CATL’s 92% rally in Hong Kong faces threat from lockup expiry
Besides cashing out on the stock’s stellar gains, investors have at least one more reason to sell: valuation
[HONG KONG] Shares of Contemporary Amperex Technology Co Limited (CATL), up 92 per cent since their listing in Hong Kong this May, are bracing for a crucial test as selling restrictions on early investors expire on Wednesday (Nov 19).
The end of the six-month lockup period will potentially free up about 77.5 million shares, based on data from the Chinese battery giant’s prospectus. That’s seen spurring volatility and adding pressure on the stock. CATL raised HK$35.7 billion (S$6 billion) in the world’s biggest listing this year, luring 23 cornerstone investors including state-owned oil company Sinopec, the Kuwait Investment Authority and Hillhouse Investment.
Besides cashing out on the stock’s stellar gains, investors have at least one more reason to sell: valuation. While Hong Kong shares of dual-listed Chinese companies typically trade at a discount to their mainland-traded peers, CATL is a rare case where its so-called H-stock is about 20 per cent pricier than its A-stock after adjusting for exchange rates, data compiled by Bloomberg show.
“The stock price is likely to face some pressure, given the high proportion of shares held by cornerstone investors,” said Kenny Ng, a strategist at China Everbright Securities International. “In addition, CATL’s post-IPO rally has been quite significant, and Hong Kong shares trade at a premium compared to A-shares. From a capital perspective, I believe investors may be inclined to sell early to lock in profits.”
JPMorgan Chase said last week that the expiry may act as a key catalyst for narrowing the H-shares’ premium over their onshore counterparts. It recommended investors to buy the Shenzhen-traded shares and sell the ones listed in Hong Kong.
While some strategic investors, such as Sinopec and Kuwait Investment Authority, are unlikely to sell, there could be selling pressure given the rally or due to rotation by some investors into onshore peers because of the premium level, the bank’s sales and trading desk wrote in a note.
Buying opportunity
That said, some market watchers see the lockup expiry as having a short-term impact. They tout the long-term potential for CATL, which commands a dominant position in the rapidly expanding energy storage battery system, or ESS space, both in terms of market share and technology.
Companies around the world are increasingly turning to ESS to manage peak loads and avoid costly infrastructure upgrades as the artificial intelligence boom drives a surge in electricity demand, especially from data centres.
“Any corresponding weakness in shares due to the lockup expiry should be an opportunity to buy for long-term investors,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital. “Under-appreciated energy storage system growth is one of several reasons why we see CATL sustaining earnings momentum through the next two to three years.”
Investors are also keeping an eye on the outcome of the quarterly review of Hang Seng Indexes to be announced on Friday. Willer Chen, an analyst at Mizuho Securities Asia, sees the possibility of CATL’s stock being included in the benchmark Hang Seng Index as well as the Hang Seng Tech Index.
“If the inclusions happen, they could lead to inflows and support the share price post the lockup expiry,” he said.
Even so, CATL’s stock in Hong Kong has already shown signs of weakness in recent weeks ahead of the expiry, losing 17 per cent since a peak in early October. In contrast, the mainland-listed shares have climbed in each of the last four weeks.
“Actual selling pressure will largely depend on the behaviour of cornerstone investors, particularly whether they are financial or strategic,” said Chen. BLOOMBERG
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