It took two years to fall from a high of HK$47 to HK$3.6, and last Friday a long white candlestick tried to reverse the trend, did the bearish luxury car dealer brand Meidong Auto (01268) stabilize?
In fact, in the past two years, the competition of new energy brands has been fierce, and traditional car companies have actively launched high-end brands to maintain their competitiveness, while high-end brands such as NIO, Li and Zeekr have continued to eat up the market share of traditional luxury cars, while luxury car dealers have made significant discounts at the expense of profits in order to digest inventory. Since 2022, the industry's operating environment has deteriorated, revenue growth has slowed down, and profits have declined sharply, which has also led to changes in investment logic.
It is worth noting that due to the shaking of the domestic position of traditional luxury brands, some brands have begun to reduce domestic supply, such as Porsche, which has been cutting supply to the Chinese market since June, which has a greater impact on dealers who own the brand. The main core brands of Meidong Auto include BMW, Lexus and Porsche, and its revenue is relatively resilient, but its earnings fluctuate much more than its peers, falling by nearly 90% from a high level, much higher than its peers.
In the face of fierce competition, how should Meidong Auto break the game?
Affected by high-end new energy vehicles, traditional luxury car brands are differentiated
Zhitong Financial APP has learned that traditional luxury brands are facing severe challenges, and the rise of high-end new energy brands has made most luxury brand cars feel "threatened", and there will be obvious differentiation in 2023. In the first three quarters, BBA (Mercedes-Benz, BMW, Audi) was relatively resilient, but sales growth was only in the single digits, while luxury brands such as Lexus, Porsche, Lincoln and Infiniti all saw double-digit declines.
Mercedes-Benz, BMW and Audi sold 598,000 units, 589,000 units and 510,000 units in the first three quarters, an increase of 2.49%, 3.24% and 5.06% year-on-year respectively, with a total sales volume of 1.697 million units, contributing more than 70% to luxury car brands. Luxury and imported brands as a whole are still severe, according to the Federation of Passenger Cars, the inventory warning is 56.6%, higher than the warning line.
High-end new energy brands continue to penetrate in the price band of luxury brands, forcing a wave of price cuts, and mainstream models under the promotion policy have dropped to the range of 200,000-300,000 yuan, driving the rebound growth of some luxury brands. On the other hand, the price of mainstream models has moved upward, and the sales volume of 400,000-450,000 domestic new power brands has increased by more than 60% year-on-year.
In fact, luxury brands are also actively wrestling with domestic brands through new energy, especially BBA, and the sales of new energy models maintain a double-digit growth rate, but due to the lack of product power, they are far inferior to domestic high-end brands in terms of three-electric system, vehicle machine and intelligence, so they are called "miscellaneous" cars by the market. Although criticized by the market, luxury cars have actively changed their strategies, such as through partnerships, such as the partnership between Audi and Zhiji.
As the industry competition enters the deep water area, the differentiation trend of luxury car brands will be more obvious, and the consumer groups with higher prices are already niche and face the risk of customer loss, which is expected to continue to decline, while brands that are actively transforming, such as BBA, have a high probability of reversing the trend and driving the penetration rate of luxury brands. And this pricing pressure is lost to luxury car dealers, and the industry is hardly optimistic.
Guaranteed income does not guarantee profits, and the profit of the eastern United States continues to decline
Meidong Auto is a small luxury car dealer in Hong Kong (compared to Zhongsheng and Yongda), but there are not many brands it distributes, including luxury brands such as BMW, Lexus, Porsche, and Audi, in addition to mid-range brands such as Toyota and Hyundai, of which BMW, Porsche and Lexus are the three core brands, with the total revenue accounting for more than 80% of passenger car revenue in previous years and 89.3% in the first half of 2023.
As of June this year, the company had a total of 77 4S stores, of which 27 were BMW, 16 Porsche and 20 Lexus, accounting for 81.8% of the total. In terms of store strategy, the company adheres to the single-city, single-store model, maintains the stability of the three core brand stores through mergers and acquisitions and new construction, successively closes mid-range brand stores, and actively integrates into the current new energy trend to open a new Tesla after-sales service store.
Judging from past performance, before 2021, Meidong Automobile's single-city single-store model has always been the reference paradigm of the industry, mainly reflected in the double increase in revenue and profit, the growth rate is much higher than the industry level, the operational efficiency is also higher than that of peers, and the inventory turnover rate is far ahead of its peers, and the gross profit margin of its luxury cars has increased by 2.7 percentage points in four years. However, after 2022, in order to maintain sales, the profit margin of luxury cars has declined significantly under the price war, and the overall gross profit margin will drop to 7.1% in the first half of 2023, and the net profit margin will only be 0.27%, and the profit margin under the preferential promotion policy in the second half of the year is not expected to be higher than that in the first half of the year, and the profit margin indicators for the whole year will be the lowest since 2013.
In addition, the company has impairment risks, mainly for spending 3.7 billion yuan in April last year to buy 7 Porsche stores, this year the Porsche brand as a whole is not easy to sell in China, if the downward trend in demand continues to next year, its store operations may be affected, resulting in a certain impairment provision. The company's Lexus industry performance is also not satisfactory, with two brand stores accounting for 36, accounting for nearly half.
As of June this year, cash plus fixed deposits exceeded 3 billion yuan, and the debt ratio was within a reasonable range, which was enough for the company to implement the "rest and recuperation" policy. Price competition accelerates the industry reshuffle, the company is facing not only peer competition, but also high-end new energy brand product substitution, next year's earnings are not expected to be very optimistic, but abundant cash on the books can ensure a stable level of dividends.
The risk point still exists, and the short-term bearish trend is difficult to reverse
This year, the sales of luxury car brands are sluggish, the market share has declined to a certain extent, and destocking is still the main job of dealers, while some brands have reduced domestic import supply, which means that luxury car brands are facing more severe challenges in the future, and the substitution effect of high-end new energy vehicles will reshape the definition of luxury cars. The domestic "luxury" new energy brand represented by the ideal is stirring the market cake of BBA and other traditional luxury cars.
For dealers, because the products are supplied through the brand, the dealers with high dependence on a single brand are very passive, and the performance is greatly affected by the brand prosperity. The dependence of the East American Automobile on the brand is relatively high, BMW, Porsche and Lexus three core brands have two boom downturns, and the sustainable growth of performance may be worried, and the promotion is bound to lead to the continued decline in profits, and the fundamentals are no longer "small and beautiful".
In fact, Meidong Automobile is also actively transforming, adjusting the brand matrix, cutting into the new energy vehicle market from the after-sales service side, first opening Tesla's after-sales service store, and then it is expected to open an independent 4S store with more new forces. From the perspective of peers, including Zhongsheng and Yongda, they are also vigorously deploying high-end new energy brands, and the new energy business will become a new growth point in performance. As mentioned above, Meidong Automobile has abundant funds in its account, which may be the key to its entry into the new energy track.
Meidong Auto's dividend payout is stable, with an average annual dividend payout ratio of more than 30%, but in the face of a continuous bearish market value, the company has not repurchased, resulting in a lack of investor confidence in holding shares. IT IS WORTH NOTING THAT ON DECEMBER 15, SHAREHOLDER FIDELITY FUNDS INCREASED ITS HOLDINGS BY 3.334 MILLION SHARES, ACCOUNTING FOR 20% OF THE TOTAL TURNOVER, RESULTING IN A SHARP RISE IN STOCK PRICES. The market is worried about the impact of the company's core brand performance and the continued weakening of earnings, and the bearish trend may be difficult to reverse in the short to medium term.