China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>Li Auto reported solid 2Q23 results, with both top line beating cons/our est. by 5.3%/3.6% and GPM of 21.8% beating cons/our est. by 1.1/1.7ppt.</li>
<li>We reiterate that capacity ramp-up is the key for Q3/Q4 delivery. Q3 sees a temporary capacity bottleneck albeit this is likely to be resolved in Q4.</li>
<li>We expect the launch of MEGA BEV in 4Q23 to be the next catalyst. We reiterate Li Auto as our top pick and raise TP due to better-than-expected margin outlook.</li>
</ul>


Li Auto reported solid 2Q23 results, with both top line beating cons/our est. by 5.3%/3.6% and GPM of 21.8% beating cons/our est. by 1.1/1.7ppt.
We reiterate that capacity ramp-up is the key for Q3/Q4 delivery. Q3 sees a temporary capacity bottleneck albeit this is likely to be resolved in Q4.
We expect the launch of MEGA BEV in 4Q23 to be the next catalyst. We reiterate Li Auto as our top pick and raise TP due to better-than-expected margin outlook.


[Li Auto Inc. (LI US, BUY, TP US$57)TP Change]: MEGA Is the Next Catalyst…Reiterate as Our Top Pick

<ul>
<li>We expect Li Auto to report 2Q23 top line and GPM 2.3%/in line vs. cons. We think Li Auto’s share gain in Q1/Q2 reflects market consolidation.</li>
<li>Our channel check found its weekly order intake remains robust at ~10k. We expect the capacity ramp-up to lead to Q3 delivery of ~100k, 12% vs. cons. </li>
<li>We reiterate Li Auto as our top pick, due to 1)  strong model cycle (L9/L8/L7) and channel expansion; 2) margin upside. Li’s MEGA BEV could be the next catalyst.</li>
</ul>


We expect Li Auto to report 2Q23 top line and GPM 2.3%/in line vs. cons. We think Li Auto’s share gain in Q1/Q2 reflects market consolidation.
Our channel check found its weekly order intake remains robust at ~10k. We expect the capacity ramp-up to lead to Q3 delivery of ~100k, 12% vs. cons. 
We reiterate Li Auto as our top pick, due to 1)  strong model cycle (L9/L8/L7) and channel expansion; 2) margin upside. Li’s MEGA BEV could be the next catalyst.


[Li Auto (LI US, BUY, TP US$55) TP Change]: Witnessing Consolidation…Reiterate as Our Top Pick

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.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/vinfast-auto-ltd" target="_blank" data-smartkarma-citation="entities:36550:1" rel="noopener">Vinfast (VFS US)</a>, a Vietnamese EV manufacturer and a majority-owned affiliate of <a href="https://www.smartkarma.com/entities/vingroup-jsc" target="_blank" data-smartkarma-citation="entities:13213:1" rel="noopener">Vingroup Jsc (VIC VN)</a>, completed its merger with Black Spade on 14 August. </li>
<li>Due to the low float, the shares have been on a wild ride, with the last close of US$6.56 materially below the high of US$82.35 per share.</li>
<li>VinFast remains an avoid due to related party-driven EV sales, declining customer traction, operating losses, cash burn, equity raise overhang and frothy valuation.  </li>
</ul>



Vinfast (VFS US), a Vietnamese EV manufacturer and a majority-owned affiliate of Vingroup Jsc (VIC VN), completed its merger with Black Spade on 14 August. 
Due to the low float, the shares have been on a wild ride, with the last close of US$6.56 materially below the high of US$82.35 per share.
VinFast remains an avoid due to related party-driven EV sales, declining customer traction, operating losses, cash burn, equity raise overhang and frothy valuation.  


2024 High Conviction: VinFast (VFS US) – Heading for Trouble

<ul>
<li>
<a href="https://www.smartkarma.com/entities/vinfast" target="_blank" data-smartkarma-citation="entities:36550:1" rel="noopener">VinFast (1905332D VN)</a>, a Vietnamese EV (electric vehicle) manufacturer and a majority-owned affiliate of <a href="https://www.smartkarma.com/entities/vingroup-jsc" target="_blank" data-smartkarma-citation="entities:13213:1" rel="noopener">Vingroup Jsc (VIC VN)</a>, completed its merger with Black Spade. </li>
<li>The shares closed 3.7x up on the first day with a market cap of US$86bn. The pop is partly due to low float resulting from the controlling shareholder's 99.0% stake. </li>
<li>VinFast faces headwinds of poor reviews, declining customer traction, ongoing losses and cash burn. VinFast is trading at a material premium to peers on growth-adjusted multiples.  </li>
</ul>



VinFast (1905332D VN), a Vietnamese EV (electric vehicle) manufacturer and a majority-owned affiliate of Vingroup Jsc (VIC VN), completed its merger with Black Spade. 
The shares closed 3.7x up on the first day with a market cap of US$86bn. The pop is partly due to low float resulting from the controlling shareholder's 99.0% stake. 
VinFast faces headwinds of poor reviews, declining customer traction, ongoing losses and cash burn. VinFast is trading at a material premium to peers on growth-adjusted multiples.  


Macroeconomics

<ul>
<li>We continue to chat with venture capitalists (VC’s) and hedge fund managers in our tour of China.</li>
<li>Our takeaway is that Chinese government intend to nurture local governments into VC’s to (partially) replace land finance as a pillar of fiscal revenue;</li>
<li>The resulted policy measures and shifts will benefit STAR SSE as a politically oriented destination and EV/renewable sectors as national championships, at the expense of the consumer sector.</li>
</ul>


We continue to chat with venture capitalists (VC’s) and hedge fund managers in our tour of China.
Our takeaway is that Chinese government intend to nurture local governments into VC’s to (partially) replace land finance as a pillar of fiscal revenue;
The resulted policy measures and shifts will benefit STAR SSE as a politically oriented destination and EV/renewable sectors as national championships, at the expense of the consumer sector.


Blue Lotus Macro: No Short-Term Investors in the Short Term, Summary of Our Tour of China.

China

Li Auto Inc. manufactures automobiles. The Company designs, develops, and sells smart new energy electric sport utility vehicles. Li Auto conducts businesses in China.

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Li Auto (LI US)

[Li Auto Inc. (LI US, BUY, TP US$57)TP Change]: MEGA Is the Next Catalyst…Reiterate as Our Top Pick

We expect the launch of MEGA BEV in 4Q23 to be the next catalyst. We reiterate Li Auto as our top pick and raise TP due to better-than-expected...

Blue Lotus Research Institute

[Li Auto (LI US, BUY, TP US$55) TP Change]: Witnessing Consolidation…Reiterate as Our Top Pick

We reiterate Li Auto as our top pick, due to 1) strong model cycle (L9/L8/L7) and channel expansion; 2) margin upside. Li’s MEGA BEV could be the...

Blue Lotus Research Institute

2024 High Conviction: VinFast (VFS US) – Heading for Trouble

VinFast remains an avoid due to related party-driven EV sales, declining customer traction, operating losses, cash burn, equity raise overhang and...

Arun George

VinFast: Inexplicable Valuation

VinFast faces headwinds of poor reviews, declining customer traction, ongoing losses and cash burn. VinFast is trading at a material premium to...

Arun George

Blue Lotus Macro: No Short-Term Investors in the Short Term, Summary of Our Tour of China.

We continue to chat with venture capitalists (VC’s) and hedge fund managers in our tour of China. Our takeaway is that Chinese government intend to...

Blue Lotus Research Institute

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