[MeiDong Auto 1268.HK] UOB KayHian initiated coverage with TP: HK$2.70 (08 June 2017)

UOB KayHian initiated coverage on China MeiDong Auto Holdings Limited (1268.HK) on the 7^th June with a Buy rating at Target Price of HK$2.70, representing an upside of 59.8% from the closing price of HK$1.69 as at 7^th June 2017.

UOB KayHian sees MeiDong Auto with the following highlights:

1. With a focus on unaddressed markets in small cities allows MeiDong Auto to capture and establish a monopoly in the local after-sales service. This underscores the fast turnaround of its new stores with high investment returns and strong earnings growth. MeiDong Auto's ROIC in 2010-16 was ranged from 8% - 13%, higher than peers' by 4-8%.

2. Huge potential for replicating "single-city single store" model in low-tier cities.

3. Ride on the strong product cycle of BMW, Lexus and Porsche, UOB expects gross margin for new-car sales to improve and inventory days to remain steady.

4. UOB expects that MeiDong Auto is entering an inflection point of earnings growth and cash flow improvement.