20230321-招银国际-永达汽车-03669.HK-After-sales_as_earnings_driver_amid_low_valuation_23页_1mb

Yongda Automobiles (3669 HK) Summary

Core Content

Yongda Automobiles (3669 HK) is a leading luxury-brand auto dealer in China, with a focus on BMW and Porsche. The company is initiated with a BUY rating and a target price of HK$8.50, which represents a +68.0% upside from the current price of HK$5.06. The analysis highlights that after-sales services are expected to be a key earnings driver in FY23E, contributing significantly to net profit growth and gross margin improvement.

Main Points

1. Dealership Model Still Justified

Despite the rise of direct sales by some new-energy-vehicle (NEV) makers, the dealership model remains relevant due to:

• Lower initial investment and shorter payback period for dealers under the agency model.
• Operational risk reduction, as dealers do not need to hold inventory.
• Dealers acting as cushions for automakers during unexpected events like supply chain disruptions or market volatility.

2. After-sales Services as Earnings Driver

• After-sales service revenue is projected to rise 15% YoY in FY23E.
• This revenue will account for 16.5% of total revenue, the highest in history.
• Gross margin is expected to increase from 8.9% in FY22E to 10.0% in FY23E.
• Net profit is forecasted to grow 39% YoY to RMB 2.0bn in FY23E.

3. NEV Sales and Pre-owned Vehicles

• New-car sales volume of NEV brands is expected to surge over 90% YoY to 15,000 units in FY23E.
• Pre-owned vehicle sales are projected to grow 10% YoY to 88,000 units, representing over 50% of new-car sales volume.

4. Valuation and Dividend

• The target price of HK$8.50 is based on 7x FY23E P/E, consistent with the company's historical average.
• Dividend yield is expected to exceed 8% in FY23E, supported by improved dividend payout ratio.
• The company's P/E and P/B ratios are currently low, suggesting undervaluation.

Key Information

Earnings Summary (YE 31 Dec)

Stock Data

• Market Cap: HK$9,896 million
• Avg 3 mths t/o: HK$21 million
• 52w High/Low: HK$9.10 / HK$3.40
• Total Issued Shares: 1,956 million

Shareholding Structure

Share Performance (vs. Index)

Company Overview

• Yongda is a major player in the luxury auto dealership sector, with a complex ownership structure of subsidiaries.
• It operates 276 authorized outlets across 24 provinces, primarily in eastern and southern China.
• 70% of its stores focus on luxury-brand vehicles.
• The company has acquired or self-built 60 stores since 2013, targeting both familiar and new brands.

Investment Thesis

1. Dealership Model's Resilience

• Direct sales may not replace the dealership model entirely due to:
  • Higher SKUs and complex supply chains.
  • Dealers' role in managing demand and inventory.
  • Agency model offering lower investment and operational risk.

2. After-sales Services and NEV Growth

• After-sales services are expected to offset the decline in new-car sales.
• NEV brands like Tesla, NIO, and BYD are likely to drive growth in the short term.
• Pre-owned vehicle sales could become a significant profit driver.

3. Dividend and Valuation

• The dividend yield is expected to exceed 8% in FY23E.
• Valuation gap with peers may narrow due to after-sales service importance and NEV exposure.

Industry Overview

1. Luxury Auto Segment

• Traditional luxury brands are underperforming due to price wars and subsidy phase-out.
• Premium NEV brands are outperforming the overall passenger-vehicle (PV) market.
• NEV luxury brands could account for ~40% of total luxury sales in 2023.

2. Dealer Network Expansion

• Traditional luxury brands have slow expansion, with growth rates under 5% annually.
• Lower-tier cities are the main growth areas.
• NEV brands are increasingly using the agency model, which reduces inventory burden and increases flexibility.

3. NEV After-sales Services

• After-sales services for NEVs are expected to decline by ~20% compared to ICE vehicles.
• Powertrain-related services will see a ~70% decline, while paint and body services will increase slightly.
• Gross profit from after-sales services is expected to fall by ~22% in the NEV world.

Key Risks

• Lower-than-expected sales or margins.
• Slower after-sales service recovery than anticipated.
• Sector de-rating due to broader market conditions.

Conclusion

Yongda's after-sales services are set to be a major earnings driver in FY23E, despite challenges in new-car sales. The company's focus on NEV brands and dividend yield support its BUY rating. However, investors should be cautious about sales and margin risks, as well as sector-wide de-rating.