DFG released its unaudited 3Q20 results. In 3Q20, NP achieved RMB4.2bn, an increase of 22% YoY / 30% QoQ. Given the strong 3Q results, we raised our 2020E bottom-line forecast to RMB8.4bn. Therefore, we raised our TP to HK$12.0 (based on new 7.0x 2021E P/E) with an upside of 28.2% from TP HK$7.1 (based on 4.3x 2021E P/E). Reiterate BUY.
- DFG announced its Oct sales number. Accumulative sales volume from Jan to Oct fell 5.5% YoY. Among them, from Jul to Oct, CV sales increased by 34.4% YoY while PV sales increased by 5.5% YoY. We expect that CV will continue to grow in the remaining 2020E driven by strong replacement cycle and infrastructure investment. We forecast that CV sales will increase by 22% YoY in 2H20E. In terms of PV, we expect the strong demand of Dongfeng Honda and Dongfeng Nissan will support the recovery of its PV segment. We estimate PV sales will grow at 2% YoY in 2H20E.
- Nissan is expected to expand production in China by 30%. DFL, a joint venture between DFG and Nissan, has strong demand even in the trough of the overall auto market. In the past three years, the capacity utilization rate has been consistently over 100% (101% in 2017 / 104% in 2018 / 102% in 2019). Regarding Nissan Motor Co., Ltd, in FY2019, its sales fell 10.3% to 534K units in the Japanese market / fell 14.6% to 1.62mn units in the North American market / fell 19.1% to 521K units in the European market. However, its sales in China fell only 1.1% to 1.5mn units, making China the single best-performing market around the world. We expect that Nissan will continue to invest resources in China and introduce new models including Nissan Ariya in the short-term. We believe that the sales and performance of DFL will continue to improve with the expansion of production capacity.
- Market value management is gradually realized. In our last report "Market value management as a catalyst", we mentioned that the Company will take market value management measures to lift the valuation before listed on ChiNext. On 11 Nov, DFG announced that it will maintain the payout ratio of no less than 40% within three years after the issuance and listing of A-shares which attract more long-term investors such as insurance companies. We noticed that the average dividend payout ratio of DFG in 2017-2019 was 22%. In the meanwhile, DFG launched high-end brand VOYAH and announced Yuan+ plan to revive DPCA. We believe all the measures will rebuild the Company’s image among investors and lift its valuation multiple.
- We raised our bottom-line forecast to RMB8.4bn in 2020E to reflect the strong 3Q20 results and revised sales volume forecast. Our revised NP forecast suggests that DFG's bottom-line will grow 34% YoY in 4Q20E. We believe that events such as 1) the realization of market value management measures; 2) the listing on ChiNext within 2020E; and 3) the launch of the high-end brand VOYAH, will raise DFG’s valuation multiple. We raised our TP to HK$12.0 (based on new 7.0x 2021E P/E) with an upside of 28.2% from TP HK$7.1 (based on 4.3x 2021E P/E). Reiterate BUY.
