The Zhitong Finance App learned that CMB International released a research report stating that maintaining the “buy” rating of MeiDong Auto (01268), if FY24 no longer accrues goodwill impairment, it is predicted that Meidong's net profit is expected to increase from 80 million yuan in 2023 to 370 million yuan in 2024, with a target price of HK$4. The company released the 2H23 performance forecast, believing that the bad 2023 is a thing of the past.

CMB International's main views are as follows:

2H23 results are under pressure to depreciate the gross profit and goodwill of new vehicles:

In the second half of last year, the bank estimated that new car sales in the US East increased 1% month-on-month to 32,000 units, but the decline in average sales prices may reduce new car revenue by 8% month-on-month; the bank estimates that after-sales service revenue is expected to increase 5% month-on-month to 2.1 billion yuan. The bank estimates that the gross margin of new cars in the US East changed from positive to -0.4% in the second half of last year, but the overall gross margin is expected to improve 0.4 percentage points to 7.5% compared to the first half of the year, mainly due to post-sales contributions. The bank believes that the US East faces the risk of impairment of goodwill and intangible assets. The bank assumes that goodwill depreciation will be 100 million yuan in the second half of the year. In summary, the bank estimates that the net profit of the US East increased 5% month-on-month to 41 million yuan in the second half of last year. After deducting the effects of impairment, 2H23's net profit is expected to increase by 65 million yuan over 1H23.

2024 outlook:

The bank believes that Porsche is the brand that is most likely to improve profits, especially after 2Q24, with inventory falling to a reasonable level and the launch of the new Panamela. The bank expects Porsche's sales volume in China to drop 13% to 70,000 units this year, with a 15% market share in the Eastern US. The gross margin of new cars is expected to improve 0.5 percentage points to 2.5%, driving the overall gross profit of new cars to increase by 24 million yuan. BMW and Lexus will still face challenges this year. The bank believes that BMW's 6% sales growth target this year is quite aggressive. The goal of 20% penetration of new energy may further reduce dealers' gross profit margin for new cars, and the Lexus industry has become a brand that relies on manufacturer subsidies. The bank predicts that new car sales and revenue in the US East will drop 8-9% year on year this year, and after-sales revenue is expected to increase 9% year on year, driving the overall gross margin to improve to 8.6%.