YONGDA AUTOMOBILES(3669.HK)：COST CONTROL SALES CUT DIVIDEND AS KEYS-格隆汇

机构：招银国际
研究员：Wenjing DOU/Ji SHI/Austin Liang

　　Maintain BUY. Yongda’s 1H24 net profit of RMB111mn has reflected management’s improving capabilities in cost control amid prolonged price war, in our view. We believe the company’s profitability could be quite resilient, should the new car GPM improve with better supply and demand match for BMW and Porsche. Yongda announced an interim dividend with a 100% payout ratio in 1H24, leading to a 9% dividend yield this year, assuming a payout ratio of 60% in 2H24E.
　　1H24 earnings in line amid better cost control. Yongda reclassified commission income (from auto finance, insurance and NEV agency business) as revenue from 1H24. Its 1H24 revenue of new-car sales fell 15% YoY, in line with our prior forecast, while its new-car GPM of -2.2% was weaker than our expectation. The adjusted after-sales service revenue (based on the previous standards) fell 4% YoY to RMB5.0bn in 1H24, lower than our prior estimates by RMB200mn. The gross profit miss was offset by its tightened SG&A expense control in 1H24. Yongda’s 1H24 net profit fell 73% YoY to RMB111mn, in line with its earnings alert and our prior forecast.
　　Better profitability outlook as OEMs cut sales targets. We expect Yongda’s new-car GPM to rise 0.5ppts HoH to -1.7% in 2H24, as both BMW and Porsche have revised down their sales volume targets for 2024. That could lead to a gross profit HoH increase of about RMB300mn in 2H24. We believe Yongda’s better expense control in 1H24 could sustain in 2H24 and next few years, given management’s prudent views on the competition dynamics. Although we project a YoY decline in total new-car sales volume for Yongda in FY25E, Yongda’s net profit could more than double YoY to RMB510mn in FY25E, assuming the new-car GPM may improve 0.8ppts YoY. We believe leading dealers with outstanding operating efficiency and economies of scale could survive amid the dealer downsize in China.
　　Valuation. Yongda announced an interim dividend with a payout ratio of 100% in 1H24. Even if the payout ratio falls to 60% in 2H24, its dividend yield could be about 9% this year based on its current share price. We maintain BUY rating with a lower target price of HK$1.80, based on 6x our revised FY25E EPS (previously 7x FY24E EPS) to reflect the current market volatility. Key risks to our rating and target price include lower sales volume and/or margins, more severe after-sales service declines than expected, as well as a sector de-rating.