Yutong Bus Soars 100%, Leads EV Market Amidst Challenges

Key Takeaway

• Yutong Bus Co. leads China's EV market with a 100% stock jump, dominating the MSCI China Index as analysts see growth potential in fleet replacements and tourism.
• Financially, Yutong reported a first-quarter net income increase of over four times year-over-year and an 85% sales surge, with Morgan Stanley raising revenue forecasts for 2024-2026.
• Despite success, challenges include uneven consumption recovery in China and potential fiscal constraints on public transportation upgrades; meanwhile, Zeekr's IPO raises $441 million in the U.S., highlighting strong investor confidence in the EV sector.

Yutong Bus Leads in EV Market

Yutong Bus Co. has emerged as a standout performer in China's electric vehicle (EV) sector, distinguishing itself from the intense price competition affecting major players like Tesla Inc. and BYD Co. The company's focus on electric coaches has positioned it with minimal competition, contributing to a more than doubling of its stock value this year. This surge has positioned Yutong as the top gainer on the MSCI China Index. Analysts, including those from Citigroup Inc., highlight Yutong's commanding 34% share of the domestic bus market, suggesting further growth potential driven by fleet replacements and the burgeoning tourism sector. The company's international expansion is notable, with over a third of its revenue in the last year generated from overseas markets.

Steven Holden of Copley Fund Research pointed out the untapped potential for foreign investment in Yutong, noting recent positions taken by BlackRock and Eastspring. Morgan Stanley Asia Ltd. contrasts Yutong's situation with that of passenger carmakers by pointing out a 6% rise in Yutong's average selling price in the first quarter, amidst widespread price cuts by competitors.

Financial Performance and Projections

Yutong's financial achievements have been impressive, with a first-quarter net income increase of more than four times year-over-year and an 85% sales surge. The company sold 36,518 buses globally last year, marking a 21% increase from the previous year. Analyst Joey Xu from Morgan Stanley has adjusted revenue forecasts upwards by 2-3% for 2024-2026, citing strong domestic demand and the potential for increased policy stimulus and local government spending. Xu's bull-case scenario sees the stock rising 44% within 12 months, with a price target set at 28.7 yuan. As of Thursday, Yutong's shares closed at 27.06 yuan, with the company holding 16 buy, one hold, and zero sell recommendations.

Potential Challenges Ahead

Despite Yutong's current success, there are potential challenges on the horizon. The recovery of China's consumption, crucial for sustained growth, shows signs of unevenness. Recent national holiday spending data indicated a 13.5% increase from the 2019 break, yet per capita spending remained below pre-pandemic levels, suggesting a shift towards more economical travel options. Goldman Sachs and Citigroup Inc. analysts have expressed concerns over softer spending per head and the implications for continued consumption downgrading. Additionally, Yutong may face headwinds from local governments delaying public transportation fleet upgrades due to fiscal constraints, alongside moderated demand recovery from the private sector amid macroeconomic uncertainties.

Zeekr's IPO Success

In related EV market news, Zeekr Intelligent Technology Holding Ltd., under Zhejiang Geely Holding Group Co., has raised approximately $441 million through an expanded initial public offering (IPO) in the U.S., marking the largest IPO by a China-based company in the U.S. since 2021. The offering, led by Goldman Sachs Group Inc., Morgan Stanley, and others, sold 21 million American depositary shares at $21 each. This development, backed by strategic investments from industry giants like Geely Auto, Mobileye Global Inc., and CATL, underscores strong investor confidence in the EV market and Zeekr's business model.

Street Views

• Steven Holden, Copley Fund Research (Bullish on Yutong Bus):

  "Compared to BYD, ownership in Yutong Bus is still very low, hence there is a lot of potential for foreign ownership to continue to rise."

• Joey Xu, Morgan Stanley Asia Ltd. (Bullish on Yutong Bus):

  "We raise our revenue forecast by 2-3% for 2024-2026, given a better first-quarter performance, which showed steady domestic demand as traveling activities continued to recover... potentially be aided by more policy stimulus and local government spending." "Forecast the stock to rise 44% within 12 months in a bull-case scenario."