1H17 net profit to more than double, ROE may keep boosting

金车研究 · 公众号 · · 2017-07-17 08:41

正文

What's new

On July 14, Zhengtong preannounced its 1H17 net profit to grow more than 100% YoY to >Rmb506mn, beating our forecasts of 80~100% YoY.

Trends to watch

1H17 net profits to more than double, beating market expectation. In 1H17, Zhengtong may achieve net profit of more than Rmb506mn, implying >100% YoY and >110.8% HoH growth, which beats our and market expectations. The company mainly attributes it to 1) rapid growth of auto finance business, 2) the ideal brand portfolio and dealer network expansion, 3) increase in new car sales and continuous improvement in after-sales service business.

Auto finance and dealership expansion yield strong momentums; ROE keeps boosting. Zhengtong’s auto finance and dealership expansion could lead to more predictable earnings growth and build more profitable structure. We expect Zhengtong’s ROE to largely improve in 2017, up 5.6ppt from 2016, since its profitability further enhances.

Book values have potential to appreciate, facilitating lower expansion cost in the future. We think the book values of Dongzheng AFC and some land ownerships Zhengtong holds do not reflect their actual values, and have huge potential to appreciate, so it may generate large incremental when re-evaluate, and could help Zhengtong expand at lower costs.

Valuation and recommendation

We remain upbeat on Zhengtong's strong growth momentum in auto finance biz, its dealership network expansion, and the management efficiency improvement. We raise our 2017/2018 earnings forecasts 11.1%/31.9% to Rmb1.05/1.50bn. We maintain BUY and lift our TP 31.5% to HK$11.7, implying 15x 2018e P/E..

Risks
Luxury cars sales and M&A consolidation disappoint.