Focus on NEV in coming few years
- 1H22 revenue and net profit fell 22.5% and 42.5% y-o-y respectively, below expectations, largely hit by pandemic
- Auto stimulus, store expansion and supply stabilisation expected to support volume sales and gross profit margins recovery in 2H22
- NEV stores expected to reach 100 by end-2022 to support the next 2-3 years growth
- TP HK$9.20 pegged to 6x FY22F PE; maintain BUY
1H22 net earnings were affected by pandemic lockdowns and supply chain disruption, which pulled down total vehicle sales by 34% y-o-y to 76,752 units, and total revenue fell by c.22.5% y-o-y to Rmb31.4bn. Revenue from new car sales and after-sales services declined about 25% and 20% to Rmb25.4bn and Rmb4.4bn respectively. Although gross profit fell 16.7% to Rmb3.1bn, total gross profit margin improved by 0.67ppts to 9.81%, contributed mainly by new premium car sales. Net earnings declined by 42.5% y-o-y to Rmb673m, below market expectations.
In the new vehicle sales business, luxury brands sales volume dropped by 24.9% y-o-y to 57,835 units in 1H, but the high gross margins of luxury cars lifted the segment’s gross margin up by 0.46ppts to 3.58%. Luxury cars accounted for 88.4% of new car sales revenue, of which BMW and Porsche combined contributions formed two-thirds of total. The total volume of new car sales for 2H22 is expected to grow by 27% y-o-y to around 124k units. Gross profit margin should stay stable in 2H22. Total number of outlets as of 30 June 2022 was 241, of which c.66% are luxury brand stores.
For after-sales service, despite the revenue drop 20% y-o-y to Rmb4.4bn, GP margin was stable at 45.2% in 1H22. China Yongda has a total customer pool of about 1.1m to support its future after-sales services growth. Revenue from this segment is expected to recover post the lockdowns and gross margin to be intact.
Independent NEV sales volume posted 143.7% y-o-y growth to 2,849 units in 1H, and there are over 3,300 units of pre-sale orders secured. Currently, the NEV brands include XPeng, AITO and SMART and VOYAH. Yongda secured 47 new authorizations from these brands in 1H and it will open 46 outlets in 2H22. Yongda aims to secure 100 authorisations from OEMs by the end of 2022. NEV monthly sales is expected to exceed 10,000 units when more than 200 outlets are opened.
NEV strategy is Yongda’s primary focus in the coming two to three years. NEV sales is expected to account for one-third of total vehicle sales by 2025. Rapid vehicle electrification trend supports high growth potential in the NEV after-sales service market, as reflected by the y-o-y growth of 67% in after-sales service revenue in 1H. The group plans to focus on 5-6 leading NEV brands in future to improve its quality and scale.
Volume of sales of pre-owned vehicles fell by 5% to 31,454 units due to lower demand caused by pandemic in 1H. Used car gross margin was up c.0.1ppt to 6.1%, translating to gross profit of Rmb174m. In 1H22, total pre-owned vehicle outlets were 15 and Yongda plans to launch a several Yongda brand used car centres in two to three years, as part of a B2B and B2C platform for connecting customers, dealers, and manufacturers within the pre-owned vehicle supply chain. Yongda strives to achieve revenue and used car volume CAGR of 40% from 2022-2024.
Healthy financial position. Operating cashflows in 1H22 was Rmb3.15bn, which is at a healthy level as Yongda maintained good inventory turnover of 23.7 days despite the drop in net profits. Net debt decreased from end-FY21’s Rmb2.6bn to 1H22’s Rmb1.8bn. The corresponding net gearing decreased from 18.3% to 11.9%.
Cut target PE as 1H22’s performance was below market expectations. We revised down FY22F and FY23F earnings by 14% and 9% respectively to factor in the weak 1H results. Accordingly, our new TP is also lowered to HK$9.20, pegged to unchanged 6x FY22F PE.