With geopolitical tensions front and center, investors were glad about Nio’s (NIO) latest announcement, sending shares up by 9% in the week’s first session. On Monday, the Chinese EV maker said the stock will begin trading in Hong Kong on March 10.
Chinese stocks face the prospect of delisting in the US, given regulatory requirements and the constant tensions between the US and China. As such, a secondary listing provides a safety net.
“In our view,” said Deutsche Bank’s Edison Yu, “The delisting overhang on the stock should largely be gone now and focus will shift toward the anticipated volume ramp-up of 3 new models this year, starting in late March with the ET7 flagship sedan.”
While Yu had initially thought the company would undertake a dual primary HK listing, which would provide protection due to the possibility of US delisting and come with the added benefit of being incorporated into the Mainland Stock Connect mechanism.
However, the analyst thinks a secondary listing is sufficient, noting the HK exchange is “well aware” of the US delisting risk. “Hence,” says Yu, “A process to convert a secondary listing to primary one would not be overly difficult.”
In further good news for investors, there will be no additional capital raise, which means no dilution. Rather, the company will use a “listing by way of introduction” approach. To facilitate the start of trading for the HK stock (ticker: 9866), NIO, together with Tencent, will lend out to a designated dealer – in this case Morgan Stanley – 41.4 million shares. “We think management wanted to avoid raising capital given the stock’s recent large decline,” opined Yu. Nio shares have shed 31% off their value since the turn of the year and 56% over the past 12 months. In time, the company anticipates a large chunk of current shareholders will “naturally convert” their US ADR shares to H-shares.
But down to the nitty-gritty, what does this all mean for investors in the here and now? Yu rates NIO stock a Buy, while the $70 price target calls for one-year gains of ~219%. (To watch Yu’s track record, click here)
The Street’s average target is a more modest $51.52, yet that figure still indicates share gains of a plentiful 125%. Overall sentiment is also positive; based on 10 Buys vs. 2 Holds, the analyst consensus rates this name a Strong Buy. (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.