Morgan Stanley: Contemporary Amperex Technology (03750) Concerns Appear Overblown; Share Price Does Not Reflect Improving Fundamentals

Morgan Stanley: Contemporary Amperex Technology (03750, 300750.SZ) Concerns Appear Overblown; Share Price Does Not Reflect Improving Fundamentals Morgan Stanley released a research report stating that Contemporary Amperex Technology (03750, 300750.SZ), as a structural growth play, trades in the A-share market at a yield of approximately 6.2% including buybacks, which appears to have already priced in a highly pessimistic scenario; the market remains focused on known risks and largely ignores improving fundamentals. The bank believes concerns over downward earnings revisions are overblown and views the stock as a top pick. The bank noted that even if third-quarter earnings come in at approximately RMB 24-25 billion, close to some sell-side expectations, it would still be fully in line with the bank's full-year earnings forecast of approximately RMB 95 billion. The bearish view assumes the market expects quarterly earnings of RMB 26 billion or above, corresponding to approximately RMB 100 billion for the full year (up about 40% year-on-year), but if buy-side investors truly anchored to this, the share price performance since April should have been far stronger than the current situation; the persistent weakness instead suggests market expectations have already been significantly revised down from the approximately RMB 100 billion scenario. The bank believes recent positive fundamentals have not yet been reflected in the share price, including the re-acceleration of energy storage deployment growth, strong tendering activity and the implementation of capacity price policies, accelerated truck electrification amid high diesel prices, and China's "anti-involution" push driving industry consolidation; Geely's sale of battery assets to Contemporary Amperex Technology also weakens the logic for OEMs to invest in battery self-sufficiency. The bank also noted that the company has a return on equity of approximately 30% and a return on invested capital of approximately 50%, and the current valuation appears to imply a significant decline in next year's earnings, contrasting with management's guidance of over 25% earnings growth in 2027; drivers such as accelerating EV penetration in Europe, electrification of commercial fleets, and global energy storage demand are also improving rather than deteriorating. Regarding a potential battery consumption tax, the bank's base case remains that as long as industry demand continues to grow more than 20% year-on-year, battery manufacturers can largely pass it downstream; if they had to absorb it entirely, more than 30% of industry capacity could fall into negative cash profitability, and amid tightening supply and capacity reduction, industry conditions should support pass-through.