20201118-招银国际-东风集团股份-00489.HK-Strong_3Q_results_beat_estimates_6页_1mb

Dongfeng Motor (489 HK) Summary

Core Content

Dongfeng Motor Group (DFG) has reported strong third-quarter results for 2020, with net profit (NP) reaching RMB4.2bn, representing a 22% year-over-year (YoY) increase and a 30% quarter-over-quarter (QoQ) increase. These results have prompted CMB International Securities (CMBIS) to revise its 2020E bottom-line forecast upwards to RMB8.4bn, reflecting improved performance. Based on the new 7.0x 2021E P/E ratio, the target price (TP) has been raised to HK$12.0, which represents a 28.2% upside from the previous TP of HK$7.1. The analyst reiterates a BUY recommendation.

Key Financial Highlights

Earnings Summary

• Revenue (RMB mn): FY18A: 104,543; FY19A: 101,087; FY20E: 108,207; FY21E: 123,443; FY22E: 137,287
• YoY Growth (%): FY18A: -17.02%; FY19A: -3.31%; FY20E: 7.04%; FY21E: 14.08%; FY22E: 11.22%
• Net Profit (RMB mn): FY18A: 12,979; FY19A: 12,858; FY20E: 8,447; FY21E: 13,258; FY22E: 14,463
• EPS (RMB): FY18A: 1.51; FY19A: 1.49; FY20E: 0.98; FY21E: 1.54; FY22E: 1.68
• YoY EPS Growth (%): FY18A: -8%; FY19A: -1%; FY20E: -34%; FY21E: 57%; FY22E: 9%
• P/E (x): FY18A: 4.82; FY19A: 4.86; FY20E: 7.40; FY21E: 4.71; FY22E: 4.32
• P/B (x): FY18A: 0.53; FY19A: 0.49; FY20E: 0.47; FY21E: 0.44; FY22E: 0.41
• Yield (%): FY18A: 4.83%; FY19A: 4.83%; FY20E: 4.73%; FY21E: 5.30%; FY22E: 5.79%
• ROE (%): FY18A: 11.44%; FY19A: 10.45%; FY20E: 6.45%; FY21E: 9.56%; FY22E: 9.73%
• Net gearing (%): FY18A: net cash; FY19A: 11%; FY20E: 12%; FY21E: 9%; FY22E: 5%

Sales and Performance Outlook

• Total Sales (Jan-Oct): Fell 5.5% YoY
• CV Sales (Jul-Oct): Increased 34.4% YoY
• PV Sales (Jul-Oct): Increased 5.5% YoY
• 2H20E CV Sales Forecast: Expected to grow 22% YoY due to strong replacement cycles and infrastructure investments
• 2H20E PV Sales Forecast: Expected to grow 2% YoY, supported by demand from Dongfeng Honda and Dongfeng Nissan
• Nissan's Production Expansion: Expected to increase by 30% in China, with DFL (DFG-Nissan joint venture) showing strong demand even during the downturn

Market Value Management

• The company is working on improving its valuation through market value management initiatives
• DFG announced it will maintain a payout ratio of no less than 40% for three years post A-shares issuance, attracting long-term investors like insurance companies
• The average dividend payout ratio for DFG in 2017-2019 was 22%
• DFG launched the high-end brand VOYAH and announced the Yuan+ plan to revive DPCA, aiming to rebuild investor image and lift valuation multiple

Key Ratios and Performance Metrics

• Sales Mix (%):
  • Passenger vehicles: FY18A: 38%; FY19A: 26%; FY20E: 18%; FY21E: 15%; FY22E: 14%
  • Commercial vehicles: FY18A: 58%; FY19A: 68%; FY20E: 76%; FY21E: 78%; FY22E: 79%
  • Financial business: FY18A: 4%; FY19A: 5%; FY20E: 6%; FY21E: 7%; FY22E: 7%
• Gross Profit Margin (%): FY18A: 13%; FY19A: 13%; FY20E: 13%; FY21E: 14%; FY22E: 14%
• Net Margin (%): FY18A: 12%; FY19A: 13%; FY20E: 8%; FY21E: 11%; FY22E: 11%
• ROE (%): FY18A: 11%; FY19A: 10%; FY20E: 6%; FY21E: 10%; FY22E: 10%
• Current Ratio (x): FY18A: 1.36; FY19A: 1.34; FY20E: 1.28; FY21E: 1.23; FY22E: 1.18
• Quick Ratio (x): FY18A: 0.66; FY19A: 0.50; FY20E: 0.49; FY21E: 0.48; FY22E: 0.48
• Cash Ratio (x): FY18A: 0.37; FY19A: 0.29; FY20E: 0.28; FY21E: 0.29; FY22E: 0.29
• Total Debt / Total Equity Ratio (%): FY18A: 21%; FY19A: 34%; FY20E: 48%; FY21E: 44%; FY22E: 41%
• Net Debt / Equity Ratio (%): FY18A: net cash; FY19A: 11%; FY20E: 12%; FY21E: 9%; FY22E: 5%

Earnings Revisions and Forecast

• Revised FY20E NP: RMB8.447bn, up 5% from previous forecast
• Revised FY21E NP: RMB13.258bn, up 3% from previous forecast
• EPS Forecast:
  • FY20E: 0.98
  • FY21E: 1.54
  • FY22E: 1.68
• Gross Margin:
  • FY20E: 13.10%
  • FY21E: 13.60%
• Net Margin:
  • FY20E: 7.81%
  • FY21E: 10.74%

Analyst Ratings

• CMBIS Rating: BUY
• Potential Return: Over 15% over next 12 months

Shareholding and Performance

• Market Cap (HK$ mn): 69,446
• Avg 3 mths t/o (HK$ mn): 133.88
• 52w High/Low (HK$): 8.94/4.05
• Total Issued Shares (mn): 2,856
• Share Performance:
  • 1-mth: 45.2%
  • 3-mth: 46.6%
  • 6-mth: 63.7%

Key Reports

• "Market value management as a catalyst" (31 Aug 2020)
• "French brands drags bottom-line performance" (1 Apr 2020)
• "Ambiguous future with PSA" (3 Oct 2019)

Financial Summary

Income Statement Highlights

• Net Profit (NP): FY20E: RMB8.447bn; FY21E: RMB13.258bn; FY22E: RMB14.463bn
• EPS: FY20E: 0.98; FY21E: 1.54; FY22E: 1.68
• Gross Margin: FY20E: 13.10%; FY21E: 13.60%
• Net Margin: FY20E: 7.81%; FY21E: 10.74%

Cash Flow Highlights

• Net Cash from Operating: FY20E: RMB10,361mn; FY21E: RMB15,306mn; FY22E: RMB18,910mn
• Capex & Investments: FY20E: RMB4,741mn; FY21E: RMB4,224mn; FY22E: RMB5,025mn
• Net Change in Cash: FY20E: RMB1,760mn; FY21E: RMB3,942mn; FY22E: RMB3,683mn

Balance Sheet Highlights

• Non-current assets: FY20E: RMB143,412mn; FY21E: RMB157,650mn; FY22E: RMB171,473mn
• Current assets: FY20E: RMB148,056mn; FY21E: RMB153,416mn; FY22E: RMB159,273mn
• Current liabilities: FY20E: RMB115,261mn; FY21E: RMB124,880mn; FY22E: RMB135,249mn
• Total Net Assets: FY20E: RMB140,486mn; FY21E: RMB150,093mn; FY22E: RMB161,339mn

Conclusion

Dongfeng Motor is showing signs of recovery, driven by strong performance in commercial vehicles and strategic initiatives like market value management, the launch of the high-end brand VOYAH, and the expansion of its joint ventures. Despite challenges in the passenger vehicle segment, the company is expected to benefit from increased production capacity and continued investment in China. The revised forecasts and target price reflect optimism about the company's future growth potential.