Expect profit growth in FY26-27 following 2H25 new-car GPM recovery, new HIMA stores

Expect profit growth in FY26-27 following 2H25new-car GPMrecovery, new HIMA stores Target PriceHK$2.20(Previous TPHK$2.80)Up/Downside57.1%Current PriceHK$1.40 Maintain BUY.Despite continued industry headwinds, Meidong has maintainedhealthy cash flow and balance sheet, which could help it survive longer.Its 2H25new-car GPM recovered faster than its peers and our prior expectation. Thatgives us more confidence initsnew-car GPM lift in FY26E, especially as foreignluxury carmakers are now more realistic about sales volume and pricing.Meidong has alsostarted EV brand dealership todiversify itsbusiness. Webelieve its outstanding operational efficiency could help it catch up. We alsobelieve that most car brands still need dealers in the long term. China Auto Ji SHI, CFA(852) 3761 8728shiji@cmbi.com.hk 2H25 earnings slight beat on new-car GPM.Meidong’s 2H25 revenue fell14% YoY, or 6% lower than our prior forecast, largely due to lower-than-expected selling prices and auto finance commissions.GPM in 2H25 roseby 2.1ppts HoH to 6.8%, or about 2.3ppts higher than our forecast, as new-car GPM improved by 9.8ppts HoH to-1.0%. SG&A and finance costs werelargely in line with our estimates, which resulted in a net profit of RMB60mnin 2H25, or about RMB80mn higher than our prior forecast. Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk Austin Liang(852) 3900 0856austinliang@cmbi.com.hk FY26E outlook.Despite lingering uncertainties, we expect dealers’ new-car GPM to improve slightly YoY in FY26E following most foreign luxurymarques’more realistic targets on sales volume and pricing.Suchimprovementcould be more apparent for Meidong, as its new-car GPM(excl. auto finance and insurance commissions)gained the most HoHamong peers with its operational efforts. We projectitsnew-car GPM towiden by 2ppts YoY to-3.8% in FY26E, which could leadto a flat gross profitin FY26E, despite a 9% YoY decline in revenue, based on our estimates.Accordingly,we project a net profit of RMB146mn,aided by loweramortization and finance costs. Stock Data FY27E outlook.We expect new HIMA stores to halt revenue declineinFY27E. We also expect new-car GPM to improve slightly YoY to-2.1% amidHIMA’s contribution and fewer stores nationwide for Porsche, BMW andLexus. We project overall GPM to rise by 1.2ppts to 7.5% and net margin towiden by 1ppt to 1.8%, or a net profit of RMB328mn in FY27E. Valuation/Key risks.We maintain a BUY rating but trim our target pricefrom HK$2.80 to HK$2.20, still based on 8x our revised FY27E P/E.Keyrisks to our rating and target price include lower sales and/or margins thanwe expect,as well as a sector de-rating. Source: FactSet Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) allof the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this researchreport within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potentialreturn of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark overnext 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 monthsCMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB InternationalCapital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, fin