Results are in line with expectations, new car sales and gross profit margin benefit from tight supply

The product cycle of the core distribution brand BMW has strengthened this year, and the company continues to benefit from the growth of the luxury car market.

Raise the net profit forecast by 3% Mui 5%, maintain the neutral rating, and raise the target price to HK $3.9.

The overall performance is in line with expectations and the new car business is bright.

The net profit for the whole year was 670 million yuan, + 63.9% year on year, 3.3% lower than market expectations, including 280 million yuan in the second half of the year, and 27.8% in the second half of the year compared with the same period last year. Year-on-year revenue from + 21.9% to 18 billion yuan, benefiting from a low base and BMW's strong product cycle, in line with expectations, year-on-year / month-on-month-4.3% month-on-month in the second half of the year 8.2% to 8.6 billion yuan. 1) Gross profit margin: year-on-year + 0.9ppt to 9.7%. In the second half of the year, it benefited from the tight supply and demand caused by core shortage, reaching a recent high of + 1.2ppt to 10.4%. 2) New car sales: year-on-year sales of + 11.5% to 41000 vehicles, due to lack of core fermentation, second-half year-on-year / month-on-month ratio of 18.3% to 18000 vehicles; company BMW sales + 11.4% (vs. BMW's sales in China were + 8.9% year-on-year, accounting for 76%, while the ultra-luxury brand Ferrari / Rolls-Royce / Bentley / Maserati increased by 94.3%, 36.7%, 126.9% and 35.4% respectively. The average price per bike reached a 16-year high of + 8.6% to 383000 yuan from a year earlier, and from + 9.1% to 401000 yuan in the second half of the year. Gross profit margin for new cars was + 0.8ppt to 4.3% year-on-year, the highest in 18 years and stable in the last half of the year. Thanks to the volume / price / gross margin of three liters, the gross margin of new cars increased significantly by 48.1% compared with the same period last year. 3) after-sales business: revenue from + 27.9% to 2.3 billion yuan compared with the same period last year, outperforming the same industry (Zhongsheng / Yongda + 21% Universe 20.5% respectively), and + 11.7% in the second half of the year. The after-sales gross margin was 44.8 per cent, unchanged from the same period last year and + 0.4ppt to 45 per cent in the second half of the year. After-sales gross margin was + 27.9% compared with the same period last year, accounting for 59.5%, declining for three consecutive years. 4) used cars: the transaction volume is + 28.9% compared with the same period last year, which is slower than the industry-leading Zhongsheng / Yongda (+ 30.2% Universe 37%). 5) operational efficiency: the total sales / management / financial expense rate is + 0.1ppt to 7% compared with the same period last year, and the rate in the second half of the year is + 1.4ppt to 7.8%. Inventory for the whole year is 25 days, a decrease of 7 days compared with the same period last year. Single-store sales / revenue reached record highs, reflecting the improvement of brand and store structure.

Continue to benefit from the growth of the luxury car market, BMW has a strong product cycle

We expect China's high-end car market to grow by double digits this year. The company is the leader of regional luxury car dealers in central China and will continue to benefit from consumption upgrading in second-tier cities. BMW, the core distribution brand, ushered in the localization of X5 this year and maintained a strong product cycle. After the marginal weakening of the impact of the lack of core effect, the recent discount rate of luxury cars has been enlarged and is expected to enter a new round of volume-price balance in 2022.

Maintain neutral rating and raise target price to HK $3.9

The net profit forecast of 2022-23e is raised by 3% and 5%, reflecting a stronger product cycle of the core distribution brand BMW and more optimistic expectations of new car sales and gross profit margin. Raise the target price by 8 per cent to HK $3.90 (the previous HK $3.60), equivalent to 6.3x FY22E pin E (the previous 5.9x), and the increase in valuation multiples reflects the increased certainty of growth after the company's strategy returns to the main business. Risk factors: the industry boom is lower than expected.