Net profit in 2021 increased by 63.9% year-on-year
Harmonious Automobile announced its 2021 results: revenue rose 21.9% year-on-year to 18 billion yuan, while net profit rose 63.9% year-on-year to 673 million yuan, exceeding Huatai's forecast of 611 million yuan.
We believe that Harmony's excellent performance is mainly driven by the recovery in demand for luxury cars in 2021. We estimate that its EPS from 2022 to 2024 will be RMB 0.52, 0.57 and 0.65 respectively. We arrive at the target price of HK $5.00 based on 8x 2022 PE and the target valuation multiple is lower than the average of comparable companies based on Bloomberg consensus expectations (9.4x 2022 PE), mainly considering the uncertainty of Harmony Automotive investment returns. Maintain a "buy" rating.
Luxury car sales grow steadily
According to the announcement, harmonious automobile revenue in 2021 increased by 21.9% year-on-year to 18 billion yuan, of which car sales revenue increased by 21.1% year-on-year to 15.6 billion yuan, and after-sales service revenue increased by 27.9% to 2.3 billion yuan. Sales rose 12 per cent year-on-year to 40800 vehicles, including 30900 under the BMW brand (up 11 per cent year-on-year). Sales of ultra-luxury brands such as Ferrari, Rolls-Royce, Bentley and Maserati also grew rapidly, with year-on-year growth rates of 94%, 36%, 127% and 35%, respectively. We believe that the steady growth rate is due to: 1) the low base in 2020; 2) the continued growth of demand for luxury cars in China.
Management improvement
According to the announcement, the gross profit margin of Harmony Automobile increased to 9.7% (2020: 8.8%), the sales expense rate was 4.9% (2020: 4.7%), and the management expense rate was 1.4% (2020: 1.3%). By establishing a real-time inventory system to optimize operational efficiency, the number of inventory days decreased from 31.5 days to 24.7 days in 2021. Looking forward to 2022, we expect Harmony Automobile to continue to expand its luxury brand market share and improve operating performance.
Maintain a "buy" rating
Taking into account the growth rate of Harmony Motor's performance in 2021, we have raised our 2022Lexus net profit forecast by 16% to RMB 805 million / 880 million in 2023, and forecast a net profit of RMB 996 million in 2024. We have a target price of HK $5.00 (previous value is HK $6.50) based on 8 times 2022 PE (the previous value is 14 times 2021 PE). Our target multiple is lower than the average of comparable companies based on Bloomberg consensus expectations, which is 9.4 times the 2022 PE (the previous value is 21.9 times the 2021 PE), mainly due to the uncertainty of Harmony Automotive investment returns.
Risk tips: 1) the demand for luxury cars is weaker than expected; 2) the impairment loss of equity investment exceeds expectations.
