Last year was an incredibly difficult year for Hong Kong stock investors.
At the beginning of the year, the southbound funds surged in, the Hang Seng Index was like a rainbow, at that time the domestic institutions also released the "cross the Xiangjiang River, seize the pricing power" of the bold words, but the good times are not long, the market trend after the Lunar New Year weakened, in the second half of the year, many plates successively suffered from the domestic regulatory hammer, such as the game version tightening, education "double reduction", Internet security review and anti-monopoly, even the payment and real estate and other strong financial sectors have not been spared, coupled with the emergence of the new crown variant Omicron in the fourth quarter, further dragging down the overall performance.
Despite the same impact on mainland regulations, A-shares have significantly performed stronger, with the AH premium rate rising to a new high of nearly 150%. According to WIND statistics, as of the close of trading on December 31, the Hang Seng Index fell by more than 14% for the whole year, and the Hang Seng Technology Index, known as the "Hong Kong Banna Index", fell by more than 30%, showing a clear deviation from the global thriving financial market.
The leader of luxury car dealers with outstanding cost performance
The continuous decline in Hong Kong stocks is both lamentable and heartwarming.
Past history tells us that when the market is at the bottom of the cycle, the value of a large number of excellent companies is often underestimated, and this is the best window for investors to enter the market. In fact, the market has released a clear signal of advance, in addition to the big banks continue to shout that the risk of being overvalued, Hong Kong stocks have also set off the sixth round of large-scale buybacks since the 2008 financial crisis. According to WIND statistics, as of December 31, 190 Companies in Hong Kong stocks have repurchased in the whole of last year, with a cumulative repurchase amount of nearly HK$38 billion.
Munger believes that the core of investing is to identify investment targets that are mispriced by the market. At the same time, according to Buffett's strategy of only playing those "sweet zone" balls, it is essentially about finding good companies to mispricing cycles.
There may not be a one-size-fits-all standard for the definition of a good company, but the underlying logic based on excellent fundamentals is presumably recognized as the most simple investment common sense. Whether it is a mature or growing industry, there will be companies with excellent fundamentals, especially the leader of the boom track is favored by funds. Among them, luxury cars as the long bull track in the car market, the birth of a lot of bull stocks, such as Yongda Automobile (3669.HK, hereinafter referred to as "Yongda") such a head luxury car dealer may be lurking such opportunities, cost-effective highlighted.
As the second largest luxury car dealer in Hong Kong after Zhongsheng Holdings, Yongda has 1/2 of zhongsheng's revenue volume, but it is more than 3 times that of the United States (based on the first half of 2021), but the current total market value is less than half of the United States.
At present, Yongda's PE (TMM) is only in its early 7x, far lower than the current average of Hong Kong luxury car dealerships, and is also in the bottom area since its listing for more than eight years.
(Source: WIND)
In this regard, the company has actually made it clear that it has joined the Hong Kong stock repurchase army since mid-September, buying and buying all the way. According to WIND statistics, as of December 17, the company has repurchased a total of 7.62 million shares, with a cumulative repurchase amount of more than HK$88.77 million, with an average price of about HK$11.6 per share, a premium of more than 11% over the current price. At the same time, the chairman of Yongda also directly increased his holdings, releasing a strong signal.
Of course, under the profound impact of the epidemic, the global supply and demand mismatch pattern is still there, the regulatory catalyzed domestic core asset logic to reshape expectations, the liquidity of Hong Kong stocks continues to shrink, and the voices questioning market failures have also risen. Obviously, Yongda's continuous convergence of valuations and continuous record highs and better than expected performance may be strong proof.
The automobile market "differentiates", Yongda "accelerates"
Behind the gradual recovery of the domestic auto market in 2021, the differentiation is no less than that of the financial market: on the one hand, passenger cars began to rise, ending the negative growth of nearly three years; on the other hand, commercial vehicles began to decline after a strong outbreak in 2020; behind the power of passenger cars, mainly due to the strong new energy vehicles and strong demand for luxury car exchange.
(Source: CAAM)
At the starting point of the new post-epidemic order, with the continuous differentiation of the track, some of the enterprises in the industrial chain are "driving backwards" and some are "accelerating", And Yongda is obviously the latter, and its performance in the first half of 2021 is obvious to all:
Total revenue in the first half of the year was 41.1 billion yuan, up 46% year-on-year; net profit attributable to the mother was 1.2 billion yuan, up 121% year-on-year; gross profit margin increased by 1.1 percentage points year-on-year to 10.8%; ROE increased by 4.53 percentage points year-on-year to 9.64%. In addition, Yongda's core financial indicators such as inventory turnover efficiency and asset-liability ratio have also been further improved and optimized.
Based on the business perspective, it can be boiled down to: the basic plate of new cars and after-sales is solid, the outbreak of new energy vehicles, and the continuation of second-hand cars.
Although the passenger car market was generally in a weak recovery pattern last year, and affected by factors such as lack of cores and raw material price increases, delivery and profitability were under pressure, of which even the "German Three Musketeers" (Mercedes-Benz, BMW, Audi) in China in the third quarter had a significant decline in sales (-36%/12.2%/31.1%), Lexus was no exception, but Yongda's sales growth rate is still significantly outperforming the industry, and profitability is still stable and rising, which shows the inherent resilience of leading enterprises. At the same time, it also means that Yongda's performance growth rate last year will reach a high point. According to WIND's unanimous expectations, the net for the whole year of 2021 will reach 2.5 billion yuan, and the corresponding PE will further drop to 6.56x.
In addition, the "lack of core shortage" has gradually eased since October (as shown in the above chart: monthly luxury car sales and growth rate change chart), due to the consumption upgrade trend does not change, the future growth is still expected. In addition, considering that there will also be a round of inventory replenishment cycle that lasts until June next year, it is expected to achieve a volume-price increase, which will determine the basis for next year's growth rate.
In addition to the certainty of short-term performance, Yongda's successful divestiture of the financial leasing business was also recently completed, and the landing of this historic burden, Yongda achieved "light loading", which not only achieved a significant improvement in the structure of assets and liabilities, but also received about 447 million yuan of capital supplements, providing ammunition for further expanding the network layout. In addition, the operating risk is reduced with the divestiture of this business, and the factors that suppressed valuation in the early stage should also be eliminated.
Under the new rules of the automobile industry, Yongda has both α and β attributes
Investment is essentially a prediction of the future, whether it is valuation improvement or performance growth, in the final analysis, it is inseparable from growth.
At present, the auto industry game rules are gradually being rewritten, since the domestic car market peaked in 2017, since 2018, the red line of foreign equity in the field of special cars and new energy vehicles is not more than 50% has been broken, 2020 is a commercial vehicle, next year will be the turn of the most core passenger car field, which means that the arrival of the era of china's automobile industry fully open to the outside world. For dealers, in the face of new rules of the game and competitive environment, transformation and upgrading are imminent.
At the same time, the domestic automobile industry is also facing new opportunities, the most typical of which are two major fronts:
First, in 2020, the "double carbon" strategy was first mentioned, new energy became the main channel for long-term development in the future, and last year it also stood on the C position of the financial market, and new energy vehicles, as an important branch, ushered in explosive growth in the past two years and became one of the strongest main lines driving the car market. It is estimated that the penetration rate of new energy will increase rapidly from 5.4% in 2020 to 12.6% in 2021, and may further rise to more than 18% next year.
Second, the second-hand car market is entering a new stage, especially in early April 2020 announced that the vat on the disposal/sale of used cars by used car dealerships was reduced from 2% to 0.5%, and the 1.5 percentage point reduction is of considerable significance for dealers engaged in the used car business, especially dealers with large customers. In fact, through the 2020 annual report, it can be found that many mainstream dealers have regarded used cars as the strategic focus of the next stage, such as Zhongsheng and Yongda.
As part of the automobile after-sales service industry, the second-hand car business has vigorously regulated and promoted the development of this area, which also indicates that since the domestic automobile market peaked in 2017, the industrial center has shifted and the back-end market is ushering in a rapid release.
Yongda has an active layout on these two fronts: on the one hand, using the advantages of luxury car dealers to continue to vigorously develop second-hand cars and strengthen the transformation from brokerage to a distribution model with higher gross profit; on the other hand, it has established different models of cooperative relations with new energy vehicle companies such as Tesla, Xiaopeng and Huawei AITO, and at the same time, cooperation and communication with other new energy vehicle brands at home and abroad are also steadily carried out. In the future, it is expected to fully enjoy the dividends of the rapid growth of these two markets, which is where the β lies.
Under the new game rules and competition system, dealers' transformation and upgrading focus on: the optimization of brand portfolio, the improvement of management and operational efficiency, and network expansion.
First of all, in the current model dominated by 4S stores, the ultimate evolution direction of dealers is to advance towards the luxury brand position with a more lucrative margin, and all dealers who operate well such as Zhongsheng and Yongda are mainly luxury brands. Entry-level car companies with low profit margins and some ordinary car companies may be played alive by the traditional sales network mainly based on 4S stores that they have personally woven, and the traditional channel rules not only bind dealers, but also restrict the car companies themselves.
Yongda is the largest distributor of BMW and Porsche in China, and since 2020, it has focused on four major luxury brands (Porsche, Mercedes-Benz, BMW and Lexus), with a solid customer base. Under the current support of the consumption upgrade demand led by increase and exchange, the luxury car market can continue to be expected, and there is a solid basic disk. In the long run, there is still a lot of room for improvement in the penetration rate of luxury cars in China, and the scale of the aftermarket is also expected to continue to grow with the increase in car ownership.
Secondly, actively expanding outlets is also the key to dealers to become bigger, in the current model led by car companies, dealers are difficult to do deep and fine, rely on quality to win, can only quickly increase the whip, continue to expand horizontally, rely on the volume to win. The anti-risk ability of this extensive layout model is particularly fragile, in 2016, the huge group's national outlets exceeded 1,000, and from 2017 to 2018, the industry took a sharp turn for the worse, and the cash flow was tight and huge, and it was immediately defeated.
In contrast, luxury car dealers such as Zhongsheng and Yongda have taken steps forward steadily and achieved a good balance of "scale" and "quality". This is most intuitively reflected in:
On the one hand, the level of financial leverage has continued to decline; the total gearing ratio has dropped from 78.7% in 2011 to 60.2% at the end of the first half of 2021. In addition, the financial leasing business has been successfully divested recently, and the asset-liability structure has been further improved.
The other side is the optimization of the sales network, not blindly expanding, but through self-built/acquisition of high-quality assets, while closing inefficient outlets, to achieve the optimization of channel structure, improve the overall operating efficiency. By the end of the first half of last year, the number of authorized outlets opened by the company reached 207, covering more than half of China's provinces and regions, mainly distributed in economically developed cities.
Although the pace of expansion is not as rapid as that of Zhongsheng and Meidong, Yongda's operating efficiency has continued to improve, and the ROE has continued to rise, more than 16% in the past two years, which is close to the level of Zhongsheng. According to the interim report, the company's ROE reached 9.64% in the first half of 2021, up 4.53 percentage points year-on-year. With the arrival of the peak automobile sales season in the second half of the year, the company's profitability is expected to break through the bottleneck in recent years. In addition, benefiting from the release of strong post-epidemic exchange demand, destocking has accelerated, and core financial indicators such as inventory turnover and operating cash flow have also improved significantly.
Under the continuous optimization of the strategy of brand portfolio, outlets and management, Yongda is expected to continue to grow "upward", which is its α. In summary, the fundamentals are "up", but the valuation of "down" Yongda needs to be repaired urgently, considering the certainty of the 2021 annual results, the future may come out of the "Davis double-click" market.
When will biases be reversed? We don't know that. The market will go wrong, but not a few times a year, and really good companies will have very little time to make mistakes, which require patience and cherishing. Graham has also said that stocks are generally undervalued for no more than three years. The market will correct mistakes, and if there is no correction for more than three years, it may be that investors are wrong.