The current situation of the company
On November 7, we invited company leaders to communicate with investors at the Strategy meeting. The relevant experiences and recent views are as follows.
Comment
The penetration rate of the Japanese system continues to improve, and the utilization rate of high capacity ensures steady profit growth. At present, the proportion of Japanese brands has returned to the level of 22-23%, but there is still room compared to before the Diaoyu Islands incident. Japanese cars have the advantage of deep localization, which can hit the pain point of Chinese consumers, at the same time, superior fuel saving has increasingly become a consideration for car purchase. Nissan will introduce e-Power technology into domestic models in the next two years. Note, a model with this technology, will show eye-catching sales after its launch in Japan, and Honda will also launch new and replacement models. At present, capacity utilisation rates of both Dongfeng Nissan and Dongben are more than 100%, and the company may carefully expand in the future to match sales growth, but capacity utilisation will remain high to support high profitability.
Make great efforts to make up for the shortcomings, Shenlong reduces costs and efficiency, and seeks innovation and change in independent business. From the perspective of sales performance, the decline in sales of DPCA and Dongfeng autonomous passenger vehicles is still relatively large, which is the two main bleeding points. For DPCA, the company focuses on inventory management, dealer relationship maintenance, cost reduction and efficiency efficiency in the short term, and relevant measures include factory capacity reduction, dealer network coordination, etc., in an effort to reduce losses, while in the medium and long term, it is necessary to improve sales profits through product replacement and pricing advantages. For independent passenger cars, Dongfeng's independent investment is still limited compared with other front-line independent investment, resulting in weak products and brands. We believe that we need to make a good tradeoff between reducing costs and reducing losses and increasing R & D investment in the future.
Potential marginal improvements and benefits are worth looking forward to. First of all, the company has a full one-time provision in 2018, including the impairment of commercial vehicle business (about 1 billion yuan), the asset disposal of the Dragon Factory (about 1 billion yuan) and the increase in financial provisions (more than 1 billion yuan). Therefore, the net profit base in 2018 is low, especially in the second half of the year, and this year's performance is likely to exceed expectations.
Secondly, we believe that the company's current ultra-low valuation implies concerns about the weak development of its own-brand business and low dividend payout rate, and focusing on its own business or increasing the dividend ratio may become a stock price catalyst. Finally, the utilization rate of DPCA capacity is still low, and we believe that the disposal of related excess capacity will also be positive.
Valuation proposal
If the industry sales turn positive in December compared with the same period last year, we expect to drive positive market sentiment and upward valuation, while the company valuation is at the bottom of the plate and the valuation is more flexible upward.
Maintain the profit forecast for 2020 in 2019. The current share price corresponds to 4.5 times Pamp E in 2020, maintaining the outperform industry rating and maintaining the target price of HK $9.4, corresponding to 5 times Pamp E in 2020, which has 16% upside compared to the current share price.
Risk
The demand of the car market continues to decline, and the profitability of car companies has dropped sharply.