1H22 results in line with our expectations

Jiangling Motors announced 1H22 results: Revenue fell 19.53% YoY to Rmb14.22bn; attributable net profit rose 11.64% YoY to Rmb452mn; recurring attributable net profit fell 195.25% YoY to -Rmb108mn. In 2Q22, revenue slid 27.44% YoY and 3.34% QoQ to Rmb6.99bn; attributable net profit rose 102.38% YoY and 33.21% QoQ to Rmb258mn; recurring attributable net loss increased by Rmb53mn QoQ to -Rmb81mn. The results are in line with the firm’s preannouncement and our forecasts.

Trends to watch

COVID-19 weighed on sales of commercial vehicles, whereas SUV demand was strong in both China and overseas. Jiangling Motors sold 135,957 vehicles in 1H22 (-23.24% YoY), including 34,249 light buses (-36.51% YoY), 36,995 trucks (-43.44% YoY), 35,828 pickup trucks (+5.38% YoY) and 28,885 SUVs (+21.46% YoY). Jiangling Motors launched a series of pickup trucks to meet household needs. It officially launched “Equator Sport”, a wide-body SUV, in March. This model is empowered by Tencent’s TAI4.0 intelligent infotainment system and is equipped with an intelligent driving assistance system (ACC + LKA) and intelligent lane-changing assistance system (i.e. driver confirmed lane change - DCLC). Exports of Jiangling Ford passenger vehicles rose 55% YoY to 16,260 units in 7M22. These vehicles have gained traction with Chinese and foreign consumers.

Asset disposal contributed non-recurring gains, and gross margin steadily improved. The firm’s net profit increased in 2Q22, as Jiangling Motors received Rmb396mn of gains from disposal of factory land and buildings in Qingyun, thus offsetting impacts of lower sales volume, rising raw material prices and higher chip costs. The firm’s gross margin expanded 0.21ppt YoY and 1.64ppt QoQ to 14.1% in 2Q22. Selling expense ratio slid 0.47ppt YoY to 4.9%, G&A expense ratio rose 0.18ppt YoY to 3.2%, and financial expense ratio expanded 0.26ppt YoY to -0.6% in 1H22. Overall, the firm’s expenses were relatively sound.

Jiangling Motors continued to invest in NEVs and light auto bodies. We are upbeat on its future earnings. In 2022, the firm further increased spending on new products, intelligent network connection, new energy vehicles (NEV) and light auto bodies. It continued to improve its pipeline technologies in these areas. Its R&D expense ratio expanded 0.58ppt YoY to 4.7% in 1H22. In response to policy moves, the firm launched light containers that are made of ferro-aluminum alloys, and uses light chassis for a new generation of light-duty trucks. In addition, Jiangling Motors is promoting applications of new-energy commercial vehicles by cooperating with leading logistics firms and freight shipping platforms. We are upbeat on the firm’s efforts on NEVs and light auto bodies. We think Jiangling Motors could shift from a size expansion-based development model to a value growth-based model.

Financials and valuation

We keep our 2022 and 2023 net profit forecasts. Jiangling-A is trading at 22.4x 2022e and 19.5x 2023e P/E. We maintain OUTPERFORM. We lift our target price by 18.5% to Rmb16.00 (mainly reflecting the firm’s efforts in NEVs and light auto bodies), implying 23.6x 2022e and 20.5x 2023e P/E, offering 5.3% upside.

Risks

Vehicle sales volume lower than expected; new-business cooperation disappoints.