The company released 2022H1 results, return to the mother net profit year-on-year-36.0%, plus the one-time impact of mergers and acquisitions net profit-9.2%, the performance is in line with expectations. After the merger and acquisition of the company, the proportion of Porsche brand high-margin models increased, the sales structure was optimized, and the high-quality assets of the subject of mergers and acquisitions were operated.

The company is expected to rely on superior operating efficiency to continue to create investment value and maintain the "buy" rating.

22H1 homing net profit is-36.0% compared with the same period last year, and after adding back the one-time impact of mergers and acquisitions, the net profit is-9.2% year-on-year, and the performance is in line with expectations. 22H1 achieved a comprehensive operating income of 12.66 billion yuan, + 7.2% compared with the same period last year, including 11.15 billion yuan from new car sales (+ 5.8% from the same period last year) and 1.51 billion yuan from after-sales service (+ 19.2% from the same period last year). From the perspective of extension and endogenous growth, on the one hand, the acquisition of star-chasing cars brought about an increase in the number of stores, contributing to revenue from May to June; on the other hand, excluding new stores, the company's 22H1 revenue was-13.5% year-on-year. The company's 2022H1 comprehensive gross profit margin is 10.5%, year-on-year-0.3pct, of which the new car gross profit margin is 5.2%, year-on-year-0.3pct, mainly due to the decline in short-term demand brought about by the epidemic. After-sales service revenue was + 19.2% year-on-year, gross profit margin was 49.8%, year-on-year + 4.0pcts, and the after-sales team performed well after mergers and acquisitions. On the expense side, the total expense rate of the company's 2022H1 is 7.13%, year-on-year + 1.33pcts, which is due to the increase in one-time expenses and administrative expenses brought about by the merger and acquisition of star cars. 22H1 achieved a net profit of 343 million yuan,-36.0% compared with the same period last year. After adding in the merged and non-operating expenses of the acquisition, the net profit of 2022H1 was-9.2% compared with the same period last year, in line with expectations.

Mergers and acquisitions to expand the luxury car territory, operational efficiency continues to be optimized. The company's 2022H1 achieved 29600 new car sales,-8.0% year-on-year, of which BMW, Porsche and Lexus sold 10561, 4676 and 5063 vehicles respectively,-24.5%, + 84.4% and-18.2% respectively. As a result of mergers and acquisitions, Porsche sales have increased from 9 to 16, the number of high-quality authorized stores has increased significantly, and its Porsche stores are experienced, and a large number of customers have basically contributed to the increase in sales. After the merger and acquisition, Meidong achieved operational capacity by implanting an efficient management system into the assets of high-quality stores. The sales of new cars in 2022H1 were + 42.0% compared with the same period last year, the number of after-sales service desks was + 4.5%, and the turnover days were-28.0% compared with the same period last year. The overall inventory turnover days of 2022H1 East Motor increased from 8 days to 14 days, of which the average inventory days of Star chasing cars increased to 4 days. We believe that the integration of Star pursuit has just begun, and the subsequent continuing operation enabling is expected to continue to improve asset utilization efficiency.

The optimization of product sales structure has brought about an increase in bicycle revenue, and the company has cut into exploring new energy business from after-sale. The company's 2022H1 bicycle revenue was 376000 yuan, an increase of about 50, 000 yuan over the same period last year, and an increase of about 26000 yuan from the previous month, due to the increase in Porsche's sales share. In the medium to long term, East America will give priority to entering the new energy industry from after-sales, because the after-sales business is subject to less fluctuation in new car sales and lower inventory pressure. In addition, in the cooperation of independent brands of new energy, the company is expected to attract cooperation opportunities for new brands by virtue of its operational experience and high operational efficiency in the sinking market from the third-tier to the fifth-tier city line. In terms of used car business, the company believes that the price of used cars fluctuates greatly at present, so it will carefully examine the follow-up development opportunities of the business. We are optimistic that the company's new car sales end product structure optimization brings bicycle revenue improvement, new energy and other business development and other driving factors to promote the company's performance growth.

Risk factors: car sales decline; price war broke out at the end of the industry; company acquisition project integration and empowerment are not as expected; company financing costs are higher; company store expansion is not as expected.

Investment advice: in the short term, the sales volume of 22Q2 in the passenger car industry has dropped sharply compared with the same period last year, and new car sales in the industry improved month-on-month in July and August, and we expect the company's performance to be compensated in the second half of the year; in the long run, we are optimistic that the company will achieve endogenous growth by virtue of high-quality brand authorization and efficient operation, while optimizing and enabling M & An assets to achieve extension growth. Taking into account the pressure on the company's 2022H1 performance, we downgrade the 2022 EPS forecast for 23 to 1.13 yuan for 0.85 (the original forecast is 1.26), and increase the EPS forecast for 2024 to 1.51 yuan. The current share price is HK $14.54, which is 8.4 times higher than that of 15 PE in 2022-23-24. The company's PE hub has been 20 times in the past five years, and we have given the company 18 times PE in 2023, with a target price of HK $23.50. Maintain a "buy" rating.