We are of the view that Meidong’s 3Q22 operational data, especially the top-line growth, may beat expectation, as we project its Porsche’s new-car sales volume to be more than doubled in 3Q22. Although our prior projection of possible price war in the next six months could dent dealers’ new-car gross margin next year, we believe Meidong’s share price could be oversold now given its strongest management execution and better brand mix than its peers.
We estimate Porsche’s new-car sales volume to be more than doubled in 3Q22. Meidong now operates 20 Porsche 4S stores and showrooms in 15 cities after StarChase’s acquisition. There are 32 Porsche stores in total in these 15 cities. Meidong is the sole Porsche store operator in seven cities including Qingdao and Jinan. Retail sales volume for Porsche in these 15 cities almost doubled in 3Q22, based on our calculations, assuming 0 for cities where StarChase stores are located in 3Q21. That means new-car sales volume for Porsche at Meidong could be more than doubled in 3Q22, given it is usually more competitive than its peers in the same city and its Guangzhou store was not opened yet in 3Q21. We raise Meidong’s Porsche new-car sales volume by 8% to 13,000 units in FY22E.
BMW to increase incentives to dealers in 4Q22. Based on our channel checks, Meidong’s new orders for BMW during the Golden Week outperformed the market. Along with BMW’s rising incentives to dealers in 4Q22 (a new subsidy of RMB 8,000 per vehicle for locally-produced models and RMB 11,000 per vehicle for imported models), BMW’s new-car gross profit could also beat market expectation, in our view.
Earnings/valuation. We revise up FY22E revenue by 2% with Porsche’s sales volume likely beat in 2H22E. We keep our FY22E GPM unchanged as price war could be offset by rising BMW incentives. We also cut FY22E SG&A slightly and raise our FY22E net profit by 9% to RMB 1.19bn. We revise down our FY23E net profit by 2% to account for our cautious outlook for China autos in 2023. We also add possible new EV stores in FY23-24E in our model, although the financial impact would be very limited.
We maintain BUY rating but lower our target price slightly from HK$ 25.00 to HK$ 23.00, still based on 15x of our revised FY23E EPS estimates. Key risks to our rating and target price include lower sales and/or margins, slower store expansion than our expectation, as well as a sector de-rating.