Outlook dependent on luxury unit
What’s new
- FY21 results broadly in line
- Anticipate BJ-Benz to post better earnings on strong new product cycle
- BJ-Hyundai and self-brand remain a drag until vehicle electrification rate improves
- Maintain HOLD; HK$2.90 TP pegged to 5x FY22F PE
BJ-Benz: The robust new model cycle is expected to support gross margins recovery from ~25% in FY21 to around 26-27% in FY22-23F.
BJ-Hyundai: Both partners have decided to inject US$471m each to beef up the capital base for new investments into the vehicle electrification project. The JV’s vehicle sales have fallen from a peak of 1.1m units in FY16 due to challenges from growing competition especially in electrification technology.
Self-brand unit: BAIC’s self- brand business has been a drag on the group as losses have been widening since FY17’s Rmb2.7bn loss. We do not expect a fast turnaround especially under the current environment, and more R&D is needed to broaden the vehicle offerings. Other Chinese auto brands are aggressively investing into new electrification technology including hybrid to ride the industry rapid growth.