Chinese stocks have taken a beating in 2021. There have been several reasons for the overall lackluster performance, but Deutsche Bank’s Edison Yu thinks the “largest overhang” has been down to investors reluctance to commit following the Chinese authorities’ crackdown on ride-hailing service Didi.
While Chinese electric vehicle (EV) stocks have generally held up better than other segments, they have also underperformed, despite improving fundamentals.
Yu, however, senses “sentiment could be bottoming going into year-end,” which could be good news for EV maker XPeng (XPEV).
Ahead of the company’s anticipated mid-November Q3 earnings, Yu expects “upside from higher volume.”
The company already announced it delivered 25,666 units in the quarter, a significant increase on Q2’s 17,398 deliveries and above guidance of 21,500 to 22,500 units.
As such, Yu forecasts sales of 5.63 billion RMB, above the Street’s call for 5.04 billion, although the analyst thinks the Street’s estimate will likely come up as earnings approach. Yu anticipates gross margin of 13.7%, which is slightly higher than consensus. That said, “due to materially higher SG&A,” Yu’s EPS estimate stands at (1.86), worse than the consensus estimate of (1.17).
For Q4, Yu thinks the company will guide for deliveries in the 35,000 to 40,000 range, achieving the 15,000 monthly target in December. This will bring full-year volume to almost 94,000 deliveries, up from Yu’s previous 87,738 estimate, and amounting to a 247% year-over-year increase.
With 3 models “ramping up fully, growing consumer awareness, and higher EV penetration,” expectations are high for next year. Yu has increased the delivery estimate from 165,000 to 190,000, suggesting growth will more than double.
Capacity should also increase next year with production kicking off at the new Guangzhou plant in 2H22; the plant should be able to reach annual capacity of 100,000 on 1 shift. The existing Zhaoqing plant already runs on 2 shifts and can produce 180,000 units per year.
Yu’s confidence is conveyed with a new price target which rises from $51 to $57, suggesting room for a 31% uptick over the coming months. The analyst’s rating stays a Buy. (To watch Yu’s track record, click here)
Yu’s colleagues appear just as confident; the average price target clocks in at $56.4, implying shares will gain 30% in the year ahead. Based on Buys only – 5, in total – the stock boasts a Strong Buy consensus rating. (See XPeng stock analysis 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.
