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　　机构：交银国际

　　FY17 results beat. Zhongsheng announced FY17 net profit surged 80.1% YoY to RMB3,350m and beat market consensus by 10-15%. Revenue rose 20.5% YoY to RMB86,290m. The strong results were mainly due to strong new car sales volume growth and margin improvement. For new car sales, volume increased 13.5% YoY to 341,319 units in FY17, with margin improving to 4.0% from 3.3% in FY16. MercedesBenz made up 30.6% of new car sales revenue.  

　　Robust after-sales service and value-added service growth. Revenue from aftersales services rose 26.9% YoY to RMB1,594m, thanks to the solid growth in new car sales volume in recent years. Gross margin of after-sales services remained largely flat at 48.9% in FY17. Revenue from value-added services jumped 39.4% YoY to RMB1,789m driven by auto financing and other premium service demand.  

　　Focus on luxury brand store expansion. We expect Zhongsheng to continue to post decent earnings growth on the back of luxury-brand dealer store expansion in tier1/2 cities to fuel its growth in new car sales volume and after-sales services. The higher user stickiness of 4S store services in tier-1/2 cities is expected to help drive the growth of after-sales services revenue in FY18. Meanwhile, we expect the company to open more BMW dealerships in FY18 to capture the strong model cycle of the brand in coming years.  

　　 Mercedes-Benz model cycle at the peak; maintain Neutral call. Zhongsheng delivered strong FY17 results, in our view, with both new car revenue and after-sales service revenue up 20% YoY, and margins improving YoY. However, we believe Mercedes-Benz’s model cycle is at the peak. We suggest investors switch to BMW dealers given the BMW cycle is still at the early stage. We maintain our Neutral rating and lift our TP from HK$18.00 to HK$22.00 based on 17.0%/21.3% upward earnings revisions for FY18/19E on margin improvement. Our TP is based on 11x FY18E P/E , on par with 5-year historical average. 

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