Citi International released a research report, downgrading Brilliance Chi (01114) to a "hold" rating, lowering the 2024 to 2025 net income forecasts to 3.5 billion and 33 billion respectively. The downgrade of Brilliance BMW's profit to 19.2 billion and 150 billion reflects lower sales volume forecasts and net margin assumptions, with the target price adjusted to 3.5 Hong Kong dollars. The current stock price of the company is significantly higher than the bank's estimated net cash per share of about 1.9 Hong Kong dollars, believing that the current valuation does not fully reflect the downside risk of Brilliance BMW's profit and the difficult-to-maintain high dividends.
The report states that the company's net income in the first half of the year dropped by 60.7% year-on-year, partly due to the negative impact of the 1.47 billion yuan dividend pre-tax. While Brilliance BMW's net income in the first half of the year fell by 27.1% year-on-year to 10.9 billion yuan (same below), lagging behind the 6.8% year-on-year decline in sales volume. However, the bank believes that Brilliance BMW's profit per vehicle of 0.033 million and 9.8% net margin are still at high levels. In addition, the bank believes that BMW China has seen a significant decline in sales volume since July due to the "price maintenance and control" strategy, which may prompt a rethinking of its sales strategy in the Chinese market.
The bank estimates that the company's current cash holdings may be reduced to 8 to 9 billion yuan. For Brilliance BMW, after three consecutive years of substantial dividends (totaling 3.9 billion euros), its cash holdings are estimated to have fallen to around 2.5 billion euros; considering the downside risk in Brilliance BMW's profit capabilities and the capital expenditures needed to sustain until the production of the next generation NK platform models in 2026, the bank believes that Brilliance BMW will find it difficult to continue the high dividends it had previously.