UBS: Initiates LI AUTO-W (02015) with "Buy" rating, target price HK$67

UBS issued a research report initiating coverage on LI AUTO-W (02015) with a "Buy" rating and a target price of HK$67. The bank believes that Li Auto's valuation is near historical lows, and an attractive earnings turnaround and margin recovery pattern is taking shape. The bank noted that Li Auto's operational downturn year-to-date has lasted longer than the bank expected, but the company has RMB 80 billion in net cash, coupled with operating cash flow turning positive. The bank believes the company has sufficient resources to wait for the next earnings upcycle, or to reward shareholders through further buybacks. The bank stated that although many investors are bearish on Li Auto due to weak sales growth and a loss recorded in the first half of this year, the bank still sees advantages and opportunities. Year-to-date, sales of Li Auto's i6 SUV have surpassed the similarly priced Xiaomi Yu7, reflecting its brand value and customer loyalty; its Mach M100 and Mach VLA models remain in a leading position in autonomous driving and physical AI. With the Mega and i9 launching in the second half of the year, management expects fourth-quarter automotive gross margin to recover from below 10% in the second quarter to a healthy level of 15% to 20%. UBS agrees that market competition remains intense and visibility for the next upcycle is still unclear, but believes Li Auto's financial resources and endurance will ultimately support revenue growth and margin improvement by capturing market share from European premium brands.