In 2019, the company's sales revenue was -3.3% year on year, and the net profit of the mother was -0.9% year on year, in line with expectations. The company's cash flow continued to improve, the auto finance and commercial vehicle businesses grew steadily, and the investment income of joint ventures declined sequentially in the second half of the year.
Since the main production capacity is located in Hubei, affected by the epidemic in the short term, the company's 2020/21/22 EPS forecast was lowered to 1.12/1.27/1.47 yuan. Long-term corporate dividend rates are on an upward path and operations are stable. The current valuation is attractive, reaffirming the “buy” rating.
The company's net profit in 2019 fell 0.9% year-on-year, and the performance was in line with expectations. The company achieved comprehensive revenue of 101.1 billion yuan in 2019, or -3.3% year-on-year, of which sales revenue from the commercial vehicle business was 68.89 billion yuan (+14.7%), the passenger car business revenue was 26.74 billion yuan (-33.5%), and the automobile finance business revenue was 5.39 billion yuan (+44.2%). The company's comprehensive gross margin in 2019 was 13.35%, +0.52pcts over the previous year, mainly due to the decline in sales expenses of Citroen Motor and changes in sales structure. Furthermore, the investment income contributed by the company's joint ventures was 11.63 billion yuan, -5.3% year on year. On the cost side, the company's expense ratio in 2019 was 9.68%, -0.64 pcts year on year; it achieved net profit of 12.86 billion yuan to the mother in 2019, -0.9% year on year, in line with market expectations.
Cash flow continued to improve, and gross margin and investment returns fluctuated. The company's cash flow situation improved in 2019, with a net cash inflow of 11.56 billion yuan from operating activities, a significant improvement over 2018 - 22.25 billion yuan. The company's joint ventures contributed 11.63 billion yuan in investment income in 2019, of which the first half of the year was 6.79/4.84 billion yuan respectively, showing a sharp decline from the second half of the year. Furthermore, the company's gross profit margin in 2019 was 13.35%, up 0.52 pcts from 2018. The first half of the year was 16.09%/10.82%, and the same period last year was 13.90%/11.51%. The fluctuation in gross margin and investment return levels increased in the first half of the year, which is related to the increase in the company's terminal discounts in the second half of the year.
Auto finance is developing rapidly, and attention is being paid to the risk of impairment. The company's auto finance business continued to grow rapidly in 2019, with retail sales reaching 1.29 million vehicles (+26.5%), penetration rate of 38% (+9pct), loan size of 149.8 billion yuan (+29%), and loan overdue rate remaining at the same level. It should be noted that in 2019, the company's auto finance business accrued asset impairment losses of 999 million yuan, an increase of 39.3% over the previous year's 770 million yuan. Although it is lower than the profit growth rate of the auto finance business (+53.5%), the risk exposure that this business may bring is worth paying attention to.
Risk factors: Citroen Motor's losses continue to expand; bad debts in the auto finance business have increased dramatically; repeated outbreaks of the epidemic in Hubei have had an impact on the company's resumption of production.
Investment advice: Affected by the epidemic in the short term, adjust the company's 2020/21/22 EPS forecast to 1.12/1.27/1.47 yuan (the original 2020/21 EPS forecast was 1.71/1.79 yuan). The current stock price is HK$5.11, corresponding to the 2020/21/22 PE split of 3.9/3.4/3.0 times. Affected by the epidemic in the short term, the company's stock price was at an all-time low. Long-term corporate dividend rates are on an upward path and operations are stable. The current valuation is attractive, reaffirming the “buy” rating.