The secondary listing of Hong Kong stocks, Ning Wang sounds the horn for the "second wave of growth"

Global power battery leader CATL has officially sounded the horn for its "second wave of growth."

Recently, CATL announced plans for a secondary listing in Hong Kong, intending to issue no more than 5% of the total share capital as H-shares post-issuance. Morgan Stanley estimates that the financing scale will reach USD 6.8-7.7 billion.

Morgan Stanley believes that, based on its existing net cash of USD 20.8 billion (cash reserves), this additional funding will help the company accelerate its global capacity layout, including the expansion of its Hungarian factory and the joint construction of a 50GWh capacity factory with Stellantis in Spain, among other projects, and will support the construction of battery swap stations and upgrades to solid-state battery production lines.

Financing Scale: Estimated at USD 6.8-7.7 billion

In estimating the financing scale, Morgan Stanley mainly referenced the recent discount levels of secondary listings in the Hong Kong stock market, predicting that CATL's H-share issuance price will be discounted by 10-20% compared to A-shares, thus estimating the financing scale to be between USD 6.8-7.7 billion:

Considering the approximately 20% discount rate for Midea Group and SF Holding during their H-share secondary listings in 2024 compared to A-shares, as well as the current discount levels of about 5% and 20% for the two companies respectively, and referencing BYD's current 12% discount for H-shares compared to A-shares,

we estimate that the H-share issuance price will be discounted by 10-20% compared to A-shares, leading to an estimated financing scale of USD 6.8-7.7 billion.

Acceleration of Global Expansion Strategy

Morgan Stanley believes that CATL is entering a new round of capital expenditure cycle, with the European market being a key area for layout. The research report analyzes:

After a slowdown in capital expenditures over the past 1-2 years, we believe CATL may enter a rising capital expenditure cycle to support future growth opportunities. We consider this H-share secondary listing necessary to support its global expansion plans.

In addition to the Hungarian expansion plan, CATL recently announced a joint venture with Stellantis to build a 50GWh capacity factory in Spain, with a total investment of approximately USD 4.2 billion. Considering the fuel vehicle exit plan in the EU region, we believe there may be more projects in this region in the long term.

It is worth mentioning that the research report also specifically highlighted potential opportunities in the U.S. market:

Furthermore, if elected President Trump allows CATL to build factories in the U.S., it will require more capital expenditure. Therefore, opening international financing channels is crucial to support the company's long-term global expansion plans.

Existing Capital Reserves Layout

Regarding the large amount of cash held by the company, Morgan Stanley believes it will mainly be used for two strategic directions:

1. Battery Swap Station Network Construction:

The company holds net cash of USD 20.8 billion. We believe that some of these funds will be used for the construction of domestic battery swap station networks. Although battery swap stations are considered heavy asset investments, they are necessary to leverage the company's battery longevity advantages, accelerate the electrification process of transportation, including trucks, and maintain market share dominance.

1. Solid-State Battery Technology Layout:

In addition, the development of solid-state battery technology is accelerating, which may require large-scale capital investment in the long term to replace existing production lines.

High ROE Business Model Continues to Lead

Morgan Stanley holds an optimistic view on CATL's future development, believing it will continue to maintain a high ROE level:

Over the past five years, the company has demonstrated strong ROE creation capability through product innovation and improved capital efficiency. We expect that in the second wave of growth, the company is likely to continue maintaining a high ROE level.

The research report further points out two key factors supporting the high ROE:

We believe that against the backdrop of global energy transition, the company's continuous innovation will create new battery demand and expand the total addressable market (TAM) for batteries. We also think that the product diversification strategy will help improve profit margins