KEY HIGHLIGHT: On 23 Aug 2019, Grand Baoxin announced its 2019 interim results. In 1H19, its revenue achieved RMB17.3bn in 1H19, an increase of 2.16% YoY. Profit attributable to the equity holders of company was RMB3,363mn, a decline of 11.70%. EPS was RMB0.11 which is in line with the market estimate.
- In 1H19, all three business segments achieved positive growth. Specifically, revenue from sales of motor vehicles increased by 1.3% YoY to RMB15,038mn, representing 86.68% of total revenue. Revenue from after-sales services increased by 8.15% YoY to RMB2,289mn, representing 13.19% of total revenue. Revenue from finance leasing services increased by 2.50% YoY to RMB21mn, representing 0.12% of total revenue.
- In 1H19, gross profit from sales of motor vehicles decreased by 0.47% YoY to RMB297mn, representing 22% of total gross profit. Gross profit from after-sales services increased by 4.59% YoY to RMB1,042mn, representing 77% of total gross profit. Gross profit from finance leasing services increased by 1.49% YoY to RMB21mn, representing 1% of total revenue.
- Income tax hike deteriorates the bottom line profit. Given a well-diversified brand mixture and value-added service growth, the EBT in 1H19 grew by 6.87% to RMB531mn. However, the comprehensive income tax rate increased from 27.12% in 1H18 to 40.00% in 1H19, which led to a drop of 12.03% in bottom line. Management team states that the income tax rate will likely to remain at 38% to 40% range in short term.
- Jaguar & Land Rover is getting back on track. In 1H19, Jaguar & Land Rover sales dropped by 42.9%. However, the decline was consistent with the overall strategy of Jaguar & Land Rover (China). As the brand went through the painful structural adjustment, Jaguar & Land Rover is coming back on track at fast speed. In Jul, Jaguar & Land Rover sales volume achieved a 40% YoY growth rate after its strategic adjustment. Following the new generation of Range Rover Evoque, Jaguar & Land Rover will launch a new Jaguar XEL, a new generation of Land Rover Discovery, and a new Defenders between 2H19 and 1H20 which will boost the sales volume.
- Grand Baoxin is currently trading at 4.5x P/E, 25% below its peers average of 6.1x. It also trades under one standard deviation from its historical mean of 6.5x P/E.
