GAC Group (2238 HK) Summary
Core Content
GAC Group (2238 HK) reported a 3Q22 earnings miss, primarily due to unexpected impairment charges and a decline in equity income from joint ventures (JVs) and associates. The company's net profit for 3Q22 was RMB 2.3bn, which was RMB 900mn lower than the prior forecast. The impairment charge amounted to RMB 655mn, and the net loss excluding equity income and impairment narrowed by RMB 700mn compared to the previous quarter.
The analysts have revised their forecasts, lowering the equity income for FY22E and FY23E by 5% and 4%, respectively. However, they maintain a BUY rating and a target price of HK$ 8.00, citing the company's attractive valuation and strong position in the Chinese auto market, particularly with Toyota.
Key Financial Highlights
Earnings Summary (YE 31 Dec)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
63,157 |
75,676 |
113,304 |
124,632 |
127,207 |
| YoY growth (%) |
5.8 |
19.8 |
49.7 |
10.0 |
2.1 |
| Net income (RMB mn) |
5,964 |
7,511 |
9,573 |
9,085 |
12,709 |
| EPS (RMB) |
0.58 |
0.73 |
0.92 |
0.87 |
1.21 |
| YoY growth (%) |
(9.9) |
25.9 |
27.4 |
(5.1) |
39.9 |
| P/E (x) |
8.4 |
6.3 |
5.4 |
5.7 |
4.1 |
| P/B (x) |
0.6 |
0.5 |
0.5 |
0.5 |
0.4 |
| Yield (%) |
2.7 |
3.6 |
3.9 |
3.7 |
5.2 |
| ROE (%) |
7.2 |
8.6 |
10.1 |
8.8 |
11.3 |
Earnings Revision
| Metric |
CMBIGM Forecast |
Consensus |
Diff (%) |
| Revenue |
113,304 |
98,678 |
14.8% |
| Gross profit |
5,241 |
6,506 |
-19.4% |
| Operating profit |
(5,627) |
(2,859) |
N/A |
| Net profit |
9,573 |
10,537 |
-9.1% |
| Gross margin |
4.6% |
6.6% |
-2.0 ppt |
| Operating margin |
-5.0% |
-2.9% |
-2.1 ppt |
| Net margin |
8.4% |
10.7% |
-2.2 ppt |
Valuation and SOTP Analysis
CMBIGM uses a sum-of-the-parts (SOTP) valuation approach to incorporate Aion's planned spin-off. Key valuations include:
- Aion: HK$ 3.7 per share, based on 1.0x FY23E P/S (as it is still loss-making).
- JVs and Associates: HK$ 4.2 per share, based on 3.0x FY23E P/E, assuming a significant decline in equity income from FY25E onwards.
- Trumpchi: Valued at HK$ 0, as it is considered less valuable.
- Total SOTP Target Market Cap: RMB 76,176mn
- Target Price: HK$ 8.00
Stock Data
| Metric |
Value (HK$) |
| Market Cap |
57,761 |
| Avg 3 mths t/o |
96 |
| 52w High/Low |
8.75/5.12 |
| Total Issued Shares (mn) |
10,464 |
Shareholding Structure
| Holder |
% Ownership |
| Guangzhou Automobile Industry |
53.1% |
| Others |
46.9% |
Share Performance
| Period |
Absolute (%) |
Relative (%) |
| 1-mth |
-4.7 |
5.9 |
| 3-mth |
-24.9 |
-1.4 |
| 6-mth |
-18.5 |
8.4 |
Key Risks
- Lower sales volume and margins, especially for Aion.
- Sector de-rating.
- Potential impairment in future quarters.
Analysts
Financial Summary
Income Statement
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue |
63,157 |
75,676 |
113,304 |
124,632 |
127,207 |
| Cost of sales |
(60,861) |
(71,777) |
(108,063) |
(116,497) |
(116,364) |
| Gross profit |
2,296 |
3,899 |
5,241 |
8,135 |
10,844 |
| Net profit |
5,964 |
7,511 |
9,573 |
9,085 |
12,709 |
Cash Flow Summary
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Net cash from operating |
(3,671) |
(6,491) |
7,380 |
1,829 |
4,215 |
| Capex |
(6,586) |
(6,243) |
(10,700) |
(9,100) |
(9,200) |
| Net cash from investing |
(2,938) |
7,235 |
3,174 |
3,408 |
3,365 |
| Net cash from financing |
(1,178) |
777 |
(8,142) |
(2,215) |
(5,512) |
| Net change in cash |
(7,787) |
1,520 |
2,412 |
3,022 |
2,069 |
Balance Sheet
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Total assets |
142,861 |
154,251 |
177,903 |
188,426 |
194,406 |
| Total liabilities |
56,147 |
61,602 |
75,432 |
78,903 |
74,603 |
| Shareholders' equity |
84,375 |
90,313 |
100,122 |
107,163 |
117,439 |
Key Ratios
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue Growth (%) |
5.8 |
19.8 |
49.7 |
10.0 |
2.1 |
| Gross margin |
3.6 |
5.2 |
4.6 |
6.5 |
8.5 |
| Operating margin |
(5.6) |
(4.8) |
(5.0) |
(3.5) |
(1.3) |
| Net margin |
9.4 |
9.9 |
8.4 |
7.3 |
10.0 |
| ROE (%) |
7.2 |
8.6 |
10.1 |
8.8 |
11.3 |
| ROA (%) |
4.3 |
5.1 |
5.8 |
5.0 |
6.6 |
| Net cash/total equity (x) |
0.1 |
0.1 |
0.1 |
0.2 |
0.2 |
| Current ratio (x) |
1.3 |
1.2 |
1.2 |
1.3 |
1.4 |
| Receivable turnover days |
113 |
121 |
120 |
122 |
125 |
| Inventory turnover days |
40 |
41 |
40 |
40 |
40 |
| Payable turnover days |
213 |
196 |
200 |
195 |
190 |
Analyst Ratings
- BUY: Stock with potential return of over 15% over next 12 months.
- HOLD: Stock with potential return of +15% to -10% over next 12 months.
- SELL: Stock with potential loss of over 10% over next 12 months.
- NOT RATED: Stock is not rated by CMBIGM.
- OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months.
- MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months.
- UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months.
Important Disclosures
- The report contains general information and does not provide individually tailored investment advice.
- CMBIGM does not guarantee the accuracy or completeness of the information.
- Investors are advised to consult with a professional financial advisor before making investment decisions.
- The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.
Legal and Regulatory Information
- The report is prepared for clients of CMBIGM or its affiliates.
- It is not an offer or solicitation to buy or sell any security.
- CMBIGM is not a registered broker-dealer in the United States or Singapore, and the report is subject to specific legal constraints in those regions.
Auditor
- PricewaterhouseCoopers is the auditor for the report.
