Morgan Stanley commented that Li Auto (LI.US) (02015.HK) +1.550 (+1.922%) Short selling $281.89M; Ratio 13.888% surprised investors by delaying the launch of its battery electric vehicle (BEV) model, while its 1Q24 results fell short of expectations. However, the broker considered the recent sell-off to be still too aggressive, and believed the stock has been penalised by a revaluation that was driven by poorer management and market expectations.
With average monthly sales of 30,000 units in 2Q24, US$10.5 billion net cash, 18% gross automotive margin, and minimal contribution from BEVs and overseas markets, the broker said Li Auto deserved reconsideration as market expectations have been adjusted in major ways.
Morgan Stanley lowered its sales volume forecasts for Li Auto by 13% and 10% for this year and next, mainly reflecting the delayed launch of the BEV model and the weak rebound in demand for L7, L8 and L9 due to intensified competition in the market. The broker also dropped its gross margin forecasts to reflect weaker-than-expected volumes and the dilutive effect of increased sales of L6. On the other hand, corporate restructuring and resource optimisation will save part of the operating expenditures, and the company is expected to make a net profit of RMB9.9 billion this year.
The broker considered that the drop in Li Auto's ADR share price to US$21 reflected a more pessimistic forecast, with the over 50% decline from its February high being over-representative of the disappointing fundamentals. The stock trades at a projected P/B ratio of 1x, versus 1.1x-1.2x at peers, and has reasonable earnings and cash flow. Thus, the broker further believed investors should start to reconsider the automaker's potential for delivering more positive results.
Morgan Stanley maintained its Overweight rating on Li Auto and trimmed its target prices for Li Auto's Hong Kong shares and ADRs from HK$233 and US$65 to HK$205 and US$53 respectively.
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-05-22 16:25.) (Real-time Streaming US Stocks Quote; Except All OTC quotes are at least 15 minutes delayed.)
