On Tuesday, Citi adjusted its outlook on Hesai Group (NASDAQ:HSAI), a company specializing in LiDAR technology, by reducing its price target to $7.20 from the previous $8.30. Despite the lowered target, the firm maintained its Buy rating on the stock. The revision comes after a recent analyst briefing, which provided insights into the company's financial expectations and operational projections.
The briefing highlighted a projected decrease in gross profit margins (GPM) for the third and fourth quarters, anticipated to be between 38-40%. This marks a decline from the second quarter's 45% GPM, attributed to the lack of one-off high-margin service revenue that was recorded in the previous quarter.
Additionally, the full-year 2024 revenue guidance has been adjusted downward to RMB 2.0-2.3 billion. This adjustment is partly due to the delayed start of production (SOP) of new models from Li Auto (NASDAQ:LI), which is expected to impact LiDAR shipments in the second half of 2024, with estimates ranging from 300,000 to 350,000 units.
Management at Hesai Group remains optimistic despite these adjustments, expecting to reach a non-GAAP breakeven point in the second half of 2024. Citi's analyst applied a 2025 estimated price-to-sales (P/S) ratio of 1.8x, considering the company's high growth trajectory. However, due to the revised projections, the price target has been lowered accordingly. The new target is based on a 0.5x price-to-earnings growth (PEG) ratio on the 2025-27 estimated net profit compound annual growth rate (CAGR) of 135%.
The Buy rating is sustained by the firm's confidence in Hesai Group's growth potential and market position. The lowered price target reflects the near-term challenges and adjustments in the company's financial outlook, while the maintained Buy rating indicates a belief in the company's long-term value proposition.
In other recent news, Hesai Technology has been making significant strides in the LiDAR technology sector. The company recently announced new partnerships with joint ventures of General Motors (NYSE:GM), Ford (NYSE:F), and a leading European carmaker in China. This collaboration aims to incorporate Hesai's long-range LiDAR into the automakers' upcoming series production vehicles, with mass production expected to start in 2025.
Hesai has also reported a robust Q1 performance, with net revenue reaching $49.7 million. The company's LiDAR shipments have exceeded expectations, contributing to its trajectory toward profitability by the fourth quarter. For the second quarter, the company expects net revenue to fall between $60.9 million and $63.7 million, with full-year revenue projected to range from $350 million to $400 million.
In addition, Hesai has secured an exclusive agreement with Baidu (NASDAQ:BIDU), Inc. to supply long-range LiDAR for its upcoming robotaxi platform, Yichi 06. This deal is expected to play a significant role in the Chinese robotaxi market, which is forecasted to grow substantially in the coming years. The lidar deal is valued between $200 million and $300 million.
Furthermore, Hesai's dominance in the global robotaxi LiDAR market was highlighted in Yole's "LiDAR for Automotive 2024" report, which credited the company with a 74% market share in 2023. Nine out of the top ten L4 autonomous driving companies use Hesai's LiDAR technology.
InvestingPro Insights
According to recent data from InvestingPro, Hesai Group (NASDAQ:HSAI) holds a market capitalization of $577.48 million and has demonstrated a significant return over the last week, with a price total return of 9.42%. Despite this, analysts do not expect the company to be profitable this year, which is reflected in a negative P/E ratio of -9.69. Moreover, while Hesai Group's revenue has grown by 30.49% over the last twelve months as of Q1 2024, the quarterly revenue growth has declined by 16.47%. This may be a point of concern for investors looking at the company's performance consistency.
InvestingPro Tips highlight that Hesai Group's liquid assets exceed its short-term obligations, indicating the company has a solid liquidity position. However, the valuation implies a poor free cash flow yield, which could be a red flag for investors seeking healthy cash generation. Additionally, the stock price has fallen significantly over the last year, with a year-to-date price total return of -49.16%. These metrics suggest that while the company may have strong liquidity, its profitability and stock performance raise questions about its immediate financial health and investment appeal.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available at InvestingPro's dedicated Hesai Group page, which could provide further insights into the company's financial position and future prospects.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.