LI AUTO INC.(02015.HK)：BLOCKBUSTER PRODUCT STRATEGY GRADUALLY RECOGNIZED;DIVERSIFYING PRODUCT RANGE-格隆汇

机构：中金公司
研究员：Xue DENG/Jing CHANG/Dongji YANG

What's new
Li Auto has been unveiling details of the L9 model since March. We believe this model will prove to be another blockbuster product for the firm following the launch of its first electric SUV, the Li One, in 2018, and that future updates will boost the share price.
Comments
Li Auto L9 to start mass production and delivery soon; strong product cycle to continue. The firm has been unveiling the interior, exterior design and intelligent hardware of the second SUV model L9 since March. Li Auto plans to launch the L9 soon and start mass production in 3Q22, with a price range of Rmb450,000-500,000. The L9 model’s in-house-developed smart driving system, Li Auto AD Max, includes two NVidia Orin-X processors with a total computing power of 508 Tops. The firm’s R&D capabilities into intelligent driving have continued to improve following its transformation into full-stack self-development. The L9’s AD Max system uses full-stack self-developed decision making, planning and control software. In addition, the L9's core systems such as power and steering systems are designed with redundancy to guarantee the reliability of the actuator. Overall, we expect the L9’s user experience to outperform its peers.
Diversification steadily progressing; blockbuster product strategy recognized in the market. The firm's blockbuster product strategy has gradually been recognized in the market since its listing in Hong Kong SAR in 2021. We note that the firm’s strategy focuses on identifying and meeting consumer needs, and securing the launch of products with organizational synergy and growth. Meanwhile, the firm analyzes products through a survey of various market segments looking at market size, user needs, and technological supply chain. We believe that the success of the Li ONE is not an exception. We think the firm has internalized its insights and can fine-tune products accordingly. The firm plans to launch several new models to diversify its product range, and we expect it to see solid growth in various market segments.
Profitability gradually improving; strong support for valuations. The firm’s profitability has been improving since 1Q20, and its operational resilience was recognized in the market. 1Q22 gross margin stood at 22.4% and non-GAAP per-vehicle net profit reached Rmb15,000. The firm’s share price has been positively correlated with sales volume since its listing in the US. We believe that: 1) The firm’s output and sales continue to improve as production resumes; 2) the launch of the L9 will raise market attention; and 3) impact from cost rise in 2Q22 was manageable, and we foresee solid earnings growth. In 3Q22, the firm’s earnings may beat expectations, driven by price increases of the Li ONE, the launch of L9 and falling price of lithium carbonate in the upstream. Li Auto is trading at 49.8x and 29.1x 2022e and 2023 non-GAAP P/E. We think the firm’s valuation is attractive, due to its promising growth prospects.
Financials and valuation
Li Auto is trading at 2.6x 2022e EV/Revenue. We maintain an OUTPERFORM rating. As COVID-19 resurgence affected output and sales in April-May, we lower our 2022 and 2023 revenue forecasts 5.8% and 14.6% to Rmb55.09bn and Rmb112.96bn. We lower 2022 and 2023 non-GAAP net profit forecasts 3.9% and 3.0% to Rmb3.37bn and Rmb5.76bn. We maintain TPs at HK$119.00 and US$30.00 for H and US shares, offering 26% and 24% upside, implying 3.2x 2022e and 1.6x 2023e EV/Revenue.
Risks
COVID-19 resurgence affecting output and sales; disappointing progress of new projects.