Stock Analysis & Ideas

Nio: Dual-Listings Should Hedge Against Risk of U.S. De-Listing, Says Analyst

Fears of a U.S. delisting for stocks which don’t comply with U.S. auditing laws have been casting a shadow over Chinese stocks for a while now. However, the U.S. Securities and Exchange Commission (SEC)’s latest list of 80 companies potentially facing the cull sent shares of many spiraling down on Thursday.

Among those taking a sharp beating were shares of Chinese EV maker Nio (NIO), which crashed by 15%, further piling on the losses; shares now sit 50% into the red in 2022.

However, following the disclosure, Nio also provided some news that could serve to sweeten the pill somewhat.

The company announced the proposed secondary listing on the main board of the Singapore Exchange. The SGX-ST has provided Nio with conditional eligibility and once the Singapore listing goes ahead, NIO shares will be fully fungible with its ADR (American depositary receipt) shares.

Morgan Stanley’s Tim Hsiao thinks this is “likely to alleviate investor concerns.”

“With full fungibility, NIO’s dual-listings in HK and SG should meaningfully hedge any potential US de-listing disruption to operations and funding access,” the analyst explained. “With NIO’s secondary HK listing likely to be converted to its primary listing in a year or so, per HKEX regulations, we think the SG listing looks set to help NIO gain more traction by broadening its investor base.”

Nio’s problems, though, have not been solely reserved for the issues with the U.S. regulators. April sales declined by 49% month-over-month to 5,074 units, also representing a 29% year-over-year drop. In a sense, investors already knew what was coming as production and deliveries were seriously impacted by supply chain snags revolving around recent Covid-19 lockdowns. That said, Hsiao thinks near-term execution will be vital to keep investors on side.

“While soft April sales should have been well anticipated, investors are likely to keep a close watch over the resumption progress post China’s May holidays, which is critical to NIO’s ramp-up pace for ET7 and the timing of a potential face-lift for its incumbent SUV model,” the analyst opined.

Hsiao still backs Nio, reiterating an Overweight (i.e., Buy) rating and $34 price target. There’s upside of 121% from current levels. (To watch Hsiao’s track record, click here)

The Street’s average target is an even more optimistic $40.51, making room for one-year gains of 163%. That confidence is reflected by the Strong Buy consensus rating, which is based on 14 Buys vs. 2 Holds. (See Nio stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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