Bank of America Corporation's Ming Hsun Lee said the company's share price was "attractive" because the Chinese electric car maker's business was "much better" than the last time its valuation was so low.
Monday,$NIO Inc. (NIO.US) $$NIO Inc. (NIO.SG) $$NIO Inc.-SW (09866.HK) $Share prices are higher. Earlier, Ming Hsun Lee, an analyst at Bank of America Corporation Securities, said he was bullish on the Chinese electric carmaker, saying its sales and profit margin prospects were improving and its valuation was "attractive". NIO Inc. 's shares soared 7.8 per cent in morning trading.
Since closing at a 22-month low of $12.71, the stock has risen 14.6% for the third day in a row. At this low, the stock has tumbled 60 per cent so far this year and 80 per cent since the record close of $62.84 on February 9, 2021.
"the share price has downgraded its rating so far this year," BofA's Lee wrote in a note to clients.
Lee believes that there are three main aspects of the sell-off: 1) slower sales growth due to poor supply of spare parts and unfavorable model cycles; 2) cost pressures due to the inflationary environment, especially in batteries; and 3) investors reduce the risk of growth stocks due to rising interest rates, taking into account regulatory scrutiny of US-listed stocks of Chinese companies.
But Lee now believes that the investment environment is improving, starting with sales growth. After NIO Inc. 's ET7 electric car starts shipping in March, ET7 is expected to start delivery slightly higher than expected in August, and ET5 is expected to deliver it in September.
He also believes that the risk of delisting has been reduced. There have been reports of deregulation as the government seeks to stimulate the slowing economy. NIO Inc. said earlier this month that it plans to issue its Adr for a second time in Singapore.
Lee upgraded its rating to buy from hold and raised its target share price to $26 from $25. His new target means an increase of about 78 per cent from current levels.
"looking ahead, we expect sales to improve, profit margins to improve and valuations to pick up," Lee wrote.
Current share prices mean 1.7 times corporate value and sales in the coming year, he said, and NIO Inc. 's valuation was only so low when he faced subsidies cuts, falling sales, product recalls and financing difficulties between the second half of 2019 and the first half of 2020.
"NIO Inc. 's current operating conditions are much better than those from the second quarter of 2019 to the first quarter of 2020, and we expect its sales growth, profit margin recovery and overseas development prospects to be brighter," Lee wrote. "in our view, the current valuation is attractive for investors to re-examine the stock."
Over the past 12 months, NIO shares are down 56.4%. MCHI, a China-listed fund listed on iShares MSCI, is down 14.2%, and the s & p 500 index SPX is down 3.9%.