Net profit fell 50% in 2020 compared with the same period last year
Beijing Automotive (BAIC) announced its 2020 financial results on March 24: revenue rose 1 per cent year-on-year to 177 billion yuan, while net profit fell 50 per cent year-on-year to 2 billion yuan. The net profit is lower than Huatai's forecast (RMB 2.8 billion) and we think the performance is weak. We believe that the decline in net profit is mainly due to BAIC's own brand and the deterioration of Beijing Hyundai operations. We estimate that the company's 2021 / 2022 / 2023 EPS will be 0.50 / 0.53 / 0.60. We lowered our target price by 4% to HK $4.80 to maintain our "buy" rating.
Sales decline in 2020
BAIC sales fell 18 per cent year-on-year to 1.169 million vehicles in 2020. BAIC's own-brand sales fell 33 per cent year-on-year to 112000 vehicles, while Beijing Hyundai brand sales fell 38 per cent to 446000 vehicles. Sales of the Beijing Mercedes-Benz brand increased by 8% compared with the same period last year. We believe that the decline in BAIC's own brand and Beijing Hyundai sales is mainly attributed to: 1) the impact of the COVID-19 epidemic; and 2) the weakening of product competitiveness. On the other hand, the Beijing Mercedes-Benz brand maintains a high growth momentum, which we believe is due to the continuous upgrading of consumption.
2H20 operating performance is under pressure
The rate of 2H20 sales expenses is 6.3% (2H19 4.7% exchange 1H20 2H20 6.5%), the rate of management expenses is 5.4% (2H19VO4.4% X 1H20VERV 3.4%), and the net interest rate is 1.0% (2H19VOR 1.8%; 1H20:
1.3%); the investment loss is 850 million yuan (2H19 investment income: 320 million yuan).
The overall operation of the company's 2H20 is under pressure. Due to the strong economies of scale of the automobile manufacturing business, we believe that the decline in operating performance is mainly due to the decline in sales and the increase in operating expenses.
Maintain "buy", valuation is attractive
In view of the weak financial performance in 2020, we have lowered our 2021 Universe net profit forecast by 15% to RMB 4 billion / 4.3 billion in 2022, and we expect net profit to reach RMB 4.8 billion in 2023.
Our target price of HK $4.80m (previous value: HK $5.0m) is based on 8 times the 2021 forecast PE. The target multiple is lower than 9.1 times the average of the 2021 peer PE forecast (according to Bloomberg consensus), mainly due to the uncertainty of the recovery of BAIC's own brand and Beijing Hyundai brand. BAIC's current share price corresponds to 4. 4 times the 2021 forecast PE and 0. 3 times the 2021 forecast PB, which we think is more attractive and we maintain the "buy" rating.
Risk tips: 1) sales are lower than we expected; and 2) BAIC's own brand and Beijing Hyundai's operations have deteriorated.
