Incident: The company released its 2020 annual report and 2021 first quarter report. Revenue in 2020 was 158.442 billion yuan, or -7.05% year on year; net profit of the mother was 1,516 billion yuan, -41.72% year on year. Q1 2021 achieved revenue of 42,227 billion yuan, +64.92% year on year; net profit of the mother was 651 million yuan, +263.93% year on year.
The pandemic put pressure on 2020 results, turning a loss into a profit in Q1 2021. The 2020 performance was under pressure, mainly because the company's business outlets were affected by the pandemic and the number of new car sales and maintenance units entered the factory declined year-on-year throughout the year. Furthermore, the company upgraded and optimized stores and closed underperforming stores, which led to a decline in sales. The decline in net profit to the mother in 2020 was due, on the one hand, to a decrease in overall gross margin and, on the other hand, to a 12.40% year-on-year decrease in commission income. The sharp increase in performance in the first quarter was due to the remarkable results of domestic epidemic prevention and control measures, and economic operations maintained restorative growth. During this period, the company optimized its management level and improved its ability to operate stores, and all aspects of business, such as new car sales and maintenance, resumed in an orderly manner, so there was a significant increase over the same period last year.
The gross profit has gradually recovered, and expenses have remained stable. The consolidated gross margin for the full year of 2020 was 8.24%, down 1.60 percentage points from the previous year. The main reason is that the company increased vehicle promotion efforts to reduce gross profit margins. The company's vehicle sales revenue accounted for 86.31%, and the gross margin of individual businesses decreased by 1.64 percentage points over the same period last year. On the other hand, the car insurance premium reform policy implemented in 2020 had a certain impact on car insurance rebates; in addition, the decline in car rental business with high gross profit levels during the pandemic also led to a decrease in overall gross margin. With the control of the epidemic stabilized and the company further transformed, gross margin reached 8.77% in Q1 2021, returning to normal levels. In terms of expense ratio, the company's sales expenses rate in 2020 were 3.04%, and the management expenses ratio was 1.62%, which remained stable.
Start digital transformation and build a used car platform. The company began the digital transformation phase in 2020. It plans to switch from a traditional car service provider to a data operation technology company within five years, tap the value of customer resources accumulated over many years, and aim to become a “service provider that provides car owners with a full range of high quality of life”.
The company responded to the new used car tax policy and built a used car platform. There is room for gross margin to rise, which is expected to contribute greatly to overall profits in the future.
Profit forecast and rating: The company's net profit for 2021-2023 is estimated to be 2,653 million, 3,074 million and 3,292 million respectively, and EPS is 0.33 yuan, 0.38 yuan, and 0.41 yuan respectively. The price-earnings ratio is 926 times, 7.99 times, and 7.47 times respectively, maintaining the “buy” rating.
Risk warning: car market sales fall short of expectations, used car business development falls short of expectations