Q4 profit -63%: Yongda issued a profit alert after the trading session on January 17. The company said that earnings for FY22 are expected to fall by no more than 43%, which means that its 4Q22 profit is no less than 254 million yuan (-63% YoY, -48% YoY). The company attributed this to the strict pandemic lockdown and declining profit margins on new car sales.

The market was surprised: since Shanghai was not blocked in the fourth quarter (compared to the second quarter), earnings did not reflect the difference (214 million yuan in the second quarter and 254 million yuan in the fourth quarter). Recently, many new energy vehicle brands (Tesla, Xiaopeng, etc.) have cut prices in exchange for market share. We are worried about whether luxury brand OEMs can increase rebates to protect dealers' profits.

Suggestion: We've lowered our earnings forecast for FY2023 by 34% to reflect the latest trends and profit margin prospects. We maintained our long-term position rating but lowered our target price to HK$7.35 based on 8 times FY23EP/E.

Catalysts: 1) Increased OEM rebates; 2) Store network adjustments