Chinese stocks surged Tuesday morning after the announcement of significant economic stimulus from China's central bank. Shares of Yum China Holdings (YUMC) rose 6.1%, Li Auto (LI, Financial) gained 7.32%, and Melco Resorts & Entertainment (MLCO) increased by 7.2%.
China's central bank revealed its most substantial stimulus package since the pandemic, aimed at countering the slowing economy and deflationary pressures. The measures include cutting interest rates on various loans by 20 to 30 basis points and reducing mortgage loan rates by 50 basis points. Additionally, the People's Bank of China (PBOC) is lowering the minimum down payment on mortgages to 15% to stimulate home purchases.
Consumer-facing companies like Yum China, Li Auto, and Melco Resorts are expected to benefit directly from these government actions. Furthermore, the stimulus includes two new programs, valued at 800 billion yuan ($114 billion), to make it cheaper for institutional investors to buy Chinese stocks and for companies to conduct stock buybacks.
Li Auto Inc (LI, Financial), a prominent Chinese NEV manufacturer, saw its shares rise by 7.32% following the stimulus announcement. As of the latest data, the company's stock is priced at $23.825. Li Auto has demonstrated strong revenue growth, with a 1-year growth rate of 68.4%. The company sells premium smart NEVs and has expanded its product line to include both battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs).
Despite the positive momentum, the financial health of Li Auto presents a mixed picture. The company has a medium degree of financial stress, reflected by an Altman Z-Score of 2.74, which places it in the grey area. Additionally, the company shows possible financial result manipulation with a Beneish M-Score of -0.49. However, Li Auto maintains a strong balance sheet, highlighted by its robust interest coverage ratio and substantial equity-to-asset ratio.
The company's current PE ratio stands at 17.87, and its PB ratio is 2.92, suggesting it is relatively valued in comparison to its peers. However, investors should exercise caution, as the GF Value rating categorizes Li Auto as a "Possible Value Trap" and advises to "Think Twice" before investing. For more detailed valuation metrics, visit the GF Value page for Li Auto.
In summary, while Li Auto's stock has benefited from the recent economic stimulus, potential investors should carefully consider the financial health indicators and the GF Value assessment before making investment decisions.
