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<Research>Citi Lowers NIO-SW (09866.HK) TP to $53.7; Valuation Convergence w/ XPENG Brings Arbitrage Opportunity
Recommend 10 Positive 16 Negative 6 |
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NIO-SW (09866.HK) will announce its 2Q24 results today (5 Sep). Citi Research noted in a report that the continued growth in sales volume and slowdown in promotional activities will have a positive impact on NIO's gross margins in 3Q and 4Q. NIO is now valued at 0.8x 2024 and 0.6x 2025 projected P/S ratios, a discount to XPENG-W (09868.HK)'s 1.4x and 0.9x respectively. The broker expects the valuations of NIO and XPENG to converge in the next two years, opening up an arbitrage opportunity for NIO to benefit from the industry and policy-driven consumer downgrade tailwinds. Citi raised its earnings per share forecast for NIO from 2024 to 2026 by 1% to 9%, and lowered its target valuation multiple from 1.7x to 1.4x this year's P/E ratio. The broker correspondingly lowered its target price on NIO H-shares from $65.2 to $53.7, with the Buy rating maintained. The broker expected NIO's auto gross profit to recover to between 12.5% and 13.5% in 2Q after logging a sales recovery and a loss of about RMB4.5 billion. NIO has reduced promotional activities at the retail level over the past three to four weeks, which is expected to help gross margins in 3Q. In addition, the old-for-new replacement policies are expected to favour the performance of mid-priced cars in 4Q, and NIO will launch new products in late September, next year and 1Q25. Citi raised its sales volume forecasts on NIO for 2024/25/26 to 230,000 units, 364,000 units and 451,000 units and elevated its gross margin forecasts to 10.1%, 11.8% and 13.5% for each of the years, with new loss forecasts of RMB16.1 billion, RMB11.4 billion and RMB5.9 billion correspondingly. AAStocks Financial News |
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