Robust Growth in the First Quarter
The GAC Group has published its financial statement of Q1, which reveals a revenue of RMB10.14 billion, up 88% year-on-year. Net profit grew by 263.7% Y-o-Y to RMB1.927 billion, a record high in quarterly profits after the company was listed. The dramatic growth in business results can be directly attributed to the following:
First, the rapid growth of auto sales of the company and the continuing scale effect;
Second, the rapid growth of sales of associated enterprises, whose contribution to investment income increased greatly on a year-on-year basis;
Third, the net profit of Q1 last year were only RMB530 million, which was at the lowest point of the whole year's business results.
Significant Increase in Sales Powered by Three Carriages
In Q1, GAC Group recorded a remarkable increase by 35.8% Y-o-Y in terms of total sales of vehicles, and the total sales of several passenger vehicle enterprises that contributed to a major part of profits increased by as much as 48%. Japanese vehicles represented by Toyota and Honda, American vehicles represented by Jeep, and GAC's own brands are three carriages which have the highest growth speed. The sales of Guangqi Honda, GAC Toyota, GAC Fiat, and GAC's self-developed brand rose by 27%, 22%, 202%, and 140% respectively on a year-on-year basis. Models that contributed significantly to sales growth included: Vezel and Fit of Guangqi Honda, Levin and Highlander of GAC Toyota, Trumpchi GS4, GAC's self-developed brand, and GAC Fiat's Cherokee.
Last Year's Results Beat Expectation with Each Business Welcoming their Harvest
The revenue and net profit of GAC Group in 2015 respectively increased by 31.4% and 31.9% to RMB29.42 billion and RMB4.212 billion. During the period, GAC self-developed brands successfully made a turn from loss to profit. The JVs` contribution to its investment income increased by 12.9% to RMB4.7 billion in 2015. These are two drivers of the company's operating results that beat expectations.
Investment Thesis
In the aspect of new vehicles, GAC Toyota plans to introduce Lerhero, Guangqi Honda to introduce Acura CDX, a hybrid version of Accord, and Avencier, a large SUV model. These models are expected to be launched in the second half of this year. GAC Fiat-Chrysler's Jeep model and its capacity are on a rise. Together with the multiple new-energy driven models that will be introduced by Trumpchi, the company's profitability will go into the fast lane.
Valuation
Therefore, we adjust the estimate of the company's EPS to RMB 1.1/1.2 in 2016/2017, and target price to HKD 12, equivalent to 9.1/8.4x P/E ratio in 2016/2017, and we shall maintain the "Buy" rating. (Closing price as at 3 May 2016)
Financials
Click Here for PDF format...
