EQS-News: [1268.HK] CMBI initiated coverage on MeiDong Auto (1268.HK) at BUY and a target price of HK$48.00

CMBI initiated coverage on MeiDong Auto (1268.HK) at BUY and a target price of HK$48.00

CMBI initiated coverage on China MeiDong Auto Holdings Limited (1268.HK) on 8th March at BUY, with a target price of HK$48.00, representing an upside of 39.7% from the current price of HK$34.35.

Despite a potentially shrinking dealership market, CMBI believes such business is still justified, and among the dealers, MeiDong, with its management execution potential is still undervalued, is best positioned to outrun its peers amid more challenging industry landscape, thanks to its superb operational efficiency and excellent management execution. The company's dedication to consistency, focus, and attention to details, are also the fundamental differentiators from peers that would be almost impossible to mimic.

After showcasing its ability to deliver high inventory turnover, CMBI also highlights MeiDong's recent acquisition of StarChase (14x FY21E P/E), as a proof of its M&A capability, a crucial way for dealers to grow. The acquired Porsche stores are expected to contribute c. RMB 350m during 2Q-4Q22, and their net margin is expected to be doubled in FY23 when compared with FY21. In addition, CMBI pinpoints MeiDong's customer return ratio (CRR) program as a potential replica of its inventory turnover scheme, which is expected to provide positive impact on long-term profit growth that could be larger than what investors currently expect.

Given the growing new-car sales contribution from high-margin Porsche, as well as the increasing after-sales services revenue amid higher average store age and positive impact from CRR, CMBI projects MeiDong's FY21E net profit to rise 58% YoY to RMB1.18b, and to surge 65% YoY to RMB1.95b in FY22E. CMBI's target price of HK$48.00 is based on 20x FY23E P/E, with FY23E perceived to be a better year to reflect the contribution from the StarChase acquisition.