20210318-招银国际-永达汽车-03669.HK-New_business_supports_future_growth_6页_841kb

Yongda (3669 HK) Company Update Summary

Core Content

Yongda (3669 HK), a leading automotive dealer in China, released its FY20 full-year results, showcasing improved financial performance and strategic business expansion. The company reported revenue of RMB68.5bn, up 9% YoY, driven by strong performance in new car sales and after-sales services. New car sales revenue reached RMB58.2bn, up 10% YoY, while after-sales services revenue increased by 8% YoY to RMB9.6mn. Net profit (NP) for FY20 rose 10% YoY to RMB1.6bn, surpassing the CMBI estimate of RMB1.5bn. The second half of 2020 (2H20) saw a significant NP increase of 48.2% to RMB1.1bn, reflecting the recovery of the Chinese auto market post-COVID-19.

The company declared a dividend of RMB0.288 per share, representing a 35% payout ratio, which is higher than its historical average over the past five years. This indicates improved profitability and a more favorable financial position.

Key Financial Performance

• Revenue Growth:
  • FY20: RMB68.5bn (+9% YoY)
  • FY21E: RMB80.6bn (+17.63% YoY)
  • FY22E: RMB89.65bn (+11.21% YoY)
• Net Income:
  • FY20: RMB1.6bn (+10% YoY)
  • FY21E: RMB2.117bn (+30.28% YoY)
  • FY22E: RMB2.377bn (+12.30% YoY)
• EPS (Earnings Per Share):
  • FY20: RMB0.85
  • FY21E: RMB1.11
  • FY22E: RMB1.24
• P/E Ratio:
  • FY20: 14.99
  • FY21E: 11.51
  • FY22E: 10.25
• P/B Ratio:
  • FY20: 2.06
  • FY21E: 2.11
  • FY22E: 1.84
• Net Debt / Equity Ratio:
  • FY20: 54.1%
  • FY21E: 53%
  • FY22E: 63%

Strategic Initiatives

• New Business Expansion:
  • The company plans to expand its used-car business in 2021E, leveraging brand advantages and the increasing market replacement rate.
  • It has already sold 52,280 used cars in 2020, a 26.6% YoY increase, with a gross profit of RMB175mn, up 27.3% YoY.
• New Energy Vehicles (NEVs):
  • Yongda will set up a new organizational structure and independent team to focus on NEV business.
  • It has already expanded its NEV sales volume by 13.8% YoY to 10,271 units in 2020, and is collaborating with new players such as Tesla, XPEV, and WM Motor.
• Asset Optimization:
  • The company closed or transferred 13 underperforming branches in 2020 to improve brand structure and network efficiency.
  • It has a clear business layout of "ultra-luxury + NEV + used-car", which is expected to enhance its market position.

Operating and Financial Improvements

• Gross Profit Margin:
  • Increased by 0.32ppt to 2.67% in FY20, driven by higher sales of luxury brands (Porsche +7.36%, BMW +2.65%).
  • Expected to reach 9.68% in FY21E and 9.80% in FY22E.
• Operating Cash Flow:
  • Improved significantly in FY20, up 39.4% YoY to RMB5.7bn.
• Net Debt Ratio:
  • Dropped by 44.6ppt to 54.1% by the end of 2020, indicating better financial health.
• Cost Management:
  • S&D + Admin expense ratio decreased by 0.49ppt in 2020 due to scale effect and salary restructuring.
  • Financial expense ratio decreased by 0.25ppt, driven by reduced inventory turnover days and improved operating cash flow.

Earnings Forecast and Valuation

• Earnings Revision:
  • FY21E net profit is revised up to RMB2.117bn from RMB2.025bn.
  • FY22E net profit is revised to RMB2.377bn from RMB2.364bn.
• Target Price:
  • Raised to HK$18.6, representing a 30.4% upside from the current price of HK$14.3.
• Re-rating Expectations:
  • The company is expected to see its valuation converge to that of top peers, given its improved operating conditions and clear business strategy.

Business Composition and Growth

• New Car Sales:
  • 204.6K units sold in FY20 (+3.7% YoY)
  • Luxury brands accounted for 84.0% of new car sales revenue in FY20, up from 82.7% in FY19.
• After-sales Services:
  • Revenue increased by 8% YoY to RMB9.6mn.
  • Expected to grow further in FY21E and FY22E, with a projected increase of 27% and 14% respectively.
• Rental and Interests:
  • Rental revenue is expected to grow by 41% in FY21E.
  • Interest revenue is projected to increase slightly in FY21E and FY22E.

Share Performance

• Shareholding Structure:
  • Cheung Tak On: 30.78%
  • Regency Valley Company: 20.96%
  • Asset Link Investment: 9.99%
• Share Performance:
  • 1-month: +22.0%
  • 3-months: +11.5%
  • 6-months: +53.4%
• Market Capitalization:
  • RMB28.24bn
• 52-Week High/Low:
  • HK$14.84 / HK$4.76

Analyst Recommendation

• Ratings: BUY (Maintain)
• Target Price: HK$18.6
• Upside: +30.4% from the previous target of HK$11.1
• Reasoning:
  • Strong performance in luxury car sales
  • Expansion into used-car and NEV markets
  • Improved financial metrics and asset efficiency
  • Expected earnings growth and re-rating potential

Conclusion

Yongda is well-positioned for future growth with a clear focus on luxury car sales, NEV business expansion, and used-car dealership. Its improved financial performance and strategic asset optimization have laid a solid foundation for earnings growth and valuation convergence. The company is recommended as a BUY with a target price of HK$18.6, reflecting a 30.4% upside from the current price.