When BMW announces its Q2 financial results next week (2 August) the automotive division will post record results according to an equities analyst who spoke to just-auto.
Creative Global Investments analyst Sabine Blümel said that she expects that an 18.5% year-on-year increase in the division’s unit sales will lead to a record EBIT of EUR2.10bn, a 23% increase from the first quarter’s record EUR1.71bn.
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She cites a number of accelerating positive internal and external interdependent factors behind the result including: a sequential increase in the contribution from new models (better pricing and lower production costs), in particular from the 5-Series, and more recently from the X3; a generally better pricing environment in the global premium market; a better country-mix and cost-cutting measures.
Blümel highlights the impact of orders from China. “China has been turbo-charging BMW,” she says. “Sharply rising sales in China have been a big driver of improved mix and pricing at BMW because they provide above-average unit revenue and profit margin for premium manufacturers,” she adds.
Her analysis suggests that mainland China alone contributed a whopping EUR1.4bn or 35% to pre-tax profit in FY2010 and almost EUR1.3bn or 30% to EBIT, compared to a 12% contribution to sales.
Blümel says that China is now the largest market for the 7-Series, the 5-Series and the X6; and the second largest market for the X3, X5 and 3-Series. In 2010, 40% of 7-Series went to mainland China, 26% of 5-Series GTs and 20% of 5-Series and X6 sales. In addition, BMW reports an extraordinarily strong engine mix and high option uptake, according to Blümel.
On the costs side BMW is also seeing a lower cost structure as the benefits from the company’s modular manufacturing strategy (Baukasten/building block system) that raises component system commonality across different models continues to have a growing impact.
“The long-term goal to reduce the cost base structurally in order to achieve an 8-10% margin range on a sustainable basis remains intact,” Blümel says.
Blümel expects that BMW Auto will record sales growth of 14.8% to 1.68m units in 2011 which will bring a 62% jump in EBIT to EUR 7.06bn and a 10.6% margin. In 2012-13, BMW should be able to grow profits further, but with declining margins to 10.1% and 9.6% respectively.
“This is due to an expected worsening of external factors such as raw materials and currency,” she says.
