In 2022, Meidong Auto achieved revenue of 28.8 billion yuan, +21.5% year on year; net profit was 521 million yuan, or -55.3% year on year, in line with the performance forecast. Mainly due to the impact of the epidemic on the sales side of new models, the company's gross margin of 22H2 new model sales fell to 1.9% due to the impact of the epidemic. After we add back the one-time expenses from the acquisition of projects such as Star Chase, the net profit of the mother was 660 million yuan. We believe that in 2023, the close cooperation between the US East and Porsche will continue to guide the US East more smoothly through the industry's current fierce price war. We lowered our 2023/2024 revenue forecast by 4.7%/4.9% to reflect the impact of the automotive industry price war, and lowered our 2023/2024 net profit forecast by 13.9%/19.1% accordingly, maintaining 23 times PE in 2023, corresponding to the target price of HK$22.00 (original target price of HK$26.00) to maintain the “buy” rating.
22H2 was forced to sell cars at lower prices under the impact of the pandemic to maintain turnover and sales, putting pressure on the profit side. In 2022, Meidong Auto achieved revenue of 28.832 billion yuan, +21.48% year on year; gross profit of 2,517 billion yuan, -9.11% year on year; consolidated gross margin was 8.79%, -2.96 pcts year on year; and net profit of 521 million yuan, -5 5.30% year on year.
2022H2 achieved revenue of 16.092 billion yuan, +35.84% year on year; gross profit of 1,183 million yuan, -20.91% year on year; consolidated gross margin was 7.40%, -5.32pcts year on year; and net profit of Guimo was 178 million yuan, -71.71% year on year. The main reason for the decline in the company's net profit and gross margin in 2H22 was weak demand due to the pandemic, supply shortages, and the inherent turnover pressure of the dealer model forced the US East to sell cars at lower prices due to the impact of the pandemic. Dealers' profits were highly sensitive to sales prices, which in turn led to a large decline in net profit. On the cost side, 2022H2's expense rate control was effective. The cost rate for the period was 6.52%, which was basically the same as the previous year, and -0.45pct compared to the previous month. Among them, the sales/administrative/finance expense ratio was 2.89%/2.71%/0.92%, respectively, and -0.45pct/+0.15pct/+0.34pct over the previous year. The company's fee rate for the full year of 2022 was 6.79%, +0.63pct compared to the previous year. This was due to other one-time expenses, additional equity issuance, and dividend expenses arising from mergers and acquisitions.
After the acquisition of “Chasing Stars”, the proportion of Porsche brand contribution performance increased, and after-sales service remained steady. The passenger car sales business was driven by Porsche brand growth. The 2022H2 achieved revenue of 14.145 billion yuan, +37.53% year on year; achieved gross profit of 280 million yuan, -61.11% year on year; sales reached 38,213 units, +30.09% year on year; bicycle revenue was 3702 million yuan, which is basically the same as 202H1 (376,000 yuan); gross profit margin for new cars was 1.98%, -5.02 pcts year on year. Looking at the full year of 2022, Porsche brand sales revenue reached 10.07 billion yuan, +106.2% year on year, accounting for 40% of new car sales revenue; luxury brand revenue was 22.177 billion yuan, +22.88% year on year, and the share of new car sales revenue increased to 87.67% (86.64% in 2021). In terms of after-sales business, 2022H2's after-sales service business achieved revenue of 1,852 million yuan, +24.86% year on year, achieved gross profit of 895 million yuan, +16.29% year on year, gross margin was 48.35%, and -3.56 pcts year on year. As the company's service base continues to expand, after-sales service has maintained rapid growth under the impact of the epidemic. In 2022, East America's after-sales service revenue was 3.358 billion yuan, +22.23% year on year, and the number of service desks was 706,600 units, +8.5% year on year, achieving gross profit of 1,645 million yuan, +21.98 percent year on year, gross margin was 49% year on year, -0.10pct year on year, and overall performance was steady.
The store structure was optimized, the efficiency of the Star Chase store was improved, and the sheet painting center was officially opened. The 2022H2 Meidong store structure continues to be optimized, with a deep focus on luxury car sales, adding 1 new Lexus store, 1 fewer Toyota/Hyundai stores, and more focusing on second- and third-tier cities. “Small but beautiful” and efficient operation continue to pursue the company's long-term goals. As of December 31, 2022, the number of stores operated by the company was 76, an increase of 6 over 2021. The proportion of luxury brand stores also increased to 84.21% (80% in 2021), and the store structure continued to be optimized. Affected by the pandemic in 2022, the company's inventory/accounts receivable/accounts payable turnover days were 11.5/2.9/24.2 respectively. Among them, the number of inventory turnover days increased, but overall operations remained efficient. At the same time, the company is also working to optimize the efficiency of Star Chasing stores. According to the company's 2022 performance exchange meeting, after the annualized adjustment of that year, StarChase's operating profit was +8% year on year, sales were +14% year over year, sales volume was +5%, inventory amount and inventory number dropped by nearly half. After mergers and acquisitions, the operating efficiency of StarChase improved. In February 2023, 4 of the 7 Chasing Stars stores entered the company's top 10 single-store output value. In addition, the opening of Tesla's sheet spray center in Shantou in early 2023 also marks the company's transformation into a new energy vehicle dealer. At present, the company has entered the Tesla after-sales system, and is expected to enter the promotion of Ideal Auto's after-sales service.
Risk factors: The intensity of the price war exceeded expectations; the integration of Star Chase stores fell short of expectations; Tesla's after-sales business profits fell short of expectations; progress in entering the distribution service systems of other new powers fell short of expectations; the competitive pattern of dealers worsened; and the progress of new mergers and acquisitions implementation fell short of expectations.
Profit forecasts, valuations and ratings: Meidong Auto will focus more on the Porsche brand in 2023, and the president of Porsche China announced on March 13 that it will maintain sales prices and will not participate in the price war. Based on the relatively high competitiveness of Porsche models, we believe that Porsche will still be the most stable luxury car brand in 2023, which will help Meidong bring about a steady recovery in profitability in 2023. At the same time, after the strategic placement, East America raised and placed HK$1,023 million, with plenty of cash on hand. Considering that it has almost completed the integration of Chasing Star stores, we think there is still a possibility that it will carry out further new mergers and acquisitions in 2023. As a result, we lowered our 2023/2024 revenue forecast by 4.7%/4.9% to reflect the impact of the price war in the automotive industry. The new revenue forecast was 33.1 billion yuan/39.9 billion yuan; and the net profit forecast for 2023/2024 was reduced by 13.9%/19.1%, and the new net profit forecast was 1,134 million yuan/1,391 million yuan. A profit forecast for 2025 was added (revenue of 48.3 billion yuan, net profit of 1.7 billion yuan to the mother). Maintaining 22-fold PE in 2023, corresponding to the target price of HK$22.00 (original target price of HK$26.00), maintaining the “buy” rating.