Citi initiates coverage on SERES H shares with a "Neutral" rating and a target price of 140.4 yuan, downgrading A shares rating to "Sell."

Citi's research report indicates that it has initiated coverage on SERES (09927.HK) H shares with a "Neutral" rating and a target price of HKD 140.4; due to unattractive risk-reward, it has downgraded SERES (601127.SH) A shares from "Neutral" to "Sell," with the target price revised from the original RMB 165.5 to RMB 129.1, reflecting revised forecasts and share dilution post-Hong Kong listing.

Citi estimates that SERES will have approximately RMB 67 billion in net cash after its Hong Kong listing, with a net cash to market value ratio of about 0.28 times for A shares and 0.34 times for Hong Kong shares, compared to 0.68 times for Li Auto (LI.US) ADR.

Citi believes that concerns regarding SERES remain, as the extended-range electric vehicle (EREV) industry has underperformed so far this year, coupled with an aging model cycle and SERES's significant exposure to the EREV industry, the company may replicate the trend of Li Auto; SERES's golden model cycle is nearing its end; if it lowers its average selling price (ASP) and enters the mass market, it will face competitive challenges from Great Wall Motors (02333.HK), Geely (00175.HK), BYD (01211.HK), and Leapmotor (09863.HK).

Citi has revised SERES's sales forecasts for 2025 to 2027 from 687,000, 859,000, and 945,000 units to 526,000, 669,000, and 764,000 units, respectively, with revenue forecasts lowered by 9% to 14% to RMB 171 billion, RMB 216.1 billion, and RMB 241 billion.

Citi has raised its gross margin forecasts for SERES from 3.9 to 4.1 percentage points for 2025 to 2027, to 29.7%, 29.8%, and 29.8%, respectively, reflecting better-than-expected profit margins in the first nine months of 2025, with the gross margin for the fourth quarter of 2025 expected to rise by 0.3 percentage points to 30.2%; considering the collaboration with Huawei and investments in new plans (including ADAS/robotics), it has lowered its net profit forecasts for 2025 to 2027 by 1% to 7%, to RMB 8.8 billion, RMB 13 billion, and RMB 15.3 billion, respectively