1H21 performance is in line with market expectations
The company's 1H21 revenue was 84.040 billion yuan, +27.2% year on year; Guimu's net profit was 1,507 billion yuan, +200.8% year on year. Corresponding to 2Q21 revenue was 41,813 million yuan, +3.3% year on year; net profit of the mother was 856 million yuan, -4.7% year on year. The performance is in line with market expectations.
Development trends
Refined management improved the quality of operations, and one-time factors affected the net profit of 2Q21. The company continued to reduce costs and increase efficiency to improve management efficiency. The 2Q21 gross margin was 10.2%, +0.35 ppt year on year and +1.38 ppt month on month, a record high for the past two quarters. The company's 1H21 inventory turnover days were 44.1 days, a decrease of 11.0 days over the previous year and a decrease of 4.2 days from the previous month. Current asset efficiency continued to improve. Net profit of 2Q21 was 856 million yuan. After adding asset impairment losses, credit impairment losses, and profit and loss from changes in fair value due to one-time influencing factors, it was 1,182 million yuan, up 31.62% from 2Q20 net profit.
The lack of cores has led to a significant increase in gross margin for new cars, and it is expected that 3Q21 will continue. The company's gross margin for new car sales in 2Q21 was 4.9%, +2.91ppt compared to the previous year and +1.47ppt over the previous month. We think it mainly benefited from the narrowing of terminal discounts due to limited supply of some brands due to lack of cores. Currently, the supply of terminals is still in short supply, and inventory levels are low. We expect the gross margin of new cars in 3Q21 to continue. The company's 2Q21 commission agency revenue was affected by the insurance premium reform and declined to -37% year on year. The company's used car business is developing steadily, and 1H21 achieved a total of 113,400 used car transactions. We believe the company will further increase the proportion of used car retail on the basis of tax reform and liberalization of relocation restrictions to open up profit margins.
Actively promote digital electrification transformation, and continuously improve profitability through brand optimization. The company's liquidity has improved, and pledges have been lifted several times since 2020. The majority shareholders' pledge accounted for 32.28% of its shareholding ratio, down 17.19 ppt from the beginning of 2020. The company actively promotes digital transformation and new energy business through strategic cooperation, empowering each other with Ping An of China before and after sales to carry out digital connections and enhance service capabilities. It has cooperated with BAIC Jihu to open stores and has already submitted online applications from nearly 20 cities. We expect 2H21 to further see the results of the company's NEV sales and service innovation. The company continues to optimize its store network and brand structure. As of June 30, 2021, the number of ultra-luxury and luxury stores reached 225, increasing to 30% of the total number of stores. 1H21 luxury car sales accounted for 26.8%, +3.8ppt over the previous year. We believe that the company has gradually enjoyed the profit improvements brought about by the upgrade of the store network.
Profit forecasting and valuation
The 2021 and 2022 earnings forecasts remain unchanged. The current stock price corresponds to a price-earnings ratio of 6.8 times/5.9 times 2021/2022. Maintaining an outperforming industry rating, but considering the current shortage of terminals or affecting dealers' performance and the decline in risk appetite in the sector, we lowered the target price of 13.2% to 3.30 yuan, corresponding to 8.1 times the 2021 price-earnings ratio and 7.0 times the 2022 price-earnings ratio, which has 18.7% room compared to the current stock price. We are optimistic about the company's profit resilience as a dealer leader and growth space after network optimization.
risks
Terminal demand fell short of expectations, and the new energy innovation business fell short of expectations,
The development of used cars fell short of expectations.