YUTONG BUS(600066)：FALLING SALES VOLUME WEIGHS ON 2Q22 RESULTS;WATCH REBOUND IN PEAK SEASON DEMAND AT END-2022

　　Yutong Bus preannounces 1H22 results

    　　Yutong Bus preannounced its 1H22 results: Attributable net loss may reach Rmb52-78mn, and recurring net loss may reach Rmb320-400mn. Its 2Q22 attributable net profit may drop 75-85% YoY to Rmb37.65-63.65mn, and recurring net profit may be in the range of -Rmb76.09mn and +Rmb3.91mn. The 1H22 preannouncement is in line with our expectations.

    　　Trends to watch

    　　Weak demand in 2Q22; watch HoH improvement in 2H22. Sales volume at Yutong Bus dropped 51% YoY (+34% QoQ) to 6,622 units in 2Q22. Specifically, sales volume of large and medium buses at the firm declined 54.0% YoY (+23% QoQ) to 5,000 units. In 1H22, due to COVID-19 resurgence, city bus passenger traffic, short- and medium-haul traffic, and tourism traffic all declined. Demand for buses was weak, and the company's sales declined significantly YoY. Looking ahead, we see uncertainties in timing and extent of sector demand recovery, and suggest watching the recovery in public travel demand. We think the approximate Rmb50,000 decline in per-vehicle subsidy after 2022 will encourage bus procurement in 2022. We expect 2H22 sales volume to improve HoH.

    　　Frontrunner in adopting smart technologies and ample orders in hand; timing of project implementation and revenue recognition yet to be determined. In terms of smart technologies, the company proactively invests in the research, development, and application of key technologies such as autonomous driving and Internet of Vehicles (IoV). In 2021, the company's Robo-bus was launched in Zhengzhou, Guangzhou, Nanjing, Changsha, etc., to demonstrate operations, covering scenarios such as city bus, scenic park commuting, and airport ferrying. The company's pioneering technology and the results of the demonstration project lead the sector. We expect the company to expand the scope of intelligent project cooperation further. However, project implementation and revenue recognition may still be in progress due to COVID-19 resurgence and tightening of local government budgets.

    　　Developing overseas markets and high-end products to enhance earnings. In our opinion, as numerous countries have launched policies to promote carbon neutrality and new energy transition, overseas demand growth for new-energy buses will accelerate. Thanks to the development of the domestic new energy business in recent years, the company has more mature new-energy products and richer operating experience. We believe the company will seize opportunities to expand its overseas business as overseas demand for buses recovers and the penetration rate of new energy buses rises. In addition, the company attaches importance to developing high-end products. In 2021, the company upgraded and optimized the functions of its T7 products and completed the overseas expansion plan of high-end U series bus products. We expect the sales growth of products with high per-transaction value in overseas markets and the development of high-end products to boost profitability.

    　　Financials and valuation

    　　Given uncertainties in sector demand in 2022, we cut our 2022 net profit forecast 24% to Rmb678mn. We maintain our 2023 earnings forecast unchanged. The stock is trading at 27x 2022e and 12x 2023e P/E. Given the firm’s solid cash flow and high cash dividend, we maintain an OUTPERFORM rating and our target price at Rmb10, implying 33x 2022e and 15x 2023e P/E with 23% upside.

    　　Risks

    　　Weaker-than-expected recovery of bus procurement; slower-than-expected implementation of smart bus projects; impact of COVID-19 on delivery.