Key Takeaways:
CMB International trimmed its price target on luxury car dealer Meidong Auto (1268.HK) to HKD2.2 from HKD2.8, citing ongoing pressure on new car prices even as operational improvements are expected to bolster future earnings.
The brokerage maintained its "Buy" rating, pointing to a rebound in new car gross margin in the second half of last year and the potential for new HarmonyOS stores to drive growth. The report noted that Meidong’s second-half results slightly beat expectations due to better cost control.
Meidong’s revenue in the latter half of 2023 fell 14% year-over-year, impacted by lower selling prices. However, its overall gross margin rose to 6.8%, with the new car gross margin improving significantly to negative 1%, up 9.8 percentage points from the first half. This resulted in a net profit of RMB60 million for the period.
Looking ahead, CMBI projects Meidong’s net profit will reach RMB146 million in 2024 and grow further to RMB328 million in 2025. The forecast assumes new car gross margins will continue to improve, alongside contributions from new business ventures like its HarmonyOS-equipped locations.
The target price cut reflects persistent uncertainty in the luxury auto market, but the maintained "Buy" rating suggests CMBI believes Meidong's operational turnaround is underway. Investors will watch for continued margin recovery and the performance of its new stores as the next key indicators.
This article is for informational purposes only and does not constitute investment advice.
