$广汇宝信(01293)$$正通汽车(01728)$$永达汽车(03669)$ To rebound with strong BMW product cycle & integration synergy 2017-05-19 中金汽车研究 Abstract Investment Positives We initiate coverage with a BUY rating and a target price of HK$4.50 ,implying 11x 2017e P/E ratio.
Why a BUY rating? ► New car sales business to benefit from BMW’s strong product cycle. We estimate that the localized Series 1 Sedan and 7th generation of Series 5 will raise sales volume 27.0% YoY and gross margin 1.6ppt of BMW’s new car sales in 2017, contributing around Rmb350.2mn in incremental gross profit to Baoxin. ► Integration with CGA to enhance operational efficiency. In 2016, Baoxin and China Grand Auto (CGA) saw SG&A/revenue of 5.7%and 4.1%. By introducing a refined management system and advanced IT instruments following integration with CGA, we expect Baoxin’s operational efficiency to keep improving in 2017. ► Still upside in highly profitable after-sales business. In 2016, Baoxin’s after-sales revenue per store was Rmb32.3mn, outperformed by its peers. With high gross margin of 45+%, we expect the after-sales business to boost earnings once Baoxin makes full deployment after years of conservative expansion.
How do we differ from the market? We believe changes in Baoxin’s fundamentals, rather than the sector trend, will drive the company’s growth.