Cenntro Electric Group Limited

Cenntro Electric Group Limited (NASDAQ: CENN), formerly Naked Brand Group Limited, is a commercial electric vehicle (EV) technology company. The Company is a designer and manufacturer of electric light- and medium-duty commercial vehicles (ECVs).

Key highlights

• Lower margin profile v/s Industry: In FY2021, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of EBITDA margin, operating margin and net margin. On top off all the company is clocking these negative margins on a continuous basis, which exhibits the extreme pressure on the company.

Source: REFINITIV, Analysis by Kalkine Group

• Increasing average inventory days: The company is witnessing an increase in its average inventory days on a sequential basis which is a sign of worry, moreover in FY 2021, its average inventory days stood at 164.8 days much higher compared to industry median of 37.6 days. A higher day’s inventory outstanding indicates that a company is not able to quickly turn its inventory into sales. This can be due to poor sales performance or the purchase of too much inventory. Having too much idle inventory is detrimental to a company as inventory may eventually become obsolete and unsellable

Source: REFINITIV, Analysis by Kalkine Group

• Long cash cycle days: The company’s Cash Cycle (Days) has increased compared to the previous sequential year, implying it is taking more days to convert its inventory to cash. In FY 2021, its Cash Cycle stood at 199 days against 181.7 days in FY 2020.

Source: REFINITIV, Analysis by Kalkine Group

Stock recommendation

The company's margins were negative in FY 2021, indicating that it is under tremendous pressure. Even so, its cash cycle days are on the longer side when compared to the industry median, indicating a poor liquidity profile. Furthermore, its average inventory days are increasing, indicating that the firm is unable to swiftly convert its inventory into revenue.

However, on the news of a record production milestone of 1,623 electric commercial vehicles (ECV) for 2021, CENN's stock has risen 61% in the previous month, but this increase does not reflect the company's fundamentals. The stock generates a negative return on investment for shareholders, with a TTM ROE of -48.10%.

Therefore, based on the above rationales and limited financial information we recommend “Avoid” rating on the stock at the last closing price of USD 2.14 on April 04, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

 1-Year Technical Price Chart (as on April 04, 2022). Source: Kalkine, Analysis by Kalkine Group 

*The reference data in this report has been partly sourced from REFINITIV.