Domestic luxury car dealers, “single city, single store” strategy takes the lead
Meidong Auto has long adhered to the “single city single store” luxury car sales strategy in low-tier cities, focusing on operating brands such as BMW, Porsche, and Lexus, while pursuing an extremely efficient management model, laying the foundation for the sustainable growth of the company's business. The merger and acquisition of Star Chase Group in '22 created a leading Porsche dealer, bringing new room for growth to Meidong. We forecast the company's net profit of 2.4/5.4/8.3 billion yuan in 23-25. Comparable to the company Wind, the 24-year PE is 8.5x. Considering that the company's luxury car brands account for a relatively high share and are more resilient, the company will be given 11x PE with a target price of HK$5.08, which was adjusted to an “increase in holdings” rating (previous “purchase”).
Firmly adhere to the luxury brand strategy, 23H1 revenue shows resilience
Through the “single city, single store” strategy, the company formed a monopoly advantage of a single brand earlier in the low-tier city regional market, thereby improving its ability to sell and price new cars. At the same time, the company has a high degree of centralized operation, and has always focused on several core luxury brands, thereby deepening the brand and creating targeted operation strategies to further improve operational efficiency and store replication capabilities. Currently, the only brands represented by the company are BMW, Lexus, Toyota, Porsche, and Audi. Among them, the sales and revenue of BMW, Lexus, Porsche and Audi continue to grow. 23H1's total sales volume accounts for 72% of total sales, contributing 89% of revenue, driving H1's new vehicle sales revenue to maintain an 8.7% year-on-year increase against the backdrop of relatively weak demand for fuel vehicles.
The merger and acquisition of Star Chase expanded Porsche's distribution scale and further strengthened the luxury car attributes. At the end of April '22, Meidong completed the merger and acquisition of Starchaser. The number of Porsche 4S stores increased from 8 in 21 to 16 in 23H1, making it one of the leading Porsche dealers in China (23H1 brand share 18.7%).
The company quickly managed and empowered stores, and the annualized sales volume and revenue of operations increased 5.4% and 12.6% year-on-year from May to December '22 after the integration was completed. The introduction of the Star-Chasing Store has transformed Porsche into the core of Meidong's new car sales business. Porsche's luxury attributes are expected to give the company higher customer stickiness and toughness. The difference with the main price range for new energy vehicles can also help Meidong maintain sufficient buffer space under the wave of electrification and become the company's long-term growth engine.
The second-in-store project continues to advance, and the expansion of the customer base promotes rapid growth in the after-sales business. The company has implemented a second-time customer arrival plan in the after-sales business since 2020, with the aim of reducing customer churn and expanding the customer base. Thanks to this pilot project, the company's second-time store arrival rate continued to increase, customer stickiness increased, 23H1 after-sales service revenue maintained high growth, +30% year-on-year to 1.96 billion yuan, and the number of service desks increased 12% year over year. There are still opportunities for growth in the company's after-sales business in the future: 1) There is plenty of room for improvement in the after-sales operation efficiency of the Star-Chasing Store; 2) In the medium to long term, Meidong may be the first to move from the after-sales business to the NEV circuit, relying on operational efficiency advantages to reach cooperative intentions with NEV brands to build new growth points. 23H1 has explored market opportunities by opening a Tesla after-sales service store.
Risk warning: Demand for passenger cars falls short of expectations; profit improvement falls short of expectations.