By Jiahui Huang


Contemporary Amperex Technology's shares surged Monday on multiple drivers, including news of a collaboration with Chinese companies Xiaomi and BAIC Motor, as well as an upgrade by Morgan Stanley.

Shares of the battery specialist were 14% higher at 179.97 yuan (US$25.04) by midday, on track for their largest one-day percentage gain in more than three years. CATL, which supplies batteries to carmakers like Tesla, was the top riser in China's blue-chip CSI 300 index, with year-to-date gains climbing to 10%.

The move came after Morgan Stanley analysts raised their rating on CATL to overweight from equal weight and lifted the stock's target price by 14% to CNY210.

CATL could be "a cash cow in the long term," they said in a research note.

The Morgan Stanley analysts, led by Jack Lu, said they expect CATL to benefit from its new generation of mega production lines, which should boost its cost advantage and return on equity.

"With cost efficiency gains and a slowing capex cycle, we see the company as a value stock and cash machine, generating a free cash flow yield from 6% in 2024 to 10% in 2026," the analysts said.

Despite investor concerns about weak consumer demand China, the analysts said they expect demand for CATL's batteries to hold up reasonably well. The sales outlook for EVs that use CATL batteries seems robust in the year ahead, with new models potentially boosting orders.

Meanwhile, battery pricing competition is easing, and Morgan Stanley sees scope for CATL's margins to beat consensus views.

Monday's rally also comes as news emerged that CATL is working with Chinese tech company Xiaomi and automaker BAIC on a new factory venture.

BAIC said in a filing late Friday that it is planning a joint venture with the companies to build an advance battery cell factory in Beijing. CATL will invest CNY510 million in the JV and hold a 51% stake, BAIC said.

CATL didn't immediately respond to a request for comment on the JV.

CCB International analyst Qu Ke said the Morgan Stanley upgrade was likely the key catalyst behind Monday's share-price rally, noting that the stock has been consolidating for a while and there have been no major changes to its market share or client list.

CATL was China's top EV-battery maker in January, with a market share of 49%, according to data from China's Automotive Battery Innovation Alliance.


Write to Jiahui Huang at jiahui.huang@wsj.com


(END) Dow Jones Newswires

03-11-24 0113ET