TMTPost -- Shenzhen-listed shares of Contemporary Amperex Technology Co. Ltd. (CATL) surged by around 14.5% to RMB180.85 on Monday. The rally not just settled shares of the world’s largest elelctric vechile (EV) battery manufacturer to their highest close since November 16, 2023, but help drive the tech-heavy ChiNext Index to a technical bull market with a 4.6% rise that day.

Credit：Visual China

CATL shares surged after a plan about a new joint venture was announced and Morgan Stanley upgraded the battery giant. BAIC BluePark, an EV subsidiary of state-owned automaker BAIC Group, announced on Monday that it planned to form a venture with CATL, Xiaomi Corporation’s auto unit and Beijing Jingneng Technology Co., Ltd. (Jingneng Tech), a company under state-owned Beijing Energy Holding Co.,Ltd.

The new venture will have a registration capital of RMB10 billion. CATL, a co-founder that contributes RMB510 million, will hold a 51% stake in the venture, BAIC Hailanxin, a platform established by three BAIC Group’s subsidiaries including BAIC BluePark, will own 39% of its shares with their total input of RMB RMB390 million, and Xiaomi and Jingneng Tech will each hold 5% as they will invest in RMB50 milliion each, according to a BAIC BluePark statement.  The venture is poised to be located in Beijing Economic-Technological Development Area, a state-level economic and technological development zone in Beijing and engaged in development, production and sales of EV batteries.

In a research note released on Sunday, Morgan Stanley analysts, led by Jack Lu, raised their rating on CATL to overweight from equal weight, and hiked their target price by 14% to RMB210. The latest target price suggested these analysts predicted CATL shares should jump 32.9% from their Friday close in the coming year.

Morgan Stanley analysts believed CATL shares has priced in the U.S. Inflation Reduction Act and are set to benefit from better efficiency and an end to price competition. The increase in efficiency is said to come from  a new generation of large-scale production lines, which is expected to widen its advantage in terms of return on net assets. Analysts expected CATL to restore earnings before interest and taxes (EBIT) growth year-on-year in the next few quarters after a slowdown in the first quarter of 2024. “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 in the note.

As of the year 2023, CATL has ranked first in the world for seven consecutive years, according to SNE Research, a South Korean battery and energy research company. According to the company’s report last month, CATL’s EV battery consumption volume reached 259.7GWh in 2023, with an increase of 40.8% compared to 2022 and a market share as high as 36.8%, nearly 21% ahead of the second. CATL expected late January that net income of between RMB42.5 billion (US$5.92 billion) and RMB45.5 billion for the year 2023, increasing 38.31% to 48.07% from the previous year. While the net profit gain will slow down from 2022 that saw a gain of 92.89%, medium figure of the expected range beat analyst forecast of RMB43.9 billion. Given financial results in first three quarters of the year, net income for the fourth quarter will be between RMB11.4 billion and RMB14.7 billion. That range suggested CATL’s profit that quarter could decline 13.6% year-over-year (YoY) or rose 9.3%, and the profit would pop between 8.89% and 37.66% on quarterly basis.