Shenzhen Inovance Previews Mixed Q3 Numbers; Macro Risks Ahead

Shenzhen Inovance revealed preliminary revenue and net income numbers for the September quarter, which are ahead of our expectations. We intend to update our forecasts and fair value estimate once Shenzhen Inovance publishes full results for the third quarter of 2021 at the end of October. However, potential changes to our forecasts do not affect our view that the stock is overvalued, with the market being overoptimistic about Inovance’s electric vehicle, or EV-related outlook. We believe the market still expects Inovance’s EV-related revenue to grow at over 50% per year (from 60% previously) for the next 10 years compared to our forecasts of 30% CAGR up to 2025. In the short term, negative sentiment around the property sector--which potentially affects Inovance’s elevator revenue--and a potential breach of the placing price at CNY 58 may add to selling pressure.