CICC: Raises YONGDA AUTO (03669) Target Price to HK$2.31, Cooperation with New Energy could be an Effective Breakthrough for Dealers.

CICC released a research report stating that it is optimistic about the acceleration of the landing of YONGDA AUTO's new energy cooperation, which brings catalytic effects and potential profit elasticity. The target price was raised by 25% to 2.31 Hong Kong dollars. The company obtained authorization for Huawei, Xiaomi, and other stores in the first half of 2024. The bank is optimistic about the development potential of the company's cooperation distribution channels with new energy brands such as Huawei Smart Selection and the profit elasticity it brings to the company. CICC's main points are as follows: A pioneer in cooperation with new energy, with an existing network and rich authorization. According to the company's interim report, in the first half of 2024, the company owns exclusive sales or maintenance center network brands include Huawei Smart Selection (AskWorld, etc.), Xiaomi, Jike, Smart, Xiaopeng, SmartEgo, etc., with 36 new energy brand operating outlets, accounting for about 16% of the company's total outlets, selling a total of 14,467 new energy vehicles, accounting for 17% of the total new car sales, leading in the automotive dealer industry. In addition, the company has plentiful authorizations in hand, and the bank expects that the company's existing channel authorizations will accelerate landing and opening. By the end of the year, the proportion of the company's new energy stores is expected to reach around 20%, bringing a comprehensive renewal and upgrade to the company's overall brand structure. Huawei Smart Selection is a key brand investment and may bring significant profit incremental growth to the company. Yongda has cooperated with Huawei Smart Selection early on and has now opened multiple AITO and Hongmeng Zhihang outlets. According to the current store authorization and construction situation, the bank estimates that by the first quarter of 2025, the company will have around 30 Huawei stores. The company has already made it clear that Huawei Smart Selection and other brands are key focus areas and investment directions. At the end of the first half of 2024, the company still had around 1.6 billion yuan in cash on hand, with an asset-liability ratio of 52.8%, a continuous year-on-year decrease. The bank believes that the company's existing financial reserves and financial condition will provide a good foundation for the company's transformation to new energy. Taking the company's existing Shanghai Zhangjiang Hongmeng Zhihang store as an example, this store is an authorized user center, including new car sales, delivery center, after-sales, and other businesses, the bank believes it will bring multiple profit increments to the company. Cooperation with new energy may be an effective breakthrough for dealers. The bank believes that from the current survival status of luxury brand dealers, traditional luxury and joint venture brands are difficult to change their downward trend in quantity, price, and profit, and there may be no signs of a reversal in the gross profit margin of new cars. At present, the new energy brand is still on an upward cycle, and the competitive landscape is clearer, with the outlook for quantity, price, and profit being relatively stable and optimistic. Moreover, for concerns in the market about new energy after-sales business, Yongda's repair single vehicle production value at Xinjiang Lixin Energy in the first half of 2024 was 2,958 yuan, which does not show much difference compared to luxury brand after-sales. In addition, the bank believes that the current dealers' leading stores in terms of geographical location and customer resources can bring strong gains to new energy brands and are expected to achieve a good win-win cooperation effect. Risks: Unexpected delays in the promotion of new energy stores, a sharper-than-expected decline in the gross profit margin of new cars, a sharper-than-expected decline in after-sales service profits, etc.