Goldman Sachs further raised MeiDong Auto (1268.HK) target price to HK$34.10; maintain Buy

Goldman Sachs further raised MeiDong Auto (1268.HK) target price to HK$34.10; maintain Buy

Goldman Sachs further raised China MeiDong Auto Holdings Limited (1268.HK) 12-months target price from HK$30.0 to HK$34.10 at Buy, representing an upside of 12.4% from the closing price of HK$30.35 as at 14th October 2020.

The upward revision was as a result of the strong sales recovery among its luxury brands, together with favourable product pipeline and increasing market adoption. Specifically, Goldman Sachs indicates that BMW sales volume (c. 34% of Meidong's sales volume in 2019) has accelerated from -5% yoy in1H20 to +42% yoy in Aug 2020, enjoying one of the fastest accelerations in the past months which led to strong retail pricing and light dealer inventory. It is believed that BMW's upcoming new model launches will be able to sustain the performance, further boosting Meidong's new car sales volume and margins.

On Lexus front (c. 18% of Meidong's sales volume in 2019), Goldman Sachs points out that its sales volume was up +11% yoy between Jan and Aug, outperforming the luxury market by +7% yoy and every other premium peer. Given Meidong is one of Lexus' largest distribution partners in China, it should be well-positioned to ride on the increase in adoption, while benefiting from the accelerating demand from new model Lexus LM in second half and going forward.

For Porsche (c. 8% of Meidong's sales volume in 2019), as global manufacturing resumption has resolved some of the supply bottlenecks, sales volume in China was +13% yoy in Aug. By considering the >2 months of demand backlog reported by Porsche dealers, Goldman Sachs expects the substantial pent up demand till year-end will strengthen Meidong's earnings.

To reflect the accelerating Chinese luxury auto market, Goldman Sachs hence raised its EPS forecast in 2021-2023E by 4-7%. The latest target price of HK$34.10 represents a 20x P/E based on 2023E EPS discounted back to 12-month forward, to capture its long-term growth prospect.