In 3Q22, Yongda’s total revenue recovered by increasing 12.2% YoY, driven by new-car sales volume growth of 9.3% YoY, but net profit plunged 22.8% YoY to RMB487m, below expectations, mainly due to wider-than-expected new-car margin erosion for major luxury brands (BWM and Porsche). Looking ahead, despite moving into peak season towards the end of year, we deem new-car gross margin a bit difficult to see decent recovery in 4Q22 amid the imbalanced supply-demand dynamics. Although its valuations now (5.0x 2022E P/E and 0.6x 2022E P/B) stand far below historical average levels (8x P/E and 1.2x P/B), considering the currently unfavourable environment for margin recovery and mid-term fundamental uncertainty amid the structural transformation of industry, we maintain HOLD and trim our TP to HK$5.00, based on 5x 2023E P/E.
Key Factors for Rating
3Q22 revenue recovered to double-digit YoY growth. In 3Q22, overall revenue recovered by increasing 12.2% YoY (vs. down 22.5% YoY in 1H22), within which new-car sales revenue booked 13.1% YoY growth, while revenue of after-sales services just inched forward at 4.1% YoY (on track towards management guidance of 5% YoY growth in 2H22). In terms of new-car sales business, sales volume grew 9.3% YoY in 3Q22, mainly driven by luxury brands with sales growth of 13.2% YoY, largely in line with overall premium market growth. In contrast, new car sales volume of mid-to high-end brands only edged up 2.1% YoY, much weaker than the overall industry. In 3Q22, despite recording stable YoY growth of 3.4%, new-car sales ASP slid by 10.9% QoQ from c.RMB339,000 to c.RMB302,000, which we attribute to the wider end-user discounts as well as brand mix change and weaker product mix for some luxury brand like Porsche.
Net margin recovered QoQ, but new-car sales gross margin deteriorated worse than expected. In 3Q22, the new car sales gross margin eroded from relatively high level of 3.5% in 2Q22 to 2.1%, reaching a low since 2019, mainly dragged by luxury brands (mainly BMW and Porshe) whose gross margin deteriorated 1.5ppts QoQ to 2.4%. The 3Q22 overall gross margin dipped from 9.2% in 2Q22 to 8.7%, with the QoQ decline partially offset by increasing proportion of high-margin after-sales business (14.2% as of total revenue in 3Q22 vs. 12.1% in 2Q22). On the other hand, along with revenue expansion which resulted in better operating leverage, net margin recovered sequentially from 1.5% to 2.3% in 3Q22. Looking ahead, despite peak-season towards the end of year, we deem new-car gross margin a bit difficult to see decent recovery in 4Q22 amid the imbalanced supply- demand dynamics.