CATL’s stock touted as cheap even after a US$110 billion rally

[HONG KONG] Cheap is not an adjective one would typically associate with a stock that’s nearly doubled in a matter of months. But that’s exactly how some investors are describing Contemporary Amperex Technology Co Limited (CATL).

The Shenzhen-listed stock of the world’s biggest battery maker has surged nearly 75 per cent since this year’s low in early April, adding US$110 billion to its market value. That’s owing to optimism that its dominant position in the rapidly expanding energy storage battery system, or ESS space, both in terms of market share and technology, will boost future profits.

Still, at about 22 times its one-year forward earnings, CATL’s stock has the lowest valuation among pure battery makers on a global Bloomberg Intelligence gauge of the sector. For the likes of BNP Paribas Asset Management Asia and JPMorgan Chase, that’s a sign the stock is not yet pricing in the potential for growth.

Companies around the world are increasingly turning to ESS to manage peak loads and avoid costly infrastructure upgrades as the artificial-intelligence (AI) boom drives a surge in electricity demand, especially from data centres. The overall ESS market is projected to grow from US$668.7 billion in 2024 to US$5.1 trillion by 2034, reflecting a compounded annual growth rate of 21.7 per cent, according to Global Market Insights.

“AI is driving electricity demand globally, and ESS is the fastest way to scale capacity,” said Roxy Wong, senior portfolio manager at BNP Paribas Asset Management Asia. “ESS relies heavily on LFP batteries, an area where CATL excels, giving it a distinct competitive edge,” he said, referring to lithium iron phosphate batteries.

“CATL is cheaper than peers, many of whom have much lower margins.”

While CATL shares have been on a tear, their advance trails the rally in smaller peers such as Gotion High-tech and Eve Energy, which have soared 132 per cent and 79 per cent since their respective lows in April.

‘Cheapest globally’

The discount to peers saw JPMorgan recently raise its price target for CATL by about 26 per cent to 480 yuan apiece, touting it as the “cheapest battery stock globally”. The stock closed at 366.89 yuan on Thursday (Sep 18), near an all-time high of 382.22 yuan reached in late 2021.

JPMorgan analysts also upgraded the firm’s Hong Kong-listed shares to overweight.

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The recent surge in CATL’s stock has also been aided by policy tailwinds. Chinese authorities last week unveiled a special action plan to boost the energy storage industry with a goal of having more than 180 gigawatts of capacity by 2027, which should drive around 250 billion yuan (S$45 billion) in investments.

“This is only the beginning of a re-rating pathway for CATL, and we expect such re-rating to continue towards the year-end,” said Horace Tse, an analyst at CLSA. “The company achieves much higher profitability vs peers in ESS battery cell production, thanks to economics of scale and supply chain optimisation.”

While investors remain bullish on energy storage, CATL’s core electric vehicle (EV) battery business, which contributes the bulk of its revenue, faces headwinds from softening demand from Europe’s automakers and a maturing Chinese EV market. Some investors also pointed to potential risks to the business from US tariffs as the firm counts Tesla and Ford Motor among its customers.

For now though, CATL’s stock is also seen benefiting from renewed investor interest for China’s broader equity market, given its blue-chip status. Its shares command among the highest weightings in the benchmark CSI 300 Index, which is set for a fifth month of consecutive gains.

“Most investors believe CATL has a meaningful growth story,” said Eugene Hsiao, the head of China equity strategy at Macquarie Capital, who rates the stock a buy. “It’s a large, liquid, quality name – if foreign inflows return to China, CATL will likely be among the first to benefit.” BLOOMBERG