The annual results of Harmony Automobile FY21 are in line with market expectations. Revenue was 17.98 billion yuan (the same below), an increase of 21.9% over the same period last year, of which new car sales and after-sales service business increased by 21.1% and 27.9% respectively. Due to the lack of core and overseas epidemic in 2021, the supply of luxury cars is tight, which is good for the gross profit margin of dealers. The company's gross profit margin on new car sales expanded by 0.8 percentage points to 4.3%, while the after-sales service gross margin remained stable, with a comprehensive gross margin of 9.7%. For the whole year, 41000 new cars were sold, up 11.5 per cent from a year earlier, with ultra-luxury and luxury car sales up 56 per cent and 10.7 per cent respectively. BMW sales rose 11.4 per cent year-on-year (75.8 per cent); Ferrari and Bentley sales rose 94.3 per cent and 126.9 per cent year-on-year, exceeding expectations. Operating expenses accounted for 6.3% of revenue, slightly higher than expected. The company's net profit was 670 million, up 63.9% from a year earlier, and its net profit margin rose 0.9 percentage points to 3.7%. The company announced a final dividend of HK $0.21, with a dividend yield of 40%.
Management is confident that the gross profit margin of 2022 will remain stable.
At the beginning of 2022, BMW cut the rebate for wholesale gasoline vehicles sold by dealers and raised the rebate for new energy vehicles, but kept the guided retail price unchanged. The gross profit margin of new car sales of the BMW brand in 2021, including derivatives, is 6%. The management believes that the lack of cores in luxury cars will continue until the first half of 2022, and the company is confident that the gross profit margin on new car sales in 2022 will be the same as last year. The company added five new stores in 2021, and by the end of 2021, the company had 76 sales stores in 40 cities. In 2022, the company has acquired four new licensed stores for ultra-luxury brands, including two Ferrari, one Bentley and one Lamborghini.
The distribution of luxury car outlets has become more and more full, and dealers will expand the distribution of luxury car outlets by way of acquisition. The company plans to add 15% of its stores in 2022.
Sales of super luxury cars increased by 22% from January to February.
The company said overall sales in the first two months were the same as the same period last year, with ultra-luxury car sales up 22% year-on-year. The order depth of BMW in the first quarter was 0.8-1 month, while that of Lexus was 2.6 months. BMW will launch a number of new cars in 2022, including the home-made X5L, which is expected to bring incremental sales to the company. Sales are expected to be 46000 in 2022, up 11.8 per cent from a year earlier.
Maintain the target price of HK $6.00
FY21's performance was in line with expectations, and we slightly changed our FY22E forecast to FY22E's net profit of 750 million, an increase of 11.2% over the same period last year. Use the DCF model (weighted average cost of capital 10.6%) to maintain the target price of HK $6.00 and buy rating.
Investment risk:
1) the Baiteng project is still in the process of restructuring, and the worst-case scenario is that the company will make an one-time impairment of 1.2 billion for Baiteng, which will have a negative impact on the income statement, but will not affect the company's core business and cash flow. 2.) sales of new cars fell short of expectations.
