1Q22 results miss market consensus

Jiangling Motors announced 1Q22 results: Revenue fell 10.06% YoY and 25.67% QoQ to Rmb7.23bn, and attributable net profit dropped 30.11% YoY and rose 100.56% QoQ to Rmb194mn. The results missed market expectations due to a sales volume decline and higher costs for chips and raw materials.

Trends to watch

Domestic CV demand sluggish; pickup trucks and SUV businesses see solid momentum. Jiangling’s overall sales volume in 1Q22 totaled 70,157 units, decreasing 14.21% YoY. In 1Q22, the commercial vehicles (CV) business was substantially impacted by weakening demand, with sales volumes of light buses and trucks falling 32.70% and 31.79% YoY to 15,034 and 22,081 units, largely in sync with average market declines. In 1Q22, sales volume of pickup trucks rose 7.76% YoY to 19,538 units, and SUV sales volume increased 10.17% YoY to 13,504 units, exceeding average growth in the passenger vehicle (PV) market. We think the firm’s trucks and light buses businesses were dragged by market competition and the COVID-19 resurgence in China, but pickup trucks and SUV models should bolster sales growth moving forward.

External cost increases weighed on profit; internal expense control stable. In 1Q22, gross margin shrank 3.47ppt YoY and edged up 0.51ppt QoQ to 12.49%, and attributable net margin fell 0.77ppt YoY and rose 1.69ppt QoQ to 2.68%. We attribute this to higher costs for chips and raw materials, and weakened economies of scale caused by a sales volume decline. In 1Q22, selling, G&A, financial, and R&D expense ratios dropped 0.43ppt, 0.17ppt, 0.30ppt, and 0.07ppt YoY, respectively, to 4.74%, 2.99%, -0.64%, and 4.03%. We think effective expense control will help underpin resilient organic growth.

Jiangling-Ford JV accelerates expansion into PV market; new SUV models to strengthen presence in mid-range market. On March 28, Jiangling-Ford JV (51% stake held by Jiangling) rolled out its first series Equator Sport with a price range of Rmb139,800-165,800. The new models are installed with Tencent TAI 4.0 smart automotive systems and Ford Co-Pilot 360 smart driving assistance systems. We think the Equator Sport can broaden the SUV product portfolio for Jiangling and help the firm ride the boom in smart PVs and family SUVs. In the long term, we expect Jiangling’s presence in both the CV and PV markets to boost its earnings turnaround.

Financials and valuation

Given raw material cost increases, we trim our 2022 and 2023 net profit forecasts by 20.8% and 34.5% to Rmb584mn and Rmb673mn. Jiangling-A is trading at 16.1x 2022e and 14.0x 2023e P/E. We maintain OUTPERFORM and cut our target price by 20.6% to Rmb13.50 (mainly reflecting disappointing sales volume), implying 19.9x 2022e and 17.3x 2023e P/E, offering 24.0% upside.

Risks

Continued increase in raw material costs; vehicle sales volume disappoints.