Written by Cláudio Afonso | LinkedIn | X
HSBC analyst Yuqian Ding published on Friday a new research note lowering the firm’s estimates for Nio’s net profit over the next three years.
However, HSBC is confident on the company’s volume growth outlook due to the “accelerating product cycle” that started in September with the launch of sub-brand’s first model.
The analyst cut the forecast by between 26 and 39 percent given the “diluted product mix” with the introduction of new and cheaper sub-brands Onvo and Firefly.
“We lower our 2024-26e net profit by 26-39%, mainly on lower gross margin as a result of diluted product mix given the lower priced Onvo and new brand Firefly delivery outlook.
Firefly, a brand focused on “boutique cars” will be unveiled at Nio’s next annual event on December 21. The debut model will be revealed by then and the first deliveries are expected to start next year.
As a result of the estimate cut, the price target was adjusted from $7.90 to $7.20 while a Buy rating on the stock was maintained. Earlier this year, in March, HSBC had reduced its price target on the shares from $10.20 to $7.90.
On Thursday, the stock closed at $6.22 and is, as of the time of writing, trading at 2.17 percent lower during the pre market trading session at $6.09.
“Continuing cost optimization likely to improve margins into 2H24e. On 5 September 2024, Nio reported a 2Q24 net loss of RMB5.1bn, slightly below our previous estimates, as we underestimated the sales expense for refreshed models’ marketing in this period,” Ding noted.
As Onvo’s debut model is set to send Nio Group monthly deliveries to a new record — about 40,000 monthly units in December with L60’s production ramp up — the analyst highlighted the better pricing achieved per unit achieved thanks to the volume growth.
“Gross margin improvement is well on track (9.7 percent in 2Q24 vs. 4.9 percent in 1Q24), mainly boosted by cost optimization on better pricing from suppliers given higher volumes,” he wrote.
Regarding the second half of 2024, Ding sees the L60 — the first model of Nio’s sub-brand Onvo — as a key driver for higher sales.
“Looking into 2H24e, we remain constructive on Nio’s volumes and margin growth outlook given: 1) solid Nio brand sales (sold 20k units in August, per company data), along with auto consumption into high season; 2) more volume expansion from its mass market brand new model Onvo L60, which scheduled for launch on 19 September and delivery from end-September (per 2Q24 earnings call) ; 3) ongoing margins improvement from supply chain cost optimization and better economies of scale, partly offset by lower product mix given the mass price point ramp-up of L60 in the mix. Accelerating product cycle from September,” he explained.
The analyst believes “the new mass market brand/model is likely to be the key volumes driver” in the second half of the year.
“Along with new brand “Firefly” targeting entry level boutique cars to be launched in 2025, we see the accelerating product cycle as likely to enlarge Nio’s product spectrum and unlock higher volumes potential,” HSBC analyst added.
Despite the cut on the earnings estimates, the analyst noted that the firm’s estimates “are still above Bloomberg consensus”.
“Our refreshed 25-26 earnings forecasts are still above Bloomberg consensus by 10 percent and 12 percent, as we are more constructive on Nio’s volume growth outlook on the accelerating product cycle from 2H24e,” the analyst added.
Nio Group founder and chief executive William Li traveled last week to Egypt to sign a memorandum of understanding with the company’s major investor, Abu Dhabi-based CYVN Holdings.
The signing marked Nio’s official expansion into the Middle East and North Africa (MENA) region.
Written by Cláudio Afonso | LinkedIn | X
