20230331-招银国际-广汽集团-02238.HK-Impairment_as_always__eyes_on_Aion_s_upmarket_4页_843kb

GAC Group (2238 HK) Company Update Summary

Core Content Overview

This document provides an equity research update on GAC Group (2238 HK), focusing on its 4Q22 earnings performance, revised forecasts for FY23E, and valuation analysis. It also includes financial summaries, key ratios, and disclosures.

Key Financial Highlights

Earnings Summary (YE 31 Dec)

• Revenue (RMB mn): 63,157 (FY20A), 75,676 (FY21A), 110,006 (FY22A), 113,470 (FY23E), 120,529 (FY24E)
• YoY growth (%): 5.8 (FY20A), 19.8 (FY21A), 45.4 (FY22A), 3.1 (FY23E), 6.2 (FY24E)
• Net income (RMB mn): 5,964 (FY20A), 7,511 (FY21A), 7,982 (FY22A), 7,051 (FY23E), 8,070 (FY24E)
• EPS (RMB): 0.58 (FY20A), 0.73 (FY21A), 0.77 (FY22A), 0.67 (FY23E), 0.77 (FY24E)
• YoY growth (%) for Net income: -9.9 (FY20A), 25.9 (FY21A), 6.3 (FY22A), -11.7 (FY23E), 14.5 (FY24E)
• P/E (x): 7.6 (FY20A), 5.7 (FY21A), 5.6 (FY22A), 6.5 (FY23E), 5.7 (FY24E)
• P/B (x): 0.5 (FY20A), 0.5 (FY21A), 0.5 (FY22A), 0.4 (FY23E), 0.4 (FY24E)
• Yield (%): 2.7 (FY20A), 3.6 (FY21A), 4.2 (FY22A), 3.2 (FY23E), 3.6 (FY24E)
• ROE (%): 7.2 (FY20A), 8.6 (FY21A), 8.5 (FY22A), 7.0 (FY23E), 7.5 (FY24E)

Net Profit Miss in 4Q22

• 4Q22 net profit was RMB 6mn, significantly lower than the forecast of RMB 1.6bn, due to impairment on GAC Mitsubishi's goodwill and GAC FCA's receivables.
• Equity income for 4Q22 fell 41% YoY to RMB 2bn, or RMB 0.9bn lower than expected.

Revised Forecasts

• Aion's FY23E sales volume is revised up by 8% to 0.34mn units, though still below management guidance of 0.5-0.6mn units.
• Aion's GPM is expected to improve slightly YoY, driven by greater economies of scale and more premium models.
• GAC's FY23E NP is revised down by 23% to RMB 7.1bn, due to declining margins from GAC Honda and lower sales volume from GAC Toyota.
• Net loss for homegrown brands is expected to narrow from RMB 4.8bn in FY22 to RMB 4.2bn in FY23E.

Valuation Analysis

• SOTP Valuation:
  • Aion HK$ 3.8 per share (1.0x P/S for FY23E)
  • JVs and associates HK$ 3.7 per share (3.0x P/E for FY23E)
  • Trumpchi valued at HK$ 0
  • Overall target price HK$ 7.50, down from HK$ 8.00
• Valuation Assumptions:
  • A conservative dividend discount model assuming equity income to decline significantly from FY25E and become zero by FY30E
  • Key risks include lower sales volume and margins, particularly for Aion, and sector de-rating

Key Ratios

• Gross margin (%): 3.6 (FY20A), 5.2 (FY21A), 4.1 (FY22A), 4.1 (FY23E), 5.9 (FY24E)
• Operating margin (%): -5.6 (FY20A), -4.8 (FY21A), -6.1 (FY22A), -3.8 (FY23E), -2.2 (FY24E)
• Net profit margin (%): 9.4 (FY20A), 9.9 (FY21A), 7.3 (FY23E), 6.2 (FY24E)
• ROE (%): 7.2 (FY20A), 8.6 (FY21A), 8.5 (FY22A), 7.0 (FY23E), 7.5 (FY24E)
• Current ratio (x): 1.3 (FY20A), 1.2 (FY21A), 1.2 (FY22A), 1.3 (FY23E), 1.4 (FY24E)
• Receivable turnover days: 113 (FY20A), 121 (FY21A), 120 (FY22A), 122 (FY23E), 125 (FY24E)
• Inventory turnover days: 40 (FY20A), 41 (FY21A), 40 (FY22A), 40 (FY23E), 40 (FY24E)
• Payable turnover days: 213 (FY20A), 196 (FY21A), 200 (FY22A), 195 (FY23E), 190 (FY24E)

Stock Performance

• Market Cap (HK$ mn): 52,310
• Avg 3 mths t/o (HK$ mn): 103
• 52w High/Low (HK$): 8.18/4.63
• Total Issued Shares (mn): 10,483
• Share Performance:
  • 1-mth: -0.2% (Absolute), -2.8% (Relative)
  • 3-mth: -5.1% (Absolute), -7.8% (Relative)
  • 6-mth: -10.9% (Absolute), -28.8% (Relative)

Analyst Ratings

• CMBIGM Rating: BUY
• Target Price: HK$ 7.50 (Down from HK$ 8.00)
• Up/Downside: +50.3% from current price (HK$ 4.99)

Key Risks

• Lower sales volume and margins for Aion
• Sector de-rating risk
• Potential further impairment affecting equity income
• Uncertainty in future performance and market volatility

Summary of Key Points

• GAC Group's 4Q22 earnings missed due to impairment and equity income decline.
• Homegrown brands showed improved GPM and cost reduction efforts.
• Aion's FY23E sales volume is forecasted to rise by 8%, but remains below management guidance.
• Aion's GPM is expected to improve slightly due to economies of scale and premium models.
• GAC's FY23E net profit is revised down by 23% to RMB 7.1bn due to margin decline and lower sales volume.
• Net loss for homegrown brands is projected to narrow from RMB 4.8bn to RMB 4.2bn.
• SOTP valuation is used, with Aion valued at HK$ 3.8 per share and JVs at HK$ 3.7 per share.
• BUY rating is maintained with a lower target price.
• Key risks include sales volume and margin declines and sector de-rating.

Conclusion

Despite the 4Q22 earnings miss due to impairment and equity income issues, GAC Group's valuation remains attractive, and homegrown brands show potential for improvement. The BUY rating is maintained, but target price is lowered due to uncertainty in future performance and potential sector risks. The company's focus on Aion's upmarket strategy and cost reduction efforts are seen as positive developments.