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On Monday, BofA Securities adjusted its price target for Yadea stock (1585:HK), reducing it to HK$14.90 from the previous target of HK$15.20, while still maintaining a Buy rating on the shares. The revision follows Yadea's preliminary financial results for 2024, which revealed a significant decline in net income.
According to BofA Securities, Yadea's preliminary net income for 2024 is expected to be between RMB1.2 billion and RMB1.4 billion, marking a decrease of 47-55% year-over-year. This performance is notably below BofA's initial estimate of RMB2 billion and also falls short of the market consensus. The second half of 2024 was particularly challenging for the company, with preliminary net income plummeting by 75-89% year-over-year or 65-84% half-over-half.
The analyst at BofA Securities had previously anticipated weaker sales volumes in the second half of 2024 due to channel destocking ahead of transitions in industry standards, as well as pressures on average selling prices (ASP) and margins from increased sales incentives and lower capacity utilization rates. However, the actual deterioration in ASP and margins exceeded expectations.
This was attributed to several factors including more significant price discounts and rebates for dealers amid channel destocking, a lower sales contribution from the Guanneng series products due to a lack of new model launches, higher per vehicle fixed expenses, ongoing investments in R&D and overseas expansion, and reduced government subsidies compared to 2023.
Yadea's financial struggles in the latter half of 2024 were compounded by a series of challenges. These included aggressive discounting and rebate strategies to manage inventory levels, the underperformance of its Guanneng series without the introduction of new models, and increased fixed expenses per vehicle such as subsidies for store renovations.
Additionally, the company continued to invest in research and development for new products and its expansion into overseas markets, which also impacted its net income. The reduction in government subsidies compared to the previous year further strained Yadea's financial position.
Despite the lower-than-expected financial results and the reduction in the price target, BofA Securities continues to see potential in Yadea's stock, as evidenced by the maintained Buy rating. The firm's analysis suggests that while Yadea is currently facing a tough period, there may still be opportunities for growth and recovery in the future.
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