Traditional car dealers usher in a turning point
We think the car dealer industry is currently in the bottom of the cycle, some dealers are subject to periodic distribution influence brand lead performance differentiation is more obvious, but overall the first half of the year has been improved to some extent, such as car sales and customer service was the recovery of gross margin. With the overall recovery in the first half of the industry dealers, dealer business gradually diversified, plus last year sales income and the low base in the second half of 2016, the industry is expected to usher in a turning point, the future growth of high elasticity.
Greater elasticity of earnings growth
The first half of the performance of the two companies is relatively flat, the second half of the performance will be improved, the second half is an ideal buying opportunity. 1) harmony car, the first half of the new car sales and customer service business gross margin increased, and the recovery of the industry trend, but BMW and Lexus product line in a weak period interrupted by the earthquake can cause the car sales lower than expected. Is expected in the second half of BMW new products and Lexus restoration of supply, sales are expected to recover, Martha Lahti will also launch a luxury car company as the first SUV models, the dealer is expected to benefit. 2) zhengtongauto, first half net profit fell, is the most influential factor in the first half of the start-up costs increase, but the cost is expected in the first half belong to the stage, the second half of 2016 and 2017, the company's sales and administrative expenses rate back to normal levels, high profit growth elasticity.
Medium and long term benefit BMW product cycle
Harmonious automobile and auto distribution are the BMW brand, BMW products are expected in the future will lead to lower the rising period of BMW dealers profit growth. BMW is expected in 2016 2017 ushered in new year, recovery, the luxury car market is expected to change the pattern of a thriving benz. This year's new X1 BMW listed next year, 1 series and 5 series of listed, is expected to start in the second half of two companies to benefit from the BMW product line up cycle.
Harmonious automobile and auto current valuation were 7.9x and 6.1xFY17EP/E, were lower than the historical average valuation valuation. To maintain the two companies buy rating, target price of HK $5.5 and HK $3.5 respectively.