GAC Group announced its FY20 full-year results. Top-line rose by 6%YoY to RMB63.2bn. NP fell 10%YoY to RMB6.0bn (vs CMBI estimate RMB5.8bn). The Company declared a total dividend of RMB0.18 per share, representing a 31% payout ratio. We cut our TP to HK$11.1 (based on 12.0x 2021E P/E) with an upside of 62.8% from the initial TP HK$12.1 (based on initial 15.0x 2021E P/E). Reiterate BUY.
- Core loss (excluding investment income/other income) has narrowed in 2020 and is expected to improve in 2021E. Even though GAC Trumpchi's sales volume was down 14% in 2020, the sales structure was improved significantly. Specifically, the sales volume of MPV with higher ASP was up 25% YoY. As a result, improvement in sales mix leads to ASP rising to RMB107K in 2020 from RMB97K in 2019. In addition, the revenue of GAC Aion recorded a 50% growth rate driven by sales volume growth of 43%. At the same time, through cost reduction and efficiency improvement measures (sales expense control and one-time provision normalize in 2020), the Company's SG&A ratio declined by 1.8ppt YoY. Therefore, core loss narrowed by 8% to RMB5.5bn. In 2021, Trumpchi will launch several new models, including empow55, GS8, GM6, GS4, GA4, etc. We believe the overall profitability is expected to be improved given the position sales forecast.
- GAC Aion keeps attracting the attention of the capital market. On 29 Mar, 2021, GAC Aion has rolled out its fourth model, namely compact SUV Aion Y with a price starting from RMB106K. Aion Y will be the first BEV to be equipped with GAC’s magazine batteries. We also believe Aion Y has made a breakthrough in a marketing perspective, targeting young customers through a new brand image. We expect the deepening of sales channels to supermarkets/shopping malls will continue to promote brand recognition. The sales increase of Aion Y will further improve GAC’s GPM and provide a re-rating opportunity in the capital market.
- Two Japanese brands are expected to maintain high growth. In 2020, GAC Honda sold 806K units with a growth of 2.7% YoY while achieved revenue of RMB118bn with growth of 12.0%YoY. GAC Toyota sold 765K units, up 12.2%YoY while revenue was RMB111bn, up 13.0%YoY. We expect two Japanese brands to continue to enjoy a high growth period, thanks to strong product, marketing, and brand awareness. GAC Honda’s fourth plant is expected to put into production in Jul 2021, achieving 800K units capacity. GAC Toyota’s fourth plant is also under construction. Capacity expansion will support the high sales growth of two JVs and contribute investment income to GAC Group.
We expect performance bottom-out in 2021E. Specifically, we raised our earnings forecast by 10% to RMB8.0bn in 2021E, representing 34% YoY growth. At the same time, we expect 1) GAC Aion sales volume to continue to climb which will bring more capital market attention. 2) GAC Tech Day will be held on 9 Apr 2021 with a number of cutting-edge technologies such as silicon-based cathode battery, super-charge battery technology, and ADIGO 4.0 intelligent drive ecosystem, etc. We cut our TP to HK$11.1 (based on 12.0x 2021E P/E) with an upside of 62.8% from the initial TP HK$12.1 (based on initial 15.0x 2021E P/E). Reiterate BUY.
