DFG released its unaudited 3Q20 results. In 3Q20, NP achieved RMB4.2bn,an increase of 22% YoY / 30% QoQ. Given the strong 3Q results, we raised our2020E bottom-line forecast to RMB8.4bn. Therefore, we raised our TP toHK$12.0 (based on new 7.0x 2021E P/E) with an upside of 28.2% from TPHK$7.1 (based on 4.3x 2021E P/E). Reiterate BUY.
DFG announced its Oct sales number. Accumulative sales volume from Janto Oct fell 5.5% YoY. Among them, from Jul to Oct, CV sales increased by34.4% YoY while PV sales increased by 5.5% YoY. We expect that CV willcontinue to grow in the remaining 2020E driven by strong replacement cycleand infrastructure investment. We forecast that CV sales will increase by 22%YoY in 2H20E. In terms of PV, we expect the strong demand of DongfengHonda and Dongfeng Nissan will support the recovery of its PV segment. Weestimate PV sales will grow at 2% YoY in 2H20E.
Nissan is expected to expand production in China by 30%. DFL, a jointventure between DFG and Nissan, has strong demand even in the trough ofthe overall auto market. In the past three years, the capacity utilization ratehas been consistently over 100% (101% in 2017 / 104% in 2018 / 102% in2019). Regarding Nissan Motor Co., Ltd, in FY2019, its sales fell 10.3% to534K units in the Japanese market / fell 14.6% to 1.62mn units in the NorthAmerican market / fell 19.1% to 521K units in the European market. However,its sales in China fell only 1.1% to 1.5mn units, making China the single bestperformingmarket around the world. We expect that Nissan will continue toinvest resources in China and introduce new models including Nissan Ariya inthe short-term. We believe that the sales and performance of DFL will continueto improve with the expansion of production capacity.
Market value management is gradually realized. In our last report "Marketvalue management as a catalyst", we mentioned that the Company will takemarket value management measures to lift the valuation before listed onChiNext. On 11 Nov, DFG announced that it will maintain the payout ratio ofno less than 40% within three years after the issuance and listing of A-shareswhich attract more long-term investors such as insurance companies. Wenoticed that the average dividend payout ratio of DFG in 2017-2019 was 22%.
In the meanwhile, DFG launched high-end brand VOYAH and announcedYuan+ plan to revive DPCA. We believe all the measures will rebuild theCompany’s image among investors and lift its valuation multiple.
We raised our bottom-line forecast to RMB8.4bn in 2020E to reflect thestrong 3Q20 results and revised sales volume forecast. Our revised NPforecast suggests that DFG's bottom-line will grow 34% YoY in 4Q20E. Webelieve that events such as 1) the realization of market value managementmeasures; 2) the listing on ChiNext within 2020E; and 3) the launch of thehigh-end brand VOYAH, will raise DFG’s valuation multiple. We raised our TPto HK$12.0 (based on new 7.0x 2021E P/E) with an upside of 28.2% from TPHK$7.1 (based on 4.3x 2021E P/E). Reiterate BUY.