Sinmiao Technology AIHS Stock News

Senmiao Technology Ltd (NASDAQ: AIHS) is making a run for the top in the market this morning, trading on gains that are better stated in multiples than percentages. The gains come after the company announced that it signed an investment agreement with Hongyi Industrial Group. Here’s what’s going on:

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AIHS Stock Climbs On Investment Agreement

In the press release, Senmiao Technology said that it secured a RMB50 million (about $7 million) investment from Hongyi Industrial Group. Hongyi is an affiliate of the largest shareholder of Chengdu Road & Bridge Engineering, a construction and engineering company that’s publicly listed in China.

The investment was made into the company’s majority owned subsidiary, Jinkailong Automobile Leasing. This is the entity that AIHS uses to operate its automobile transactions and related services business.

The company said that it plans on using the capital from this investment to expand its auto business in Chengdu. In particular, the company plans on purchasing more vehicles for its rental business to short lease-hailing drivers and open additional retail stores to provide auto financing and other services to ride-hailing drivers.

As part of the agreement, Hongyi will receive 27.03% equity interest in Jinkailong in exchange for its investment. As a result of the transaction, AIHS will no longer be the majority holder of the subsidiary. However, it will maintain control of Jinkailong as a result of existing voting agreements with certain shareholders of Jinkailong.

In a statement, Mr. Xi Wen, CEO at AIHS, had the following to offer:

We are delighted to sign this landmark deal with Hongyi as we believe it will increase our ability to further expand our market share in the rapidly developing online ride-hailing industry in China. Hongyi, a corporate enterprise in the business of real estate and industrial investment in Sichuan, has a strong track record of successful business ventures and is an affiliate of the largest shareholder of an A-share listed company in China. This agreement marks a significant vote of confidence by Hongyi in our long-term strategy to monetize and generate profits in our streamlined automobile transaction and related services business. With the additional capital, we believe we are in an even stronger position to weather the adverse impact that COVID-19 has had on our business and focus squarely on expanding our auto business while driving long-term sustainable growth for our shareholders.

The News Triggered A Short Squeeze

All in all, the news issued today proved to be positive. The company will receive a large investment to purchase vehicles and provide services to ride-hailing drivers. However, that alone doesn’t justify gains of more than 100% in Sinmiao Technology shares.

Ultimately, the positive news triggered a short squeeze. As such, following dramatic gains, we could see a big fall in value, bringing the stock to a more realistic rate. So, be careful with the short term trade. In the long run, once the squeeze is over and the price falls back, now may be the time to jump in as the company’s auto business may see a strong run in the relatively near future.

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