Stocks’ Details

BEST Inc. 

Strategic Partnership with Sinolink: BEST Inc. (NYSE: BEST) is mainly involved in providing integrated smart supply chain solutions and logistics services in China. As on 15 April 2021, the company’s market capitalization stood at ~$535.06 million. On 12 March 2021, the company announced that it has inked a strategic partnership agreement with Sinolink Yongfu Asset Management (Sinolink) to optimise its cash flow and focus more resources on the growth of its core logistics businesses. As per the agreement, BEST has sold around RMB517 million worth of its assets belonging to its external B2C truck leasing business to Sinolink.

Q4FY20 Result Highlights: For Q4FY20, the company reported total revenue of RMB9,255.4 million (US$1,418.4 million), down by 8.9% on pcp, mainly due to decline in average selling price ("ASP") per parcel in Express business. Gross profit for the quarter stood at RMB50.1 million (US$7.7 million), down by 91.1% on pcp, due to a steeper ASP decrease than unit cost reduction in Express business. For the quarter, the company reported a net loss of RMB492.9 million (US$75.5 million). For the full year FY20, the company reported total revenue of RMB29,995.0 million (US$4,596.9 million) and a net loss of RMB1,683.1 million (US$257.9 million).

Revenue by Business Segment (Source: Company Reports)

Outlook: Looking ahead, the company is focused on improving its capital structure and enhancing its balance sheet and cash flow to support its future growth. For FY21, the company expects its total revenue to be in the range of RMB34 billion and RMB36 billion.

Key Risks: The company is exposed to risks related to the evolving market trends, changing customer demands, fluctuations in general economic and business conditions in China and other countries in which BEST operates.

Technical Overview:

BEST's prices are forming a series of lower tops and lower bottoms for the past 1 year and indicating an overall downward trend for the stock. Prices are trading in a falling channel pattern for the past 6 months and recently made a new low of USD 1.22 on April 13, 2021. However, the recent fall in the stock is not backed by the volume and indicating a weakening of the current trend. The momentum indicator RSI (14-period) is forming a positive divergence with the price action, further indicating the possibility of an upward reversal from the current levels. However, the prices are trading below the trend-following indicators 21-period SMA and 50-period SMA, acting as the resistance for the stock. An immediate support level for the stock is at ~USD 1.10 and the resistance is at ~USD 2.25 level.

Weekly Chart (Source: Eikon, Thomson Reuters)

Note:  The yellow color line represents the trend line while the purple color line in the chart depicts RSI (14-period). The green color histograms at the bottom of the chart indicating weekly volumes. The red and sky-blue color lines represent the 21-period SMA and 50-period SMA, respectively. 

Stock Recommendation: As at 31 December 2020, the company had combined cash and cash equivalents, restricted cash and short-term investments of RMB4.5 billion. Over the last three months, the stock has corrected by 33.97% and is trading close to its 52-weeks’ low price of $1.22. On a TTM basis, the stock is trading at an EV/Sales multiple of 0.2x, lower than the industry median (freight & logistics) of 1.0x. Considering the company’s recently announced strategic partnership agreement with Sinolink Yongfu Asset Management, valuation on TTM basis, recent market volatility and current trading level, we give a “Hold” rating on the stock at the closing price of $1.38, down by ~5.48% as on 15 April 2021. We have a keen eye on the developments of the business and emergence of any catalyst will lead to reassessment of the rating. 

Romeo Power, Inc.

Long-Term Supply Agreement with PACCAR: Romeo Power, Inc. (NYSE: RMO) is an energy technology leader that is mainly involved in providing large-scale electrification solutions for complex commercial applications. As on 15 April 2021, the company’s market capitalisation stood at $1.062 billion. On 6 April 2021, the company announced a long-term supply agreement with PACCAR (NASDAQ: PCAR), under which, RMO will be a battery supplier for Peterbilt 579 and 520 BEVs in the United States and Canada through 2025. RMO’s battery technology solutions will help PACCAR in delivering state-of-the-art transportation solutions, which will enhance customers’ operations.

Q4FY20 and FY20 Result Highlights: For Q4FY20, the company reported revenue of $4.64 million, taking the total full year revenue to $8.97 million. Net loss for Q4FY20 stood at $19.07 million. During the year, the company completed a business combination with RMG Acquisition Corp. and related PIPE financing. Capital expenditure for FY20 stood at $1.3 million. As at 31 December 2020, the company’s cash and cash equivalents stood at $292.4 million.

Q4FY20 and FY20 Results (Source: Company Reports)

Key Risks: The company is exposed to the risks related to supply constraints. The company’s results can also be affected by the potential effects of COVID-19 pandemic and general economic and market conditions, impacting demand for Romeo Power’s products.

Outlook: Looking ahead, the company is focused on procuring cells that have met its rigorous cell supply validation processes. The company expects its near-term production and revenues to be constrained by the shortage in supply of battery cells. This has caused the company to materially reduce its FY21 revenue projections. For FY21, the company now expects its total revenue to be in the range of $18- $40 million. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Technical Overview:  

RMO's prices are trading in a bearish trend for the past 4 months and currently trading around the major support level of USD 7.71. The momentum indicator RSI (14-period) is trading at ~40 levels, indicating a downward trend for the stock. Prices are sustaining below the trend-following indicators 21-period SMA and 50-period SMA, further supporting a bearish stance. On the higher side, the major resistance level for the stock is at ~USD 13.00.

Weekly Chart (Source: Eikon, Thomson Reuters) 

Note:  The purple color line in the chart depicts RSI (14-period) and the green color histograms at the bottom of the chart indicating weekly volumes. The red and sky-blue color lines represent the 21-period SMA and 50-period SMA, respectively. 

Stock Recommendation: Over the last three months, the stock of RMO has corrected by 62.13% and is trading close to its 52-weeks’ low price of $7.71. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of a high single-digit upside (in % terms). We believe the company can trade at a slight discount to its peer mean EV/Sales (NTM trading multiple), considering the shortage in supply of battery cells, and reduction in FY21 revenue guidance. We have taken peers like Beam Global (NASDAQ: BEEM), Bloom Energy Corp (NYSE: BE), First Solar Inc (NASDAQ: FSLR). Considering the company’s recently signed long-term supply agreement with PACCAR, rise in Q4FY20 revenue, current trading level and valuation, we give a “Hold” rating on the stock at the closing price of $8.33, down by ~6.4% as on 15 April 2021. We have a keen eye on the developments of the business and emergence of any catalyst will lead to reassessment of the rating. 

XL Fleet Corp. 

Electrifying Apex Clean Energy Pickup Fleet: XL Fleet Corp. (NYSE: XL) is mainly involved in providing vehicle electrification solutions for commercial and municipal fleets in North America. As on 15 April 2021, the company’s market capitalisation stood at ~$919.48 million. On 7 April 2021, the company announced that it has become electrified vehicle partner of Apex Clean Energy and it will now electrify Apex’s vehicle fleet as part of a comprehensive effort to reduce its carbon emissions. The electrification systems of XL will allow Apex to equip its project teams with a diverse array of cleaner and more fuel-efficient vehicles.

Q4FY20 Result Highlights: For Q4FY20, the company reported revenue of $10.9 million, up from $0.3 million in the pcp. Gross profit for Q4FY20 stood at $2.0 million, reflecting gross margin of 18.3%. Over the quarter, the company completed a business combination with Pivotal Investment Corp. II. For the full year FY20, the company reported total revenue of $20.3 million, up 182% on FY19.

FY20 Results (Source: Company Reports)

Response to Short-seller Report: In March 2021, the company had responded to a short-seller report, wherein it inform that the report contains numerous factual inaccuracies, misleading statements, and flawed conclusions. The company has assured that it is validated by independent testing facilities adhering to EPA standards and backed by real customer experience.

Class Action Lawsuit: In March 2021, a class action lawsuit was filed in the Southern District of New York on behalf of purchasers of XL Fleet Corp, wherein, XL Fleet and certain of its executives have been accused of violating the Securities Exchange Act of 1934.

Key Risks: The company is exposed to the risk related to fluctuations in the demand for electrification. Uncertainty surrounding the impact of COVID-19 pandemic, and the potential for extended industry-wide issues also pose a risk for the company.

Outlook: Moving ahead, the company anticipates a stronger market environment and expects to realize significant revenue growth in 2021. For Q1FY21, the company expects revenue of around $1 million.

Technical Overview:  

XL's prices are trading in a bearish trend for the past 4 months. The stock price witnessed an upside move last week with the sharp rise in the volume but was unable to sustain on the higher level. The momentum indicator RSI (14-period) is trading at ~35 levels, near to an oversold zone, and may move upward from the current levels. Prices are sustaining below the trend-following indicators 21-period SMA and 50-period SMA, further supporting a bearish stance for the stock. An immediate support level for the stock is at USD 6.00 and the resistance is at USD 10.80 level.

Weekly Chart (Source: Eikon, Thomson Reuters)

Note:  The purple color line in the chart depicts RSI (14-period) and the green color histograms at the bottom of the chart indicating weekly volumes. The red and sky-blue color lines represent the 21-period SMA and 50-period SMA, respectively.

Stock Details: As at 31 December 2020, the company had cash balance of $329.6 million. Over the last three months, the stock has corrected by 69.46%. The stock is currently trading towards its 52-weeks’ low price of $6.41. Considering the uncertainty surrounding the COVID-19 pandemic, and ongoing lawsuit, we suggest investors to keep an eye on its upcoming updates. XL’s closing price on 15 April 2021 was $6.61, down by 7.16%.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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