Performance review
The 2021 and 1Q22 results fell short of our expectations
The company announced results for the full year of 2021 and the first quarter of 2022:2021 revenue of 158.437 billion yuan, the same as the previous year; Guimu's net profit was 1,609 million yuan, +6.12% year on year. 1Q22's revenue was 35.139 billion yuan, -16.78% year on year, -5.50% month on month; Guimu's net profit was 667 million yuan, +2.38% year on year, +75.39% month on month. The performance fell short of expectations, mainly due to the lack of chips in the industry and the fluctuation of the epidemic since the second half of '21, and the decline in vehicle sales revenue.
Development trends
Supply and demand are putting pressure on revenue in both directions, and large amounts of depreciation have an impact on profits. The supply side was constrained by chip shortages among car companies. In 2021, the company achieved sales of 696,700 new vehicles, -7.24% year on year, vehicle sales revenue of -29.12% in 4Q21 and -18.05% year-on-year in 1Q22. The demand side was affected by the epidemic, and the main revenue of all four categories of 1Q22 declined year-on-year. The decline in investment income affected profits. Shanghai Aika made a large amount of 377 million yuan in impairment preparations, causing the net profit of the mother to be negative in 4Q21. In 1Q22, Guimu's net profit rebounded sharply by +75.4% month-on-month, returning to normal levels in the first half of last year. We expect that short-term fluctuations in the epidemic in April-May may put some pressure on the company's business in the second quarter. Looking ahead, as the supply chain and the epidemic abate, the company's vehicle sales are expected to return to growth.
Streamline stores to improve single store profits, and control expenses to optimize capital structures. The company optimized and streamlined 23 stores in 2021, focusing on high-quality development to improve floor efficiency. Single store revenue was +2.0% to 210 million yuan, the comprehensive gross profit of a single store was +10.8% to 19.04 million yuan, and the number of ultra-luxury and luxury brand online stores increased to 250. The gross profit margin for vehicle sales for the whole year was 3.1%, +0.92ppt over the previous year; the gross profit margin for maintenance services was 35.9%, +0.86ppt over the previous year. The third fee rate for sales management in 2021 was 6.6%, which remained stable compared to +0.11ppt. Among them, financial expenses fell to 1.7%, the lowest level in recent years. Continuously optimizing the capital structure, debt fell by 4.62 billion yuan at the end of '21, and the balance ratio fell to 66.8%.
Promote the transformation of digitalization and new energy, and consolidate the leading position of dealers. The company reached a strategic cooperation with Ping An Group to actively build the “Guanghui Auto Service” brand for digital 4S stores, potential customer discovery, customer activation, and financial stores. By the end of 2021, authorized communication had been established with new energy brands such as BAIC Jihu, Great Wall, Silis, Xiaopeng, and Rantu. The company ranked first in the industry in terms of revenue and passenger car sales among dealer groups in 2021. At the same time, we are optimistic about the development of the company's used passenger car financial leasing business, and the potential of financial leasing services for new energy commercial vehicles such as Ruichi and Wuling.
Profit forecasting and valuation
Due to the disruption caused to vehicle dealership services by the pandemic, we lowered our net profit in 2022 by 30.7% to 1,968 billion yuan, and introduced net profit of 2023 of 2,214 million yuan. The current stock price corresponds to a price-earnings ratio of 8.7 times/7.7 times 2022/2023. It maintains outperforming industry ratings, but due to rising supply chain costs, we lowered our target price of 23.6% to 2.52 yuan, corresponding to 10.4 times the 2022 price-earnings ratio and 9.2 times the 2023 price-earnings ratio. There is 20.0% room for improvement from the current stock price.
risks
The pandemic has affected vehicle sales.