Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

In 5M, <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a>  China received ~72K orders for MIC M3, plus 22K backlog orders exiting 2020.  GF3 made 103K M3 in 5M, among which 69K were delivered in China and 29K were exported.  The estimated order backlog exiting May was ~25K, slightly down from 26K backlog exiting April.  Excess production at the GF3 has been exported to markets around the world.  If TSLA China does not implement effective promotional programs and or policies to stimulate demand, we estimate that MIC 3 orders will stagnate around 9K per month, vs. monthly production of ~21K.  In other words, MIC 3 exports are likely to increase MoM due to the lower cost structure including BoM of MIC cars.

In 5M, Tesla Motors (TSLA US)  China received ~72K orders for MIC M3, plus 22K backlog orders exiting 2020.  GF3 made 103K M3 in 5M, among which 69K were delivered in China and 29K were exported.  The estimated order backlog exiting May was ~25K, slightly down from 26K backlog exiting April.  Excess production at the GF3 has been exported to markets around the world.  If TSLA China does not implement effective promotional programs and or policies to stimulate demand, we estimate that MIC 3 orders will stagnate around 9K per month, vs. monthly production of ~21K.  In other words, MIC 3 exports are likely to increase MoM due to the lower cost structure including BoM of MIC cars.

Consumer Discretionary / Industrials

Henry Kwon

NIO announced its May delivery numbers (-5.5% MoM, +95.3% YoY), sending its shares up by 9.97% at market close today. The shares have closed above its 200DMA and 61.8% Fibonacci Retracement level of $38.67 for the third day in a row on high volume. The sequential drop in unit sales came from chip shortage per company announcement so investors should look to see whether NIO will deliver on its promise in June.<ul>
<li>NIO noted in its May delivery announcement that May deliveries were "adversely impacted for several days due to the volatility of semiconductor supply and certain logistical adjustments." The company indicated that in June the company should be able to make up for May's lost production.</li>
<li>The company's 2Q21 delivery target remains unchanged at 21-22,000 units. If achieved, this would represent 4.7-9.7% sequential quarterly increase, and 107.2-117.2% YoY increase.</li>
<li>While the Joint Manufacturing Agreement Renewal with JAC targets doubling of current capacity by 2024 the plant's current productivity profile suggests that capacity increase for the ET7 commercial production expected in 1Q22 should be coming largely from productivity gains.</li>
</ul>On the fundamental front, demand growth for EV's and China's average SAAR through April (21.4mn units, +6.5% YoY) should continue to be supportive of NIO's operating environment. While cost pressures may arise from inflationary forces in the coming quarters, I have not noticed anything that should sound alarm bells from NIO's May delivery figures. However, XPEV's May delivery figures increased sequentially without any chip shortage references, so investors should look to industry sales figures expected to be released in the first half of the month for further details on an industry-wide basis .On the short term share price front, if there is a corrective pullback without an event catalyst, the 200DMA of $38.73/$38.67 61.8% Fibonacci retracement should be looked to as first support. If momentum is strong, the stock is likely to try to reach for its 100 DMA of $45.22 this week.

NIO announced its May delivery numbers (-5.5% MoM, +95.3% YoY), sending its shares up by 9.97% at market close today. The shares have closed above its 200DMA and 61.8% Fibonacci Retracement level of $38.67 for the third day in a row on high volume. The sequential drop in unit sales came from chip shortage per company announcement so investors should look to see whether NIO will deliver on its promise in June.
NIO noted in its May delivery announcement that May deliveries were "adversely impacted for several days due to the volatility of semiconductor supply and certain logistical adjustments." The company indicated that in June the company should be able to make up for May's lost production.
The company's 2Q21 delivery target remains unchanged at 21-22,000 units. If achieved, this would represent 4.7-9.7% sequential quarterly increase, and 107.2-117.2% YoY increase.
While the Joint Manufacturing Agreement Renewal with JAC targets doubling of current capacity by 2024 the plant's current productivity profile suggests that capacity increase for the ET7 commercial production expected in 1Q22 should be coming largely from productivity gains.
On the fundamental front, demand growth for EV's and China's average SAAR through April (21.4mn units, +6.5% YoY) should continue to be supportive of NIO's operating environment. While cost pressures may arise from inflationary forces in the coming quarters, I have not noticed anything that should sound alarm bells from NIO's May delivery figures. However, XPEV's May delivery figures increased sequentially without any chip shortage references, so investors should look to industry sales figures expected to be released in the first half of the month for further details on an industry-wide basis .On the short term share price front, if there is a corrective pullback without an event catalyst, the 200DMA of $38.73/$38.67 61.8% Fibonacci retracement should be looked to as first support. If momentum is strong, the stock is likely to try to reach for its 100 DMA of $45.22 this week.

NIO: Observations on the May Delivery Figures

APAC IPOs & Placements

Zhen Zhou, Toh

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

Evergrande Property Services / Equity Capital Markets

<div>
Undisclosed institutional sellers (Vendor Group) are looking to sell about US$340m (with US$280m upsize option) worth of shares in <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a> (EGS).
In this note, we look at deal dynamics and share our thoughts on the selldown.
EGS was listed on the Hong Kong Exchange on 2nd December, 2020, and its IPO lock-up will expire tomorrow on 2nd June, 2021. After <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> (CEG) sold a portion of its stake in Evergrande New Energy Vehicle (ENEV), we discussed the possibility that EGS could be the next listco to be sold by CEG.
<ul><li>
<a href="https://www.smartkarma.com/insights/evergrande-property-services-lock-up-expiry-trade-the-next-one-to-be-sold-by-evergrande" target="_blank" data-smartkarma-citation="insights:51392" rel="noopener">Evergrande Property Services Lock-Up Expiry Trade - The Next One to Be Sold by Evergrande</a> </li></ul>
</div><div>Prior to that, we covered the IPO in:</div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/evergrande-services-pre-ipo-bad-parenting" target="_blank" data-smartkarma-citation="insights:45461" rel="noopener">Evergrande Services (恒大物业) Pre-IPO - Bad Parenting</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/evergrande-services-ipo-overhang-issues" target="_blank" data-smartkarma-citation="insights:45607" rel="noopener">Evergrande Services (恒大物业) IPO - Overhang Issues</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/evergrande-services-ipo-trading-slightly-weaker-demand" target="_blank" data-smartkarma-citation="insights:45917" rel="noopener">Evergrande Services (恒大物业) IPO Trading - Slightly Weaker Demand</a> </li>
</ul></div>


Undisclosed institutional sellers (Vendor Group) are looking to sell about US$340m (with US$280m upsize option) worth of shares in Evergrande Property Services (6666 HK) (EGS).
In this note, we look at deal dynamics and share our thoughts on the selldown.
EGS was listed on the Hong Kong Exchange on 2nd December, 2020, and its IPO lock-up will expire tomorrow on 2nd June, 2021. After Evergrande Real Estate Group (3333 HK) (CEG) sold a portion of its stake in Evergrande New Energy Vehicle (ENEV), we discussed the possibility that EGS could be the next listco to be sold by CEG.

Evergrande Property Services Lock-Up Expiry Trade - The Next One to Be Sold by Evergrande 
Prior to that, we covered the IPO in:

Evergrande Services (恒大物业) Pre-IPO - Bad Parenting 

Evergrande Services (恒大物业) IPO - Overhang Issues 

Evergrande Services (恒大物业) IPO Trading - Slightly Weaker Demand 


Evergrande Property Services (恒大物业) Placement - An Expected Selldown but Not from the One Expected

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

EM Autos are the 10th largest industry group weight among active EM managers, with average weights of 1.55%.  The more interesting metric however, is the extent to which Autos have become one of the largest industry level underweights across global EM.  The increased underweight has almost exclusively been driven by two stocks, <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> and <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK</a>, with both seeing benchmark weights rise on the back of strong price increases.Such outright volatility has created a challenge for active managers who are benchmarked to the MSCI Emerging Markets Index.   Namely, how do you position yourself in a prominent index component that rises 900% in the space of 12 months?  The temptation might be to add <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> to a portfolio to dampen some of that benchmark risk, and indeed we have seen that happening among managers with low active shares.However, so far, high active managers have remained on the sidelines, sticking instead with more established autos stocks of <a href="https://www.smartkarma.com/entities/kia-motors-corp" target="_blank" data-smartkarma-citation="entities:156:1" rel="noopener">Kia Motors Corp (000270 KS)</a> , <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" data-smartkarma-citation="entities:127:1" rel="noopener">Geely Auto (175 HK)</a> and <a href="https://www.smartkarma.com/entities/hero-motocorp-ltd" target="_blank" data-smartkarma-citation="entities:2391:1" rel="noopener">Hero Motocorp (HMCL IN)</a>.  Therefore, there is very little peer group risk in avoiding either <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> or <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> .  In fact, if a high active manager decides to invest in either stock, it will represent an out-of-consensus long compared to the majority of your active peers.

EM Autos are the 10th largest industry group weight among active EM managers, with average weights of 1.55%.  The more interesting metric however, is the extent to which Autos have become one of the largest industry level underweights across global EM.  The increased underweight has almost exclusively been driven by two stocks, NIO Inc (NIO US) and BYD (1211 HK, with both seeing benchmark weights rise on the back of strong price increases.Such outright volatility has created a challenge for active managers who are benchmarked to the MSCI Emerging Markets Index.   Namely, how do you position yourself in a prominent index component that rises 900% in the space of 12 months?  The temptation might be to add NIO Inc (NIO US) to a portfolio to dampen some of that benchmark risk, and indeed we have seen that happening among managers with low active shares.However, so far, high active managers have remained on the sidelines, sticking instead with more established autos stocks of Kia Motors Corp (000270 KS) , Geely Auto (175 HK) and Hero Motocorp (HMCL IN).  Therefore, there is very little peer group risk in avoiding either NIO Inc (NIO US) or BYD (1211 HK) .  In fact, if a high active manager decides to invest in either stock, it will represent an out-of-consensus long compared to the majority of your active peers.

EM Autos Underweight:  Ignore Benchmark Risk and Focus on Peers

NIO closed at $34.06 on Friday, failing to close above its 10-Day EMA of $34.42, although the stock climbed as high as $34.78 intra-day. DCF analysis using consensus FCF forecast suggests that currently NIO's shares may be implying a 18.1% perpetuity growth outlook which would be bearish if the yield curve continues to steepen. While fundamental valuation implications do not necessarily become reflected in stock prices over a short period, Friday's technical chart alignment could signal further bearish short term price action.<ul>
<li>
Bearish Technical Alignment on Friday: Dark Cloud Cover was formed on the daily candlestick chart on Friday. While the pattern needs to be confirmed on Monday, it may be a new bearish signal to what looks like an impending death cross that I mentioned in <a href="https://www.smartkarma.com/insights/nio-is-it-re-entry-point-yet" target="_blank" data-smartkarma-citation="insights:51824" rel="noopener">NIO: Is It Re-Entry Point Yet?</a> on May 20.</li>
<li>
DCF Analysis Reality Check: At current share price, 3-year consensus FCF forecast and 1Q21 balance sheet details suggest that the market may be implying a 18.1% perpetuity growth rate and 139x terminal EBITDA multiple assumption. Long term fundamental valuations therefore would suggest there is further downside risk, but having said this, I would point out that other catalysts can often impact short term price action more strongly.</li>
<li>
Systemic Risk could be a greater concern than company risk at this point: NIO remains a high beta EV play. While the 10-year Treasury yield looked more stable on Friday, any sudden spike in the Treasury yield can have a sharp negative effect on EV stock valuations.</li>
<li>
A Short term Bullish Scenario: If the stock manages to reject the Dark Cloud Cover formation on Monday and close above its 10 day EMA, the move may accelerate price recovery with the first resistance level coming in at the 21 day EMA currently fixed at $35.68. Clearing these two hurdles may accelerate the upward momentum to the $38.19 - $38.67 zone, which represent the stock's current 200 DMA and the 61.8% Fibonacci Retracement, respectively.</li>
<li>
A Short term Bearish Scenario: If Dark Cloud Cover is confirmed first support should come in at the stock's 78.6% Fibonacci Retracement at $30.98 which basically held recently. If the stock breaks below this level, however, the decline may accelerate towards the $20-22 zone last seen in October, 2020, over the next few trading sessions.</li>
</ul>Operating environment for NIO remains constructive. 3 month moving average sales volume comparison with XPEV and TSLA suggests NIO's volume sales have been more stable than its peers. Continuing sales growth in the context of overall improvement in 2021 auto demand and continuing tailwinds from the new car effect (EC 6) looks constructive for earnings implications over the next 1-2 quarters at current pace. At this point, therefore, we see more price risk stemming more from systemic risk than company risk.

NIO closed at $34.06 on Friday, failing to close above its 10-Day EMA of $34.42, although the stock climbed as high as $34.78 intra-day. DCF analysis using consensus FCF forecast suggests that currently NIO's shares may be implying a 18.1% perpetuity growth outlook which would be bearish if the yield curve continues to steepen. While fundamental valuation implications do not necessarily become reflected in stock prices over a short period, Friday's technical chart alignment could signal further bearish short term price action.

Bearish Technical Alignment on Friday: Dark Cloud Cover was formed on the daily candlestick chart on Friday. While the pattern needs to be confirmed on Monday, it may be a new bearish signal to what looks like an impending death cross that I mentioned in NIO: Is It Re-Entry Point Yet? on May 20.

DCF Analysis Reality Check: At current share price, 3-year consensus FCF forecast and 1Q21 balance sheet details suggest that the market may be implying a 18.1% perpetuity growth rate and 139x terminal EBITDA multiple assumption. Long term fundamental valuations therefore would suggest there is further downside risk, but having said this, I would point out that other catalysts can often impact short term price action more strongly.

Systemic Risk could be a greater concern than company risk at this point: NIO remains a high beta EV play. While the 10-year Treasury yield looked more stable on Friday, any sudden spike in the Treasury yield can have a sharp negative effect on EV stock valuations.

A Short term Bullish Scenario: If the stock manages to reject the Dark Cloud Cover formation on Monday and close above its 10 day EMA, the move may accelerate price recovery with the first resistance level coming in at the 21 day EMA currently fixed at $35.68. Clearing these two hurdles may accelerate the upward momentum to the $38.19 - $38.67 zone, which represent the stock's current 200 DMA and the 61.8% Fibonacci Retracement, respectively.

A Short term Bearish Scenario: If Dark Cloud Cover is confirmed first support should come in at the stock's 78.6% Fibonacci Retracement at $30.98 which basically held recently. If the stock breaks below this level, however, the decline may accelerate towards the $20-22 zone last seen in October, 2020, over the next few trading sessions.
Operating environment for NIO remains constructive. 3 month moving average sales volume comparison with XPEV and TSLA suggests NIO's volume sales have been more stable than its peers. Continuing sales growth in the context of overall improvement in 2021 auto demand and continuing tailwinds from the new car effect (EC 6) looks constructive for earnings implications over the next 1-2 quarters at current pace. At this point, therefore, we see more price risk stemming more from systemic risk than company risk.

NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

NIO (NIO US)

TSLA China Losing to Chinese NEV OEMs

TSLA will begin to experience excess production of the Y in the next couple of months, as the China order backlog wanes from 43KQ1 to 17K Q2. Y...

JL Warren Capital

NIO: Observations on the May Delivery Figures

NIO's sequential delivery decline resulted from chip shortage but should see recovery in June according to the company. Output increase should...

Henry Kwon

Evergrande Property Services (恒大物业) Placement - An Expected Selldown but Not from the One Expected

Undisclosed institutional sellers (Vendor Group) are looking to sell about US$340m (with US$280m upsize option) worth of shares in Evergrande...

Zhen Zhou, Toh

EM Autos Underweight: Ignore Benchmark Risk and Focus on Peers

EM Autos have become one of the largest industry level underweights across global EM. The increased underweight has almost exclusively been driven...

Steven Holden

NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

Dark Cloud Cover bearish reversal pattern was formed on Friday's daily candlestick chart, while a DCF analysis based on current 3-year consensus...

Henry Kwon

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)