Damo: This year has been a challenging year for car dealers New car sales profits may fall

Zhitong Finance PP learned that Damo published a research report pointing out that due to profit expansion and chip shortage, auto dealers are expected to have strong profit growth in the second half of 2021. However, entering 2022, despite the large backlog of orders, the bank is cautious about the profit of new cars. Damo expects that in 2022, due to the recovery of chip supply, the profit from new car sales may fall or gradually return to normal, coupled with factors such as the suppression of demand for luxury cars, the auto dealer industry will face challenges. On the positive side, the electric vehicle-related business began to contribute to profitability and provide revaluation opportunities.

The bank assumes that new car profits in the first half of 2022 return to the same period in 2020, and new car profits fall by about 20%-25%. Considering the contribution of after-sales service, the overall gross profit may fall by 5%-10%. Although the market's view of the sales discount of auto dealers remains negative, the bank expects the industry to enter a profitable quarter after March this year due to positive factors such as acquisitions.

Zhongsheng (00881) and Yongda (03669) were authorized by a number of electric vehicle stores last year. Damo expects that in 2022, it is possible to see third-party dealers quantify the effect of electric vehicles. If EV stores can contribute significant earnings growth in 2022, with returns even surpassing fuel vehicles, dealer stock valuations are expected to be revalued.

The report also points out that some policy measures under "common prosperity", such as tax increases, may affect the demand for luxury cars. The government's auto consumption stimulus measures may also give priority to local foundries and electric vehicle brands rather than luxury car brands. Overall, this year may be a challenging one for car dealers, but it can also be expected to pay off.