CITIC SEC: Downgrade MEIDONG AUTO (01268) rating to "hold" with a target price of HK$2.

CITIC SEC released a research report stating that MEIDONG AUTO (01268) rating was downgraded from "Buy" to "Hold" due to industry demand pressure in 1H24. The company's revenue forecast for 2024/2025 was adjusted to 21.82/20.83 billion yuan, with an added revenue forecast for 2026 of 20.02 billion yuan. Net profit forecast was adjusted to 590 million/2.80 billion yuan, with an added forecast of 3.12 billion yuan for 2026. Due to the company's loss in 1H24, a comparative company valuation method was chosen. Considering MEIDONG AUTO's focus on luxury car brands and higher turnover efficiency, it should have a premium for high profit certainty, with a target price of HK$2.0 (originally HK$7.0). The report stated that the company's revenue in 1H24 was 14.09 billion yuan, a year-on-year decrease of 24.4%; the company's gross profit margin was 7.6%, with a net profit margin of -0.2% in 1H24. The gross profit margin of the new car business was affected by weak demand for luxury joint venture models and continuous price wars, with the new car sales continuing to bear price pressures, leading to a negative gross profit margin of -5.1%. However, the bank believes that the worst time for the new car market has passed, as BMW announced an end to price wars in July and Porsche announced reduction in volume and profit locking in the Chinese market, with pressure on the new car market expected to gradually ease in 2H24. The after-sales service revenue in 1H24 grew steadily, with an improved gross profit margin of 59.8%, leading to an absorption rate of 231.5% of zero services. The bank believes that the company's after-sales service growth remains stable, and the company continues to maintain efficient operations. With the gradual easing of pressure on the new car market and the continuous increase in the proportion of after-sales service, the company's performance is expected to gradually improve.