EQS-News: [MeiDong Auto] Jefferies initiated coverage on MeiDong Auto at Buy with TP of HK$9.30

Jefferies initiated coverage on MeiDong Auto (1268.HK) at Buy with TP of HK$9.30

Jefferies initiated coverage on China MeiDong Auto Holdings Limited (1268.HK) on the 29^th October at Buy, with a target price of HK9.30, representing an upside of 23.3% from the closing price of HK$7.54 as at 28^th October 2019.

Jefferies sees MeiDong has outperformed its peers in operations management in the past few years, mainly driven by its unique Single City Single Store strategy ("SCSS"), defensive brand mix and robust balance sheet.

Through the SCSS strategy, MeiDong was able to obtain higher margins from selling new cars and higher growth in after-sales service, given the less intensified competition in local markets, whereas its much simpler brand portfolio, with 60-65% of new car sales revenue coming from Porsche, Lexus and Toyota from 2015 to 2018, also contributing to its low inventory level.

Jefferies also highlights MeiDong's proven ability in acquisitions with stringent ROE targets and capability of post-merger integration, and believes its robust balance sheet (net gearing of almost 0%) could support far more aggressive acquisitions in the future.

On dividend, Jefferies expects the high dividend payout (Rmb 465m since listing vs. IPO proceeds of Rmb450m) will be maintained going forward, given its extremely low net gearing. It also points out that MeiDong is very likely to be included in HK Stock Connect in March 2020, which will expose the company to a broader range of investors.