<Results First Takes> Zhongsheng (881 HK): FY21 net earnings above expectation by 6%
- Total revenue rose 18%y-o-y to Rmb175bn, largely supported by 13.5% increase in new vehicles sales revenue to Rmb142bn, underpinned by strong luxury car sales
- Strong revenue mix has contributed to the sharp increase in GP margins (+1.4ppts to 10.5%) and gross profits (+37% to Rmb18.5bn)
- Net earnings surged 50% to Rmb8.3bn and a final DPS of HK$0.84 was proposed (FY20: HK$0.58). Dividend payout ratio remains stable at 20%
- Currently we have BUY rating with TP of HK$86
What’s new
The strong FY21 earnings were driven by strong volume sales (both new and pre-owned) and vehicle margin expansions especially given the tight new vehicle supply.
New car sales revenue rose 13.5% to Rmb142bn, underpinned by 8.7% increase in luxury car volume transaction. Sales of Mercedes Benz car accounted for 33.6% of total new car revenue, up 4.2ppts. This is largely due to the increase in Mercedes Benz stores last year. After sales revenue jumped 21% to Rmb24.5bn, while pre-owned car sales (a high growth business) surged 216% to Rmb8.1bn. Hence, total revenue climbed 18% to Rmb175bn.
Total gross profit posted 37% growth to Rmb18.5bn, translating to blended GP margin of 10.5%, up from 9.1% in FY20, an increase of 1.4ppts. Strong revenue mix has contributed to the sharp increase in margins and gross profits
Dealership derivative income also posted strong growth of 20%, with auto financing penetration rate hitting almost 67% last year.
Net earnings rose 50% to Rmb8.3bn. A final DPS of HK$0.84 was declared (FY20 final DPS was HK$0.58). Dividend payout ratio remains stable at 20%.
At end Dec-21, Zhongsheng has 412 stores in operation, of which c.62% are luxury brand dealerships. Supply of new vehicles was tight, with inventory turnover days at about 22 days at end Dec-21. This imbalance is positive on new car sales GP margins. Tight new vehicle supply is expected to prevail in the near-term given the current geopolitical uncertainty and pandemic lockdown in certain parts of China. Besides, we anticipate the current lockdown to have some impact on footfalls to its dealership stores initially. Based on past experience volume sales could rebound once the pandemic situation improves.