asset ratios increase year-on-year, while 12 decreased. Operating cash flow performance diverged across the chain, with the number of companies reporting negative values roughly flat compared to the same period last year. According to Tonghuashun data, among the 60 sample companies, those with negative net operating cash flow in 2025Q3/2026Q3 were 20 and 19 respectively, mainly concentrated in the material segment.

Fixed Asset, Inventory, and Accounts Receivable Turnover Ratios Improved Year-on-Year

Fixed asset turnover: Among the 60 sample companies, 52 saw year-on-year improvement, accounting for about 87%. Inventory turnover: 38 out of 60 companies improved year-on-year, about 63%. Accounts receivable turnover: 53 out of 60 companies improved year-on-year, about 88%.

Lithium Battery Boom Continues, Batteries Await Tax Implementation, Material Profits Diverge

ROE: In 2026Q3, industry profitability is at a medium-to-high historical percentile. ROE changes quarter-on-quarter varied across segments, with inconsistent profit improvement rhythms. Historical percentiles for ROE in battery/LFP cathode/electrolyte/lithium hexafluorophosphate/anode/separator/aluminum foil/copper foil were 44%/42%/77%/54%/51%/55%/66%/49%. Most companies had positive ROE, though a few remained negative. Quick ratio: Short-term cash flow pressure in the chain is significant. Fixed asset turnover: Capacity utilization is at a relatively high historical percentile. Risk warnings: Lithium battery sales below expectations, energy storage demand below expectations, technology upgrade progress below expectations, and production ramp-up below expectations.