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  • Written by EQS Asia Business News

EQS-News / 12/06/2020 / 10:52 UTC+8

Goldman Sachs raised MeiDong Auto (1268.HK) target price to HK$26.60 at Buy

 

Goldman Sachs raised China MeiDong Auto Holdings Limited (1268.HK) 12-months target price from HK$13.10 to HK$26.60 at Buy, representing an upside of 54.3% from the closing price of HK$17.24 as at 10th June 2020.

 

Goldman Sachshighlights Meidong as "one of its kind", as it is theonly scaled luxury dealership network that focuses on lower-tier cities, thus creating a set of return opportunities that is otherwise rare. Riding on its single-city-single-store strategy, Goldman Sachs believes Meidong will also enjoy a strong bargaining position with multinational car manufactures they served, i.e. Lexus, Porsche, BMW, and Toyota, as there is no clear alternative to Meidong in terms of capability.

 

On macroenvironment, Goldman Sachs suggests luxury adoption has actually accelerated under COVID-19, with greater purchasing power allocated to private car ownership combined with easing consumer credit. With a forecasted Rmb 1.9 trillion in cumulative luxury dealership profitability between 2020 and 2030, Goldman Sachs estimates 50% of those will be coming from lower-tier cities, where Meidong is expected to scale its business in the next 10 years.

 

Given Meidong's 2019 sales was only 2% of BMW, 4% of Lexus, 5% of Porsche, and 1% of Toyota total sales, Goldman Sachs believes it still has a minuscule market share relative to its long-term potential. Supported by the proliferation of acquisition opportunities and its strategic greenfield plans, it is believed that Meidong will structurally raise its market share to reach 111 stores by 2025, 147 by 2030, from 58 stores in 2019.

 

To reflect the strengthening market demand, accelerated network buildout, and share dilution impact from recent equity offering, Goldman Sachs raised its EPS forecast in 2021-2023E by 10-32%. The latest target price of HK$26.60 represents a 20x P/E based on 2023E EPS to capture its long-term growth, which is then discount back to 12-month forward at 12% cost of equity.

File: Goldman Sachs raised MeiDong Auto (1268.HK) target price to HK$26.60 at Buy

12/06/2020 Dissemination of a Financial Press Release, transmitted by EQS Group.The issuer is solely responsible for the content of this announcement.Media archive at www.todayir.com

Authors: EQS Asia Business News

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