GAC’s 2021 net profit was up by 25.9% yoy to RMB7,511 million, in line with the positive profit alert. Revenue increased by 19.8% yoy to RMB75,676 million, consistent with the increase in vehicle sales of Trumpchi （+10.4% yoy） and Aion （+101.8% yoy）。 In 2021, Aion received income from new energy vehicle credit, which drove blended ASP to increase. Gross margin improved 1.5 ppts yoy to 5.2% despite facing issues on chip shortages and rising raw material cost. Share of profit from JVs and associates increased 19.6% yoy to RMB11,404 million, mainly driven by Japanese JVs.
We have decreased our net profit forecasts by 13.2% and 12.6% in 2022 and 2023, respectively. After adjustment, we forecast net profit to increase yoy by 17.3%/ 23.0%/ 24.1% in 2022 to 2024, respectively. We are optimistic on sales performance, but we expect the high raw material cost situation to remain and drag down gross margin improvement.
The Company’s results were one of the strongest among its peers. The improvement in gross margin cleared doubt on the profitability of the rising Aion series. We continue to expect faster growth for self-owned business based on its current model lineup, particularly benefiting from the fast-growing new energy vehicle market. Meanwhile, we have noticed fast recovery on JV brands due to stabilizing chip supply. The launch of pure electric brands for Honda and Toyota will help them to regain market share.
We maintain our rating as "Buy", but trim TP to HK$8.17. Our TP represents 7.7x 2022 PER, 6.3x 2023 PER.
Japanese brands to catch up with new energy vehicle （NEV） sales this year. In 2021, chip shortages and the lack of NEV models negatively affected growth of Japanese JV brands; Guangqi Honda’s sales dropped 3.2% yoy in 2021. Japanese brands rely on their well-known HEV technology to keep up with fuel efficiency. However, the lack of NEV models saw them missing out on the big trend. Industry NEV sales grew significantly by 157.5% yoy to 3.5 million units. Such growth was largely contributed by self-owned brands with penetration up to 29% in 2021, but JV brands underperformed at only 2.3%. The industry dynamic is about to change as Japanese brands are increasing their investment in EVs.
GAC Toyota will debut its new bZ model in 2022. Last Dec., Toyota announced its NEV strategy for the next decade in the Toyota Carbon Neutrality Strategy BEV Show. Based on the e-TNGA pure electric platform, the TOYOTA bZ pure electric exclusive series of models will become the main force of Toyota in the Company’s next stage. The first model will be bZ4x SUV, and there were another four models revealed during their announcement event, including a crossover, sedan and larger-sized SUV. Capacity is already in place and ready for production. GAC Toyota has already completed its construction of the first phase NEV plant in Nansha, and the second phase will be completed this year. The combined design capacity will be 400,000 units per year. GAC Toyota will be targeting 1 million units of sales this year. Along with its other new SUV launch this year, which includes the Venza and Frontlander, sales growth for this year is promising. We expect sales to significantly increase by 29.6% yoy to 1.07 million units in 2022.
Guangqi Honda’s first e:N model will be ready in 2022. Similar to Toyota, Honda officially released its new pure electric vehicle brand "e:N" last year, and showed an electric SUV, e:NP1, that will be produced by Guangqi Honda. In terms of intelligence, Honda's "e:N" series models will be equipped with Honda SENSING, Honda CONNECT, e:N OS, and a full-stack intelligent control ecosystem that integrates intelligent digital cockpits. Honda China announced that it will not launch gasoline models in the Chinese market after 2030, and will launch 10 pure electric models （most likely spread between Dongfeng and the Company） in the Chinese market within the next five years. Besides these e:N models, there will be some strong upgrades for its other models such as the new generation Vezel and Odyssey. Moreover, its new Integra model, launched last year, will also have an HEV version, further optimizing the selection available. We expect that the Integra will be a strong growth driver for the brand in 2022, which sold over 13,000 units in 1-2M22. However, chip shortage is still impacting Guangqi Honda, thereby full potential may only come in 2Q22 onwards. We expect sales to grow by 16.1% yoy to 906,000 units in 2022.
Self-owned brands are looking to achieve another high growth year. Riding on the success of EMPOW55, Trumpchi will release the EMKOO, likely to be an SUV version of the EMPOW55. It is likely that the new EMKOO will be able to replicate the success of the EMPOW55. Other than this, Trumpchi will be putting out more hybrid models including the M8, and EMPOW55.
The M8 will be equipped with Toyota’s THS hybrid system where the EMPOW55 will be equipped with the self-developed GM2.0. Turning to Aion, the brand is expected to deliver another year of strong growth, aiming for sales in the range of 250,000 to 300,000 units. Two models will be added this year, the Aion LX Plus and Aion S Plus. Both Plus models will have a much better battery and charging experience. In particular, the Aion LX Plus will be able to achieve 1,000 km driving range in a single charge （CLTC standard）。
EARNINGS FORECASTS
We roll forward our base year to 2022. We have decreased our net profit forecasts by 13.2% and 12.6% in 2022 and 2023, respectively. After adjustment, we forecast net profit to increase yoy by 17.3%/ 23.0%/ 24.1% in 2022 to 2024, respectively.
Sales volume: We are optimistic that the Company will maintain strong sales growth this year, reaching 2.696 million units, which represents 25.9% yoy growth. Our growth expectation exceeds the Company’s target of 15%.
Gross margin: Due to the extended situation of high raw material cost, we have reduced gross margin assumptions by 2.2 ppts and 3.2 ppts in 2022 and 2023, respectively. We continue to expect the Company to be able to grow but at a slower pace seen in 2021.
VALUATION
The Company’s results were one of the strongest among its peers. The improvement in gross margin cleared doubt on the profitability of the rising Aion series. We continue to expect faster growth for self-owned business based on its current model lineup, particularly benefiting from the fast-growing new energy vehicle market. Meanwhile, we notice fast recovery on JV brands due to stabilizing chip supply. The launch of pure electric brands for Honda and Toyota will help them to regain market share. We maintain our rating as "Buy", but trim TP to HK$8.17. Our TP represents 7.7x 2022 PER, 6.3x 2023 PER.