Robert Means
Elevator Pitch
My score for Li Auto Inc.’s (NASDAQ:LI) [2015:HK] inventory is a Purchase.
I beforehand wrote about Li Auto’s “honest valuations” and “blended enterprise outlook” in a previous article for the corporate revealed on July 5, 2022. The focus of my newest replace for LI is the preview of its upcoming monetary outcomes for the third quarter of this yr.
I improve my funding score for LI from a Maintain to a Purchase. One key purpose is that Li Auto’s Q3 2022 backside line ought to beat analysts’ expectations. One other key purpose is that the corporate’s November 2022 deliveries and retailer checks achieved by one other sell-side agency counsel that LI’s short-term outlook must be fairly good.
Li Auto Q3 2022 Monetary Outcomes Launch Date
Earlier, LI issued a media launch on November 29, 2022 disclosing that the corporate’s Q3 2022 earnings shall be introduced on Friday, December 9, 2022 earlier than the market opens.
Analysts Have Low Expectations For LI’s Third Quarter Efficiency
The sell-side analysts overlaying Li Auto’s shares do not have a constructive view of the corporate’s upcoming Q3 2022 monetary efficiency as seen with the market’s consensus numbers.
In response to the sell-side’s consensus monetary forecasts (supply: S&P Capital IQ), LI’s income development (in native foreign money or RMB phrases) is predicted to reasonable from +209.7% YoY in Q3 2021 and +73.3% YoY in Q2 2022 to +30.0% YoY for Q3 2022. The analysts additionally estimate that Li Auto’s gross revenue margin will contract by -170 foundation factors YoY from 23.3% for the third quarter of the earlier yr to 21.6% within the third quarter of the present yr.
Taking into consideration the market’s expectations of slower high line enlargement and decrease gross margin for the corporate, the sell-side sees LI’s normalized internet earnings dropping by a major -36.8% YoY from RMB335.7 million for Q3 2021 to RMB212.0 million in Q3 2022.
Within the subsequent part, I focus on concerning the chance of an earnings beat for Li Auto when it experiences its newest quarterly monetary outcomes this week.
My Prediction Is That Li Auto Will Report Above Expectations Q3 Earnings
I believe that LI’s precise Q3 2022 earnings will exceed market expectations, contemplating the corporate’s third quarter car deliveries and its peer’s lately introduced monetary outcomes.
Li Auto achieved fairly good car deliveries of 26,524 items for the third quarter of 2022. This was equal to a +5.6% YoY development, and surpassed the corporate’s earlier administration steering of 25,500 items by +4.0%.
Additionally it is noteworthy that the corporate’s new Li L9 car generated a powerful 10,123 items in deliveries for September 2022. This exceeded its prior steering of 10,000 items as indicated on the firm’s Q2 2022 earnings name.
Aside from higher-than-expected car deliveries for Q3 2022, there’s a good probability that LI’s third quarter gross margin may grow to be higher than anticipated than what the market is anticipating.
One issue that helps better-than-expected gross revenue margin for Li Auto is the sturdy car supply numbers for the brand new Li L9. The Li L9 boasts a comparatively increased gross margin than its present flagship Li ONE, as per administration’s feedback on the Q2 2022 investor briefing.
One other issue is that price pressures for Chinese language electrical car makers might need already eased to a larger extent than anticipated. XPeng (XPEV), considered one of LI’s key friends, noticed its gross revenue margin decline by simply -90 foundation factors YoY to 13.5% for Q3 2022, in accordance its third quarter earnings press launch revealed on November 30, 2022. In distinction, the sell-side analysts are forecasting that Li Auto’s gross margin will lower by a a lot wider -170 foundation factors in Q3 2022 on a YoY foundation.
In conclusion, my opinion is that Li Auto’s precise normalized internet revenue for the third quarter of 2022 ought to beat expectations, because of first rate car supply development and a narrower-than-expected gross margin contraction.
Current Metrics For LI Are Encouraging
There are a selection of indicators suggesting that Li Auto’s near-term outlook is constructive.
LI’s car deliveries grew by +49.6% MoM and +11.5% YoY to fifteen,034 items in November 2022. Notably, this additionally represented the very best month-to-month supply determine for Li Auto in its historical past.
Individually, a November 13, 2022 Morgan Stanley (MS) analysis report (not publicly accessible) titled “What We Learnt From The Shops” famous that LI’s “order consumption of L8 and L9 (new car launches) in mixture at the moment are 30-40% increased than Li ONE’s (present flagship) common in 1H22” based mostly on its “newest retailer checks.” In MS’ report, it’s also highlighted that such metrics suggest that Li Auto’s “founder’s goal with month-to-month income exceeding Rmb10bn by yr finish, implying 20k+ quantity gross sales” is achievable.
In a nutshell, these current metrics referring to Li Auto talked about on this part of the article are encouraging, and LI is well-positioned to ship even increased month-to-month car deliveries (nearer to twenty,000 as per founder’s purpose) in December 2022 and past.
Closing Ideas
My score for Li Auto is a Purchase now, as in comparison with a Maintain beforehand. LI is in place to generate better-than-expected earnings for Q3 2022 and above-expectations car supply numbers for December, and these are constructive catalysts which ought to re-rate its shares.
