Bernstein raised MeiDong Auto (1268.HK) target price to HK$12.00; maintain Outperform

After hosting a series of investor meetings with the management of China MeiDong Auto Holdings Limited (1268.HK), Bernstein has since issued a report update on 10^th December, raising its target price from HK$9.00 to HK$12.00, representing an upside of 30.4% from the previous closing price of HK$9.20 on 9^th December.

The upward revision came as Bernstein believes Meidong still has a long runway for growth, supported by a combination of new store openings, organic same-store sales growth, and the compounding of the Company's aftersales installed base. Specifically, Bernstein sees the rising revenue contribution of Lexus and Porsche should drive further ARPU growth in both new car sales and aftersales service, whereas overall margins is expected to expand over time, supported by the rising revenue contribution from after-sales services and modest fixed cost leverage. Store acquisitions, despite not being included in the current assumptions, should also add to Meidong's growth over time.

Meanwhile, Bernstein also highlights Meidong's obsessive focus on asset turnover, inventory management and cash generation as a key differentiator, with its "carrot and stick" incentives and the use of "probability propagation" all propelling an efficient inventory management and a high ROE that few peers can match.

The latest target price of HK$12 is based on slightly higher earnings estimates in the coming years, and a 2021E PE multiple of 13x.