Contemporary Amperex Technology Co. Ltd. (300750) Report Interpretation

Overview

This report argues that market concerns over CATL's earnings revisions and a possible third-quarter miss are excessive. Morgan Stanley believes valuation already embeds a bearish outlook that is inconsistent with improving battery-demand drivers, CATL's competitive position and management's guidance for more than 25% earnings growth in 2027.

Core views

Morgan Stanley argues that concerns over forecast revisions or a third-quarter earnings miss are overstated. Its Rmb95bn full-year earnings forecast remains consistent with third-quarter earnings of Rmb24-25bn, the range around which several sell-side previews are centered. In contrast, the bearish interpretation assumes investors expect Rmb26bn or more for the quarter and roughly Rmb100bn of full-year earnings, equivalent to 40% year-on-year growth. The report reasons that, had that higher outcome remained the prevailing buy-side expectation, CATL's shares would likely have performed much better since April. Sustained weakness therefore suggests that expectations have already been reduced meaningfully. The report contends that the market is pricing familiar negatives while missing improving fundamentals. It identifies re-accelerating ESS deployment, strong tender wins and capacity-pricing policy rollout as supportive for storage demand. Commercial-truck electrification is also gaining traction as diesel prices reach all-time highs, with Asia cracks cited at US$70/bbl. China's anti-involution campaign is described as accelerating industry consolidation. At the company level, Geely's disposal of battery assets to CATL is presented as further evidence that the case for OEM battery self-sufficiency is weakening, concentrating scale, technology leadership and manufacturing know-how among leading battery producers. Morgan Stanley consequently views concerns about OEM sourcing diversification as overstated. Morgan Stanley highlights what it considers a valuation mismatch: a structural-growth company capable of roughly 30% ROE and roughly 50% ROIC trades on a stated 6.2% yield including buybacks. In its view, this valuation implies a significant earnings decline next year, conflicting with management's guidance for more than 25% earnings growth in 2027. The report says demand indicators are improving rather than worsening: European EV penetration is accelerating, commercial-fleet electrification remains on track, and global ESS demand could benefit from rising LNG prices and tighter energy markets. It adds that TTF gas prices approaching US$30/mmBtu in coming quarters could further improve the economics of storage deployment. On the potential battery consumption tax, Morgan Stanley's base case is that producers would largely pass a new tax through to downstream customers if industry demand remains above 20% growth. The reasoning is that more than 30% of industry capacity would likely become cash-loss-making if battery makers absorbed the tax entirely. Tightening supply, efforts to address overcapacity and evidence that battery prices have already risen by about 20% with higher lithium costs while demand stayed robust are cited as factors supporting pass-through. For the A-share valuation, Morgan Stanley applies a 15x multiple to 2027E EBITDA, implying 22x 2027E P/E. It says this is both in line with the five-year average and the global-peer average, while its target value remains at a 30% discount to its DCF-based NAV. For CATL's H-shares, it applies 17.5x 2027E EV/EBITDA, implying 25.4x 2027E P/E, including a 20% H/A premium relative to the A-share target multiple.

Analysis framework

Morgan Stanley first tests whether a potential quarterly miss would invalidate its full-year earnings forecast, then infers market expectations from share-price weakness. It evaluates demand, industry structure and OEM sourcing trends, considers tax pass-through economics, and values CATL against historical and global-peer EV/EBITDA multiples while cross-checking the result against DCF-based NAV.

Methodology notes

• Valuation methodsEV/EBITDA valuation

  EV/EBITDA multiple valuation

  Morgan Stanley values CATL's A-shares at 15x 2027E EBITDA and its H-shares at 17.5x, comparing the multiples with the five-year average and global battery peers.

• Valuation methodsDCF (Discounted Cash Flow)

  DCF-based net asset value cross-check

  The report compares its target value with DCF-based NAV and states that the target is set at a 30% discount to that value.

• Industry AnalysisSupply-demand framework

  Battery supply-demand and tax pass-through analysis

  The report links demand growth above 20%, tightening supply, overcapacity remediation and negative cash profitability at part of industry capacity to its view that a battery consumption tax could be passed through.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Contemporary Amperex Technology Co. Ltd. (300750.SZ)

  Primary covered A-share; Morgan Stanley's Top Pick with an Overweight rating

  Strengths

  Scale, technology leadership, manufacturing know-how, improving ESS and electrification demand, and a more favorable competitive landscape.

  Weaknesses

  The share price has remained weak since April amid concerns about forecast revisions and a potential third-quarter earnings miss.

  Comparison

  The 15x 2027E EV/EBITDA target multiple is stated to be in line with the five-year average and global battery peers' average.

  Risks

  Weaker EV and ESS adoption, competitive threats, supply-chain decoupling and stalled market-share gains.

• Contemporary Amperex Technology Co. Ltd. (03750.HK)

  Covered H-share listing valued using a higher target multiple

  Strengths

  The report applies a 20% H/A premium in its valuation framework.

  Comparison

  Morgan Stanley assigns 17.5x 2027E EV/EBITDA, versus 15x for the A-shares.

  Risks

  Subject to the same operating, competitive and geopolitical risks discussed for CATL.

Key data

• A-share ratingOverweightMorgan Stanley's current rating for Contemporary Amperex Technology Co. Ltd. (300750.SZ)
• A-share target priceRmb595.00Implied 88% upside to the Sep. 15, 2026 closing price of Rmb316.36
• Full-year earnings forecastRmb95bnMorgan Stanley states that Rmb24-25bn of 3Q earnings would remain consistent with this forecast
• Management 2027 earnings guidance>25% growthCited as inconsistent with valuation implying a significant earnings decline next year
• 2027E A-share valuation15x EV/EBITDA; 22x P/EIn line with the stated five-year average and global-peer average
• 2027E revenue forecastRmb764,053mnMorgan Stanley Research estimate
• 2027E net income forecastRmb125,140mnMorgan Stanley ModelWare framework, GAAP or approximated based on GAAP

Impact & implications

Morgan Stanley believes CATL's current valuation is inconsistent with its demand outlook, market-share position and earnings-growth prospects. The report sees potential upside if ESS deployment, EV penetration, commercial-fleet electrification, industry consolidation and battery-tax pass-through develop as expected.

Risks

• EV penetration and ESS adoption could be weaker than expected.
• Other battery makers could pose greater competitive threats.
• Geopolitical risks could cause battery-supply-chain decoupling.
• CATL's market-share gains could stall.

What to watch

• Third-quarter earnings relative to the Rmb24-25bn range and Morgan Stanley's Rmb95bn full-year forecast.
• ESS tender wins, deployment growth and capacity-pricing policy rollout.
• Commercial-fleet electrification and diesel-price conditions.
• European EV penetration, LNG and TTF gas prices, and their effect on ESS economics.
• Developments in a potential battery consumption tax and evidence of industry pass-through.
• OEM battery-sourcing strategy and CATL's market-share trajectory.