UBS: Maintains "Sell" rating on YONGDA AUTO (03669) with target price raised to 1.15 Hong Kong dollars.

UBS released a research report stating that it maintains a "sell" rating on YONGDA AUTO (03669) and has lowered its earnings per share forecast for 2024 to 2026 by 27% to 38% to reflect higher-than-expected pressure on new car profits. The mid-term profit growth rate forecast for Yongda has been raised from 2% to 3%. However, the target price has been raised from 1.02 Hong Kong dollars to 1.15 Hong Kong dollars. The report quoted YONGDA AUTO management as saying that new car sales last year fell by about 8% year-on-year, mainly due to declines in BMW and Porsche sales. In the second half of last year, new car profits declined compared to the first half, due to the impact of expanding retail discounts and the relatively flat gross profit margin of new car sales and related services compared to the first half of the year. Due to the impact of store closures, after-sales service revenue grew steadily year-on-year. During the period, the company's used car sales volume fell by 20% year-on-year, but the gross profit margin remained at a level of 5% to 6%. In addition, Yongda expects BMW and Porsche's sales targets in the Chinese market to slightly decrease compared to last year, and management has indicated that it may take until next year for new car profits to turn positive. Although the contribution from the Xiniang Lixin Energy brand continues to increase, potentially benefiting its new car profits, the company estimates that the retail discounts from BMW and Porsche are unlikely to significantly narrow due to aging models and intensified competition from Chinese brands. Yongda management revealed that by the end of last year, the company owned about 30 Xiniang Lixin Energy brand stores, with approximately 10 supported by Huawei. It is estimated that the number of Xiniang Lixin Energy brand stores will increase to approximately 50 this year, with most of the new stores supported by Huawei. With the expansion of the store network, Yongda expects sales of Huawei-supported brands to increase from 8,000 units last year to 25,000 units this year.