Dongfeng announced its FY19 results. Revenue achieved RMB101.1bn (vs CMBIS estimate of RMB93.5bn/ vs consensus estimate of RMB96.3bn), a decrease of 3% YoY. NP was RM12.9bn (vs CMBIS estimate RMB14.5bn / vs consensus estimate of RMB13.7bn), a decrease of 1%. EPS declined by 1% to RMB1.49 while DPS remained flat as RMB0.35 in 2019. The divd yield return reached 7.6%.
- Topline beat the consensus, which mainly came from the excellent performance in the CV segment. In 2019, the revenue from the CV segment was RMB68.9bn, an increase of 39% YoY, representing 68% of total revenue. The revenue from financial business also reached RMB5.4bn, an increase of 39%YoY in 2019. However, the PV segment revenue declined by 34%YoY to RMB26.7bn given the unpromising performance of both DPCA and local brands.
- The share of profit from JVs declined by 5% YoY to RMB11.6bn, resulting in a disappointed bottom-line. Particularly, DPCA had a total impairment of RMB2.5bn while Dongfeng Renault had an impairment of RMB1.1bn. The proportional impact on DFG was RMB1.8bn in 2019, which directly dragged down the bottom-line performance.
- DPCA is the key to solve the problem. The sales volume of DPCA was 114K units in 2019, a decrease of 55%YoY. As a result, DPCA had a total loss of RMB5.96bn in 2019 compared with a loss of RMB3.69bn in 2018. in late 2019, DPCA has released a business plan(元计划) to revive Peugeot /Citroën brands through asset reorganization, personnel optimization, sales channels consolidation, etc. The Company expects the asset optimization process to be completed in 2H20E.
- We adjust up the top-line forecast in 2020E by 1% to RMB95.1bn to reflect the excellent performance of the CV segment. However, we cut our bottom-line forecast by 24% to RMB12.4bn in 2020E given the ambiguous future of DPCA. Therefore, we cut our TP to HK$5.6 (based on new 3.5x 2020E P/E) with an upside of 9.9% from initial TP HK$8.2 (based on initial 3.8x 2020E P/E). Reiterate HOLD.
