There is celebratory news for the many tens of thousands of EHang shareholders, many who follow social media, consistently liking or retweeting favourable stories about the Chinese Autonomous Aerial Vehicle (AAV) company. For its shares are ready to rebound, claims the respected financial website, seekingalpha.com.
My goodness me it’s been a rough and tumble ride since February 2021, when U.S short seller, Wolfpack Research, hammered EHang with a severe case of financial GBH, after releasing a damning report with the affectionate title: EHang: A Stock Promotion Destined to Crash and Burn.
In a nutshell, Wolfpack, headed by Dan David, dubiously claimed EHang’s revenues ”were largely fabricated!” Short sellers jumped on this like wolves around a dying deer. What followed was share-fest carnage.
From a high of USD124.09 the price fell cataclysmically to a closing low, 15 months later, of USD7.12 (May 2022). It has been a nightmarish ride for shareholders, especially those who bought the stock at high prices. The share has been staggering within a PTSD trading corridor of USD7 to USD11 since May, closing this Wednesday at USD8.23. Anyway, all that hammer horror is now firmly in the past, says seekingalpha.
Writer Stephen Tobin, who formerly worked for the Bank of America during the 1990s and since has become a successful private trader, says, “EHang is significantly undervalued. I give it a fair value of USD30 per share.” Easy to say, even fool’s gold, perhaps, so what are Tobin’s arguments to support his claim?
EHang has already made sales (over 100 craft); has confirmed future orders, unlike most of its competitors unconfirmed ones, from companies based in China, Malaysia, Thailand, Japan and Indonesia; and more importantly will be one of the first eVTOLs to gain full certification. Tobin writes, “Impending certification, a growing order book, and a low share price due to the short seller attack give the potential for a significant EHang price increase, perhaps hundreds of percent.”
What is most impressive is EHang expects complete type certification from the CAAC for its autonomous aircraft during the next quarter and begins commercial operations this year, yes, 2022, not 2024 which its nearest U.S rivals are stating. Although, let’s be fair, this is only for China. Full certification being granted from both the FAA and EASA is another kettle of regulations altogether.
Tobin’s enthusiasm continues, “This is the third article I have written on eVTOL companies. I believe the market for this product is going to be huge, and that some of the companies involved are going to bestow outsized returns on investors.”
Sounding more like a budgerigar, his overriding view is EHang’s shares are “Cheap, cheap, cheap!” He slams Wolfpack believing its damning report “is full of biased and misleading commentary, untruths, and unsupported accusations that do not stand up to scrutiny.” He goes on, “As a result of the short-seller attack, EHang shares are trading at a considerable discount just as the company is moving into its rapid growth phase.” Adding, “I believe EH is a bargain not to be missed.”
The company is developing two aircraft, the multi-copter EH-216 available in three variations, and the tilt and thrust VT-30. Both planes are autonomous two-seaters and have multiple pre-orders in place. The VT-30 has wings and uses tilting rotors that provide both lift and thrust, it has a much longer range than the EH-216 and is aimed at the air taxi market.
In February, EHang received special conditions approval from CAAC, which clears the way for the Chinese regulator to issue type certification for the 216S. If this is achieved, it will be another world first and justify the more than 40,000 trial flights EHang has operated since 2014.
China is not the only market moving forward with this company. In 2018, Japan established a public-funded body (PPCAMR) to look into air mobility. The group has set 2023 as a target date for eVTOL operations in Japan and last month, granted its first license to EHang. Since, the company has received orders for more than 50 aircraft from two Japanese customers. No doubt, EHang will have a strong presence at the Osaka World Expo in 2025. While, Indonesia has ordered 100 aircraft and intends to use the EH-216S for tourist sightseeing.
On top of this good news, what some investors may not be aware of are the EHang sideline businesses like its Falcon drones which were successfully deployed during the pandemic to deliver vaccines, PPE etc.. They flew multiple contactless relief missions, perhaps, one of the few companies to benefit from the world lockdown. Then, there are the growing drone light shows that EHang is masterfully expanding around the globe. Yet another revenue stream for its coffers.
Tobin’s view that the true EHang share fair value stands at USD30 per share v a current USD8 or so price is based on his own revenue forecasts alongside a fellow Wall Street analyst’s (unknown). He offers various financial figures and forecasts to support this.
While Tobin admits the balance sheet suggests EHang requires a further inflow of investment to achieve its next goals, he points to the recent announcement that the company has attracted a USD149 million loan facility from a major Chinese bank. “This goes a long way to meeting the cash needs and will certainly be enough for the next 12 months,” he points out. Although then states, “However, additional capital will still be needed and we can expect further dilution (following on from a 2.7% dilution this year).”
So not to be viewed as a pump and dump huckster, Tobin then lowers his enthusiasm by ending with a sobering conclusion. “Holding a position in EHang is likely to be a very bumpy ride. Certification, commercial production and operations will all cause the stock to jump higher. (But) it is at risk of delisting from the U.S. with 150 other Chinese operations, and exactly what you own when you buy an American Depositary Receipts (ADR) in EHang is complicated.”
Finally, Tobin discloses he is an EHang shareholder. Therefore, what is written must be taken with a pinch of salt. Even so, there is much common sense to his well-argued viewpoints.
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(Top image: EHang)