Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

<p>China full-year NEVs sales will reach 1.25m units this year, according to China Association of Auto Manufacturers (CAAM) which would bring cumulative sales to 5.06mn units, surpassing the 2016 target of 5mn units by 2020.CAAM forecasts are usually close to the market. China's NEV sales was 1.206 million units last year, representing a year-on-year drop of 4%.</p>
<p>CAAM also pointed out as part of the country's rural revitalisation strategy that central government is studying a new policy to promote the use of new energy vehicles (NEVs) in rural areas in 2021.Overall, autos have been the beneficiary of much policy action including the upgrade of VI emissions standards, supportive NEV policies, and trucks sales due to construction activity picking up, with profits increasing 6.6% in January-October.</p>
<p>We are positive on NEV makers (<a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" rel="noopener">Li Auto Inc. (LI US)</a>, <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" rel="noopener">NIO Inc (NIO US)</a> and <a href="https://www.smartkarma.com/entities/xpeng-motors" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng Motors (XPEV US)</a> and NEV charging infrastructure <a href="https://www.smartkarma.com/entities/china-titans-energy-technology-group-co" target="_blank" rel="noopener">China Titans Energy Technology Group Co (2188 HK)</a>, <a href="https://www.smartkarma.com/entities/ten-pao-group-holdings-ltd" target="_blank" rel="noopener">Ten Pao Group Holdings Ltd (1979 HK)</a>.We believe both sectors stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.</p>

China full-year NEVs sales will reach 1.25m units this year, according to China Association of Auto Manufacturers (CAAM) which would bring cumulative sales to 5.06mn units, surpassing the 2016 target of 5mn units by 2020.CAAM forecasts are usually close to the market. China's NEV sales was 1.206 million units last year, representing a year-on-year drop of 4%.
CAAM also pointed out as part of the country's rural revitalisation strategy that central government is studying a new policy to promote the use of new energy vehicles (NEVs) in rural areas in 2021.Overall, autos have been the beneficiary of much policy action including the upgrade of VI emissions standards, supportive NEV policies, and trucks sales due to construction activity picking up, with profits increasing 6.6% in January-October.
We are positive on NEV makers (Li Auto Inc. (LI US), NIO Inc (NIO US) and Xpeng Motors (XPEV US) and NEV charging infrastructure China Titans Energy Technology Group Co (2188 HK), Ten Pao Group Holdings Ltd (1979 HK).We believe both sectors stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.

China Expects to Surpass 2020 NEV Sales Target

China Specialist, Auto and Industrial Specialist

Victoria Li

<p><strong>Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production for a few days early December 2020, according to local media' reports on 8th Dec. CAAM (China Association of Automobile Manufacturers) estimate, based on survey over more than 60 OEMs, is that MCU short supply - which mainly lead to production issue of ESP(（Electronic Stability Program) and ECU(Electronic Control Unit) and hence mid-high end cars - might cause short term interruption on some OEMs in 1Q2021 before getting released afterwards. </strong></p><p><strong>According to latest media reports, Honda JVs and VW JVs in JV brands are both impacted so far. Geely (175.HK) and Changan (000625.CH) are under pressure. However, as the short supply is led by short term reasons and actions have been taken in the whole supply chain, it would not change our positive view on China's auto sector 2021E. Instead, if any share performance weakness happens due to related components shortage, that would be buying opportunities for investors.  </strong></p>

Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production for a few days early December 2020, according to local media' reports on 8th Dec. CAAM (China Association of Automobile Manufacturers) estimate, based on survey over more than 60 OEMs, is that MCU short supply - which mainly lead to production issue of ESP(（Electronic Stability Program) and ECU(Electronic Control Unit) and hence mid-high end cars - might cause short term interruption on some OEMs in 1Q2021 before getting released afterwards. According to latest media reports, Honda JVs and VW JVs in JV brands are both impacted so far. Geely (175.HK) and Changan (000625.CH) are under pressure. However, as the short supply is led by short term reasons and actions have been taken in the whole supply chain, it would not change our positive view on China's auto sector 2021E. Instead, if any share performance weakness happens due to related components shortage, that would be buying opportunities for investors.  

China Auto: Short-Term Interruptions from Auto Chips Shortage

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/igo-ltd" target="_blank" data-smartkarma-citation="entities:462:1" rel="noopener">Independence Group Nl (IGO AU)</a> plans to raise A$766m via an institutional placement and entitlement offer to part funds its acquisition of 49% stake in Lithium HoldCo from <a href="https://www.smartkarma.com/entities/sichuan-tianqi-lithium-industries-inc" target="_blank" data-smartkarma-citation="entities:5698:1" rel="noopener">Sichuan Tianqi Lithium Industries, Inc (002466 CH)</a>.</p><p>This will be IGO's first foray into the Lithium space and will lead to a large increase in the share count. However, the company expects the transaction to be EPS accretive only in FY23.</p>

Independence Group Nl (IGO AU) plans to raise A$766m via an institutional placement and entitlement offer to part funds its acquisition of 49% stake in Lithium HoldCo from Sichuan Tianqi Lithium Industries, Inc (002466 CH).This will be IGO's first foray into the Lithium space and will lead to a large increase in the share count. However, the company expects the transaction to be EPS accretive only in FY23.

IGO Placement - Going for EV Gold, Delayed Earnings Gratification for Shareholders

<p><strong>We are bullish on PV sales in 2021E. We estimate China's PV sales will grow by 10% yoy to 22.2mn units. We also estimate China's EV (electric vehicle) sales double will in 2021E.</strong></p><p><strong>SUV's market share would continue growing and might reach 50% soon in China due to customers' preference, while premium car market (above Rmb130k) would continue gain market shares with consumption upgrading. B/C segment EV SUVs, as long as there's qualified models available, would be the hottest segment in 2021E.</strong></p><p><strong>Among EV brands, Tesla (TSLA.US) Shanghai might be the biggest winner next year, thanks to its coming Model Y (SUV). Xpeng(EPEV.US) is our favourite in local brand. It would  launch a new sedan EV (P5) in 2021E.  Xpeng's new SUV model might come in 2022E.  NIO's (NIO.US) sales would under pressure due to direct competition from Model Y.</strong></p><p><strong>Among traditional OEMs, Geely (175.HK) remains our favourite due to high expected growth of earnings driven by ramping up Lynk&amp;Co, new models and coming brand new designed EV models.</strong></p>

We are bullish on PV sales in 2021E. We estimate China's PV sales will grow by 10% yoy to 22.2mn units. We also estimate China's EV (electric vehicle) sales double will in 2021E.SUV's market share would continue growing and might reach 50% soon in China due to customers' preference, while premium car market (above Rmb130k) would continue gain market shares with consumption upgrading. B/C segment EV SUVs, as long as there's qualified models available, would be the hottest segment in 2021E.Among EV brands, Tesla (TSLA.US) Shanghai might be the biggest winner next year, thanks to its coming Model Y (SUV). Xpeng(EPEV.US) is our favourite in local brand. It would  launch a new sedan EV (P5) in 2021E.  Xpeng's new SUV model might come in 2022E.  NIO's (NIO.US) sales would under pressure due to direct competition from Model Y.Among traditional OEMs, Geely (175.HK) remains our favourite due to high expected growth of earnings driven by ramping up Lynk&amp;Co, new models and coming brand new designed EV models.

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<div><p>Hot on the heels of the <a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" data-smartkarma-citation="entities:28812:1" rel="noopener">Li Auto Inc. (LI US)</a>'s recent offering to raise net proceeds of $1.3 billion, <a href="https://www.smartkarma.com/entities/xpeng-motors" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng Motors (XPEV US)</a> is seeking to raise as much as $2.0 billion (at the last close price) through an issue of 40 million ADSs. The funds will be used for R&amp;D (Smart EVs and software, hardware and data technologies), S&amp;M expenses (expansion of sales channels, supercharging network and international footprint), investments in core technologies of Smart EV, and working capital needs.</p></div><div><p>The follow-on offering comes just three months from the August IPO, where Xpeng raised net proceeds of $1.4 billion at $15.00 per ADS. The shares have been of a tear and have risen 3.3x since the IPO. The net cash including lease liabilities stood at $2.4 billion at the end of 9M20, which points to an opportunistic raise to build a war chest. The raise is unsurprisingly in light of Li Auto's successful raise and the strong share price run, which indicates that investor enthusiasm for the EV sector remains undiminished.  </p></div><div><div><div class="content-highlight"><p>We remain bullish on Xpeng’s prospects and believe that the company remains well-placed to claim its place as a key EV player. Notwithstanding, the strong share price run, the shares continue to look attractive relative to EV peers. Overall, we would participate in the placement.</p></div></div></div>

Hot on the heels of the Li Auto Inc. (LI US)'s recent offering to raise net proceeds of $1.3 billion, Xpeng Motors (XPEV US) is seeking to raise as much as $2.0 billion (at the last close price) through an issue of 40 million ADSs. The funds will be used for R&amp;D (Smart EVs and software, hardware and data technologies), S&amp;M expenses (expansion of sales channels, supercharging network and international footprint), investments in core technologies of Smart EV, and working capital needs.The follow-on offering comes just three months from the August IPO, where Xpeng raised net proceeds of $1.4 billion at $15.00 per ADS. The shares have been of a tear and have risen 3.3x since the IPO. The net cash including lease liabilities stood at $2.4 billion at the end of 9M20, which points to an opportunistic raise to build a war chest. The raise is unsurprisingly in light of Li Auto's successful raise and the strong share price run, which indicates that investor enthusiasm for the EV sector remains undiminished.  We remain bullish on Xpeng’s prospects and believe that the company remains well-placed to claim its place as a key EV player. Notwithstanding, the strong share price run, the shares continue to look attractive relative to EV peers. Overall, we would participate in the placement.

China

NIO Inc. manufactures and sells automobiles. The Company offers electric vehicles and parts, as well as provides battery charging services. NIO serves customers worldwide.

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NIO (NIO US)

China Expects to Surpass 2020 NEV Sales Target

China's NEV market is expected to grow fast in next year thanks to government policies and other factors.We continue to be positive on the...

Li Tang

China Auto: Short-Term Interruptions from Auto Chips Shortage

Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production early December...

Victoria Li

IGO Placement - Going for EV Gold, Delayed Earnings Gratification for Shareholders

Independence Group Nl plans to raise A$766m via an institutional placement and entitlement offer to part funds its acquisition of 49% stake in...

Sumeet Singh

China Auto 2021E Outlook: Winter Is Over

We are bullish on PV sales in 2021E. We estimate China's PV sales will grow by 10% yoy to 22.2mn units. We also estimate China's EV (electric...

Victoria Li

Xpeng Placement: Charging Up

Xpeng is seeking to raise as much as $2.0 billion (at the last close price) through an issue of 40 million ADSs. We remain bullish on Xpeng’s...

Arun George

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