Revenue declined slightly year over year in '23
The company released its annual report for the year 23, and achieved operating income of 28.56 billion yuan, down 0.35% year on year; net profit to mother was 140 million yuan, down 73.1% year on year, mainly due to fuel vehicle price promotions reducing dealers' profit margins. Considering that the brand models covered by the company are competing or maintaining a fierce trend, the profit of the new car sales business is under pressure. We expect the company's net profit to be 2.4/3.4/476 million yuan (previous net profit of 24-25 million yuan), which is comparable to the company's average 24E PE 15.3x, giving the company 24E15.3x PE, corresponding to the target of HK$3.15 (previous value HK$5.08), to maintain “additional holdings”.
Porsche and BMW are the core revenue sources. After sales service grew steadily in 23 years, the number of the company's 4S stores remained stable, with a cumulative total of 66,400 passenger cars sold, and new car sales revenue fell 3.5% year on year to 24.42 billion yuan. Among them, high-end brands are still the company's core revenue source. The sales volume of new vehicles of the Porsche, BMW and Lexus brands reached 1.2/2.3/11,000 units respectively, +4%/-3%/0%; corresponding revenue reached 104.4/77.5/3.34 billion yuan, respectively (accounting for 42.47%/31.8%/13.7% of new car sales revenue), and the average unit price was -0%/-3%/-15% year-on-year to 54.9/33.2/295,000 yuan. The company's after-sales business maintained healthy growth, with service desks +9.4% YoY to 773,000 units, and revenue +23.1% YoY to 4.13 billion yuan.
The new car sales business turned into losses, and after-sales profitability improved
In terms of profit, due to weak market demand and falling prices, the company's new car sales business turned into a loss, with a gross margin of -4.0% to -0.6% year-on-year. The after-sales service business became the company's profit pillar. In '23, after-sales gross margin increased 4.7pct year-on-year to 53.7%, and the zero service absorption rate reached 116.7%. The company's net interest rate in '23 was -1.3 to 0.5% year on year. Among them, cost control measures achieved certain results. The sales rate was -0.3 pct to 2.7% year on year, and the management expense ratio was +0.2 pct to 3.0% year on year.
Focus on improving turnover efficiency and seeking opportunities in the NEV market
Faced with the uncertainty of industry competition and the risk of declining profits, the company will continue to implement the operating principle of low inventory and fast turnover (the company's inventory turnover period is 12 days in 23 years) to ensure stable cash flow and avoid the risk of loss by reducing inventory. In addition, the company is also exploring NEV market opportunities, or taking the lead in moving from the after-sales business to the NEV circuit. Relying on operational efficiency advantages, the company reached cooperation intentions with NEV brands. In '23, the company has initially set up 2 Tesla after-sales service stores.
Risk warning: Demand for passenger cars falls short of expectations; profit improvement falls short of expectations.