Last Traded Price (12 Jul 2021): HK$73.70 (HSI : 27,515)
Price Target 12-mth: HK$86.00 (17% upside) (Prev HK$75.30)
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Timely acquisition to ride on Mercedes Benz product upcycle. The rapid expansion of the Mercedes Benz network especially in the Southern and Western China is timely, riding on the OEM product upcycle with several new models in the pipeline. These markets have recorded strong sales growth of 40-60% y-o-y in 4M21.
Earnings accretion offsets dilution impact. Zhongsheng will issue approximately 96m new shares to fund the acquisition, representing a 4% dilution. The purchase price (including Rmb1.7bn for 20 self-owned properties) is reasonable, translating to about 12x FY20 PE and <10x FY21F PE.
Earnings upward revisions. We raised our FY21/22F earnings estimates by 4-9% to factor in the acquisition as well as higher volume sales and margins assumptions, following the recent strong sales data and firm vehicle ASP.