Yongda hosted a public conference call yesterday to update investors about its NEV transition progress and detailed plans in the coming year. The company plans to expand NEV network to 40 stores (c.20% of total network) by end-2024, and further drive the proportion of NEV sales network to 30-35% in 2025, most of which set to be re-branded from current stores of less profitable and uncompetitive premium brands. Huawei-backed HIMA brands are among Yongda's key NEV brand portfolio with top priorities to develop. The company aims to open no less than 15 HIMA dealership stores by end-2024 and no less than 30 (incl. authorization yet to be operational) by end of 1Q25. Although its current valuation of 10x 2025E P/E stays above historical average of 8x, its 0.2x P/B stands at record low and its current market cap (HK$3.4bn) is well below the book value of inventories (c.RMB4.0bn as of 30 Jun) plus net cash of RMB307m, which is unreasonable in our view. We believe the faster NEV business expansion will aid its profitability recovery and better ROE ahead. Maintain BUY with higher TP of HK$2.20 by adopting 12x 2025E P/E.

Key Factors for Rating

Faster NEV sales network expansion ahead. At present, the company has around 30 4S dealership stores for selling NEV brands, roughly staying on par with the sales network scale as of 30 Jun. With the initiative to boost faster NEV transition, the company plans to expand NEV network to 40 stores (c.20% in total sales points) by end-2024, and further increase the proportion of NEV sales network to 30-35% in 2025, most of which are set to be re-branded and restructured from current stores of less profitable/competitive brands. This remarks the company's firm stance to fully embrace NEV transition after making tentative efforts over past three years, subsequent to Zhongsheng Group's declaration towards NEV migration last week.

Set to be a major proxy for Huawei-backed HIMA brands. Yongda currently has four dealership stores under operation for HIMA-brand models (incl. AITO Wenjie, Luxeed and Stelato). Moving forward, the company aims to open no less than 15 HIMA dealership stores by end-2024 and no less than 30 (incl. authorisation yet to be operational) by end of 1Q25. Compared with more diversified brand portfolio for gasoline car business, Yongda adopts a more concentrated strategy in terms of brand choice for NEV business. Going forward, we expect the company is likely to continue its ties-up with HIMA alliance as its largest NEV partnership and develop a simple NEV brand portfolio that comprises reputable NEV brands with higher volume growth potential and decent profitability. In addition to HIMA alliance, Zeekr is also an important NEV brand Yongda would like to develop.

Case analysis of single-store operation for HIMA. Yongda has partnered with HIMA brands as early as in 2021 and established first dealership store located in Longdong Avenue, Shanghai. At present, this single HIMA dealership store delivered c.4.2k units in 10M24 and aims to achieve the full-year sales volume of 5-6k units this year. For new-car sales business, Yongda will achieve gross profit at a fixed percentage (4.5%) of transaction price for every vehicle sold. Besides, the company is able to earn additional new car cross-selling revenue for HIMA-brand deliveries, which measures 3-4% of transaction price. Coupled with after-sales business contribution, we estimate the full-year net profit for single HIMA store could reach over RMB20m on average.

Valuation

To reflect the continuing demand weakness for premium brand Porsche and BMW which has been partly offset by better-than-expected NEV business in 2H24, we trim our net profit forecast for 2024 by 6.1% to RMB211m. To account for extra contribution from Huawei-backed premium NEV business with stronger profitability ahead, we lift our net profit forecasts for 2025-26 by 10-18% to RMB329m/488m.

At present, its shares are trading at c.10x 2025E P/E, above its historical average of 8x over the past decade. On the contrary, its shares are equivalent to 0.2x 2025E P/B as record low, while its current market cap (HK$3.4bn) has been well below the book value of inventories (c.RMB4.0bn as of 30 Jun) plus net cash of RMB 307m, which is unreasonable in our view. We believe the faster NEV business expansion will aid its profitability recovery and better ROE ahead. Maintain BUY with higher TP of HK$2.20 by adopting 12x 2025E P/E, with a discount to our Zhongsheng's P/E multiples of 13x.