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EQS-News / 11/01/2019 / 15:37 UTC+8
Haitong International initiated coverage on China MeiDong Auto Holdings
Limited (1268.HK) on the 10th January with a Buy rating at Target Price of
HK$3.50, representing an upside of 30.1% from the closing price of HK$2.69
as at 10th January 2019.
Haitong International sees MeiDong Auto as a rising star with the following
highlights:
1. Rapid growth
MeiDong Auto's focus on the Porsche and Lexus dealership businesses along
with its outstanding management execution should place MeiDong at good
position amid the increasingly challenging auto dealership market in China.
2. Expeditious store expansion of Porsche
The number of Porsche dealerships is expected to quadruple during
FY2017-2020. Haitong International projects gross profit from Porsche
new-car sales to rise by 63% and 41% year-on-year ("YoY) in FY2019 and
FY2020, respectively.
3. Strong model cycle of Lexus
Given the upcoming model cycle of Lexus, Haitong International projects the
respective gross profit to grow 5% and 9% YoY in FY2019 and FY2020,
respectively
4. Profit growth from Porsche and Lexus offsets the decline of BMW
new-car-sales
Haitong International expects gross profit from BMW new-car-sales to decline
in FY2019 due to rising competition and significant reduction/ cancellation
of its special subsidies to dealers. Yet, Haitong International foresees
that the growth from Porsche and Lexus will be able to offset the decline.
5. Strategies that secure growth
MeiDong's product portfolio, namely Porsche and Lexus, average store age and
"Single City Single Store" strategy should secure profit growth in
after-sales services.
6. Strong balance sheet with high shareholder returns
MeiDong's strong balance sheet is beneficiary for potential attractive
acquisitions and acceleration in industry consolidation. Haitong
International expects MeiDong's ROE to rise between 26.7 - 31.5% during
FY2018- FY2020 and dividend yield to reach 5.9% for FY2018, based on the
current share price and assumption of a 50.2% dividend payout ratio.
7. Attractive earnings projections
Given the aforementioned factors, Haitong International presents the
following projections:
- Revenue to rise by 41% and 21% YoY in FY2019 and FY2020, respectively,
fueled by new stores and growing after-sales services
- Gross profit to increase by 30% and 28% YoY in FY2019 and FY2020,
respectively, supported by rapid revenue growth, particularly from Porsche,
and stable after-sales service margins
- Net profit to enhance by 24% YoY and 38% YoY in FY2019 and FY2020,
respectively
8. Buy rating with TP at HK$3.50
In light of the attractive earnings forecast, Haitong International issued
target price of HK$3.50 based on 9.0x FY2019 EPS forecast, in line with its
five-year average and significantly higher than the current peer average of
5.6x. Haitong International believes that MeiDong deserves to trade at its
historical average valuation.
Document: http://n.eqs.com/c/fncls.ssp?u=YBSXDXUWDL [1]
Document title: 1268_Haitong_20190110 ENG (EQS ver.) Draft 1
11/01/2019 Dissemination of a Financial Press Release, transmitted by EQS
Group.
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(END) Dow Jones Newswires
January 11, 2019 02:38 ET (07:38 GMT)
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