Analyst Ji Shi from CMB International Securities maintained a Buy rating on China MeiDong Auto Holdings (CMEIF – Research Report) and increased the price target to HK$3.20 from HK$2.80.
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Ji Shi’s rating is based on a combination of factors that highlight the strengths and potential of China MeiDong Auto Holdings. Despite some challenges in the 2H24 results, such as impairment and forex losses, the company showed promising growth in after-sales revenue and effective control over SG&A expenses, contributing to a positive outlook. The high inventory turnover strategy is a significant factor, as it allows the company to maintain better cash flow and potentially achieve higher gross profit margins, even as car prices decline.
Furthermore, Ji Shi revised the FY25E net profit forecast upwards by 21% to RMB494 million, driven by an 8% increase in after-sales revenue and a reduction in SG&A expenses. Although there was a miss in the new-car gross profit margin, the overall gross profit is expected to rise due to the larger contribution from high-margin after-sales services. The valuation adjustments and the potential risks, such as lower sales or sector de-rating, have been considered, but the overall assessment supports a Buy rating with a target price increase from HK$2.80 to HK$3.20.