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>We expect NIO to see a share loss in 2023 due to 1) late delivery of its key models; 2) conservative channel expansion plan; 3) uncompetitive pricing. </li>
<li>We see headwinds for NIO’s 2023 GPM, including 1) ~10% discount on its legacy models in Q1; 2) weaker product mix toward low-price ET5 into Q3.</li>
<li>3) limited expansion of scale economy due to diminished momentum. ● DG to SELL for weak momentum and ongoing margin pressure into 3Q22.</li>
</ul>


We expect NIO to see a share loss in 2023 due to 1) late delivery of its key models; 2) conservative channel expansion plan; 3) uncompetitive pricing. 
We see headwinds for NIO’s 2023 GPM, including 1) ~10% discount on its legacy models in Q1; 2) weaker product mix toward low-price ET5 into Q3.
3) limited expansion of scale economy due to diminished momentum. ● DG to SELL for weak momentum and ongoing margin pressure into 3Q22.


[NIO Inc. (NIO US) Rating Change]: DG for Weak Momentum and Margin Pressure into Q3

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>NIO’s 4Q22 earnings missed our prior forecast on inventory provision, R&amp;D and SG&amp;A.</li><li>We are of the view that NIO’s 1Q23E sales and margin weakness should be largely priced in.</li><li>Sales in 2H23E could be crucial as supply chain constraints should no longer be an excuse for sales miss. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

NIO’s 4Q22 earnings missed our prior forecast on inventory provision, R&amp;D and SG&amp;A.We are of the view that NIO’s 1Q23E sales and margin weakness should be largely priced in.Sales in 2H23E could be crucial as supply chain constraints should no longer be an excuse for sales miss. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

NIO Inc. (NIO US) – 4Q22 miss; 5 new models in the next 5 months

<ul>
<li>We expect NIO to report 4Q22 top line of RMB 16.7bn and GPM of 13.2%, missing consensus by (4%)/(0.8ppt), primarily due to COVID-related supply-chain issues and lower ASP. </li>
<li>We cut TP to US$ 13, due to weak momentum and the ongoing margin pressure in 1H23. We maintain BUY, as 1) intact model cycle starting from 2H23;</li>
<li>2) the upcoming ET5 station wagon in 2H23 and the mass-market/low-end brands in 2024 will expand its scale economy, which in turn will justify the sustainability of its business model.</li>
</ul>


We expect NIO to report 4Q22 top line of RMB 16.7bn and GPM of 13.2%, missing consensus by (4%)/(0.8ppt), primarily due to COVID-related supply-chain issues and lower ASP. 
We cut TP to US$ 13, due to weak momentum and the ongoing margin pressure in 1H23. We maintain BUY, as 1) intact model cycle starting from 2H23;
2) the upcoming ET5 station wagon in 2H23 and the mass-market/low-end brands in 2024 will expand its scale economy, which in turn will justify the sustainability of its business model.


[NIO (NIO US, BUY, TP US$13) Target Price Change]: Late Delivery of Key Models Hurts 1H23 Momentum

Thematic (Sector/Industry)

<ul><li>China’s passenger-vehicle (PV) retail sales volume fell 43% YoY in Jan 2023, in line with our prior forecast of 44% YoY decline.</li><li>Wholesale volume fell 33% YoY last month, 30% stronger than our prior projection, largely due to much weaker than-expected inventory destocking and higher export volume.</li><li>PV exports only fell 9% MoM to about 250,000 units in Jan 2023. Automakers only cut about 26,000 units of inventories in their dealers’ showrooms in Jan 2023 based on our calculations, despite early Chinese New Year, which has led to more than two months of inventories based on our projected retail sales volume for Feb and Mar 2023. I</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China’s passenger-vehicle (PV) retail sales volume fell 43% YoY in Jan 2023, in line with our prior forecast of 44% YoY decline.Wholesale volume fell 33% YoY last month, 30% stronger than our prior projection, largely due to much weaker than-expected inventory destocking and higher export volume.PV exports only fell 9% MoM to about 250,000 units in Jan 2023. Automakers only cut about 26,000 units of inventories in their dealers’ showrooms in Jan 2023 based on our calculations, despite early Chinese New Year, which has led to more than two months of inventories based on our projected retail sales volume for Feb and Mar 2023. IContent is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Auto Sector – Inventory risk could lead to a bumpy recovery

Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

<ul><li>WTR Sustainable Index: During the week ended February 10, 2023, the WTR Sustainable Index outperformed the broader market, rising 0.2% W/W versus the S&amp;P 500 Index (down 1.1%), the Russell 2000 Index (down 3.4%), and the Nasdaq Composite Index (down 2.4%). Advanced Transportation Solutions (70% of the index) drove the outperformance, rising 1.7% , while Energy Technology (9% of index) was down 5.0% and Industrial Climate and Ag Technology was down 2.2%.</li><li>Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 24.5x versus 18.4x for the S&amp;P 500.</li><li>Consensus estimates changes: During the week ended February 10, 2023, there were five increases (three in Energy Technology and two in Industrial Climate and Ag Technology) 2022 revenue estimates. There were decreases in 2022 revenue estimates for two companies each in Advanced Transportation Solutions and Industrial Climate and Ag Technology.</li></ul>

WTR Sustainable Index: During the week ended February 10, 2023, the WTR Sustainable Index outperformed the broader market, rising 0.2% W/W versus the S&amp;P 500 Index (down 1.1%), the Russell 2000 Index (down 3.4%), and the Nasdaq Composite Index (down 2.4%). Advanced Transportation Solutions (70% of the index) drove the outperformance, rising 1.7% , while Energy Technology (9% of index) was down 5.0% and Industrial Climate and Ag Technology was down 2.2%.Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 24.5x versus 18.4x for the S&amp;P 500.Consensus estimates changes: During the week ended February 10, 2023, there were five increases (three in Energy Technology and two in Industrial Climate and Ag Technology) 2022 revenue estimates. There were decreases in 2022 revenue estimates for two companies each in Advanced Transportation Solutions and Industrial Climate and Ag Technology.

Weekly Sustainable Investing Surveyor: Week Ended February 10, 2023

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)

[NIO Inc. (NIO US) Rating Change]: DG for Weak Momentum and Margin Pressure into Q3

We expect NIO to see a share loss in 2023 due to 1) late delivery of its key models; 2) conservative channel expansion plan; 3) uncompetitive pricing.

Blue Lotus Research Institute

NIO Inc. (NIO US) – 4Q22 miss; 5 new models in the next 5 months

NIO’s 4Q22 earnings missed our prior forecast on inventory provision, R&D and SG&A. We are of the view that NIO’s 1Q23E sales and margin weakness...

CMB International

[NIO (NIO US, BUY, TP US$13) Target Price Change]: Late Delivery of Key Models Hurts 1H23 Momentum

We expect NIO to report 4Q22 top line of RMB 16.7bn and GPM of 13.2%, missing consensus by (4%)/(0.8ppt), primarily due to COVID-related...

Blue Lotus Research Institute

China Auto Sector – Inventory risk could lead to a bumpy recovery

Wholesale volume fell 33% YoY last month, 30% stronger than our prior projection, largely due to much weaker than-expected inventory destocking and...

CMB International

Weekly Sustainable Investing Surveyor: Week Ended February 10, 2023

Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 24.5x versus 18.4x for the S&P 500.

Water Tower Research

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