20220408-招银国际-广汽集团-02238.HK-The_worst_appears_to_be_over_for_local_brands_4页_938kb

GAC Group (2238 HK) Summary

Core Content

GAC Group (2238 HK) is a major player in the Chinese automotive industry, with a focus on both domestic and joint venture brands. The research report from CMB International Global Markets (CMBIGM) maintains a BUY rating for GAC, raising the target price from HK$10.50 to HK$12.00. This decision is based on the expectation that the worst for the company's homegrown brands, such as Trumpchi and Aion, is over, with anticipated sales volume and gross margin improvements in FY22E.

Main Points

• Sales and Profit Growth:

  • GAC's sales volume and net profit are expected to grow significantly in FY22E, with a projected net profit of RMB 2.8bn in 1Q22E and RMB 8.8bn for the full year.
  • Aion's sales volume is forecasted to rise by 35% in FY22E, and the GAC Toyota joint venture's net profit is expected to increase by 7%.

• Homegrown Brands Recovery:

  • Trumpchi and Aion showed recovery in sales volume and gross margin during FY21.
  • The report anticipates a 37% YoY increase in combined sales volume for Trumpchi and Aion in FY22E, along with a 3 ppts widening in gross margin.

• Joint Venture Performance:

  • GAC Toyota's share of profit surged by 31% YoY in FY21, driven by sales volume growth of 8% YoY.
  • The performance of GAC FCA is expected to improve as the joint venture's loss may narrow if Stellantis increases its stake.

• Valuation and Target Price:

  • A SOTP (Sum-of-the-Parts) valuation is used, considering the planned spin-off of Aion.
  • Aion is valued at HK$6.0 per share based on a 2.5x P/S multiple, while JVs and associates are valued at HK$6.0 per share based on a 4.0x P/E multiple.
  • The target price of HK$12.00 is based on these valuations and reflects a 92.9% upside from the current price of HK$6.22.

Key Financial Projections

Key Risks

• Lower-than-expected sales volume or margins for GAC, particularly for Aion.
• Delayed progress in the spin-off of Aion.
• Sector-wide de-rating in the automotive industry.

Share Performance and Structure

• Market Cap: HK$65,086 million
• Avg 3 mths t/o: HK$155 million
• 52w High/Low: HK$9.25 / HK$5.50
• Total Issued Shares: 10,464 million
• Shareholding Structure:
  • Guangzhou Automobile Industry: 53.1%
  • Others: 46.9%

Analysts

• SHI Ji, CFA: (852) 3761 8728 | shiji@cmbi.com.hk
• DOU Wenjing, CFA: (852) 6939 4751 | douwenjing@cmbi.com.hk

Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10%.
• SELL: Potential loss of over 10%.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the broad market.
• UNDERPERFORM: Industry expected to underperform the broad market benchmark.

Auditor

• PricewaterhouseCoopers

Related Reports

• "GAC Group - Ride on Aion spin-off and JV cash cow" – 13 Jan 2022

Disclosures

• The report is prepared for information purposes only and is not investment advice.
• No liability is accepted for losses, damages, or expenses arising from reliance on the report.
• Information is based on publicly available data and may change without notice.
• CMBIGM may have conflicts of interest and is not responsible for any consequences of the report's use.

Legal and Distribution Notes

• The report is intended solely for the use of the intended recipients.
• It may not be reproduced, reprinted, sold, or published without prior written consent.
• In the United Kingdom, the report is provided only to certain qualified individuals.
• In the United States, the report is distributed only to "major US institutional investors".
• In Singapore, the report is distributed by CMBI (Singapore) Pte. Limited (CMBISG), an exempt financial adviser, and is subject to legal responsibility as defined by Singapore law.

Summary

The report highlights the positive outlook for GAC Group, particularly for its homegrown brands, and maintains a BUY rating with a raised target price of HK$12.00. Key factors include projected sales and margin improvements, strong performance from joint ventures, and a strategic focus on Aion's spin-off. However, the report acknowledges potential risks such as slower-than-expected spin-off progress and sector-wide challenges. Financial projections indicate strong growth in revenue and net profit, with improving gross and net margins. The valuation is based on a SOTP model, and the company's financial health and performance are expected to improve in the coming years.