Guanghui Baoxin announces 2017 results
Total revenue increased by 32.8% year-on-year to 34.14 billion yuan (basically in line with our expected RMB 34.64 billion yuan), gross profit rose 0.6% year-on-year to 8.5% (0.3% lower than our expected 8.8%), and homed net profit increased 94% year-on-year to 800 million yuan (about 15.8% lower than our expected 950 million yuan). We judge that: 1) the lower-than-expected results are mainly due to the small discount in advance of the new 5 / the pressure on the gross profit margin of Jaguar Land Rover and the higher-than-expected increase in sales / financial expenses; 2) the current share price has more fully reflected the impact of performance fluctuations.
BMW may have the risk of expected downrevision, but the upward improvement trend at the inflection point remains the same.
1) the advance discount of the new 530 may be related to the market positioning deviation and gradual suspension of production of the new 528; 2) the new 525 has the risk of a discount immediately on the market, but the listing of the new 525 still has a positive effect on stabilizing the new 530 discount; 3) the market competitiveness of X3 lies in pricing, or there is still the risk of a discount soon after listing. 4) due to the expected adjustment of product cycle expectations, BMW dealers are expected to have the risk of expected downward revision, but the fundamental inflection point upward trend remains unchanged; 5) the gross profit margin of new car sales of 2018E/2019E/2020E is estimated to be about 3.6%, 3.4% and 3.3%, respectively (3.5% of vs 2017).
Steady growth in after-sales business and steady progress in derivative business such as financial leasing
1) after-sales business: 2017 the company's after-sales revenue increased by 31.8% to 3.74 billion yuan compared with the same period last year, and the gross profit margin increased by 2.1% year-on-year to nearly 48%. It is expected to dock with Guanghui resource integration / collection systems or further boost its after-sales service scale and gross profit margin. 2) derivative business: 2017 company car financial leasing and commission / agency income increased by 13.2x and 57.7% respectively over the same period last year to 62.056 million yuan and 600 million yuan, respectively. Benefiting from the cooperation with Guanghui business, the gradual expansion of the total scale of the company's interest-bearing assets, as well as the improvement of insurance commission rate / auto finance penetration expansion / the improvement of the proportion of new and used cars, etc., it is expected that the overall derivative business such as financial leasing of 2017-2020E company may achieve about 27% Cagr.
Maintain a "buy" rating
We are still optimistic about the improvement of the company's fundamentals and the coordinated release of long-term business driven by the integration of Guanghui resources, but taking into account the downrevision risk of the BMW product cycle, we reduce the 2018E/2019E homing net profit to 1.05 billion yuan / 1.34 billion yuan respectively, and the estimated 2020E homing net profit is about 1.63 billion yuan. We lowered our target price for DCF to HK$4.07 (corresponding to about 9.4 x 2018E PE) and maintained our "buy" rating.
Core risks suggest that BMW replacement / new model launch and sales are not as expected; new car sales gross profit margin is under pressure; integration with Guanghui business is not as expected.