Morgan Stanley lowers the target price for mainland automobile dealers, with Zhongsheng Holdings' target price reduced to 18 yuan

Morgan Stanley published a report stating that the commission income of mainland automobile dealers has declined, but profitability is still on a recovery track. It has lowered the earnings forecasts for Zhongsheng Holdings (00881.HK), YONGDA AUTO (03669.HK), and MEIDONG AUTO (01268.HK) for 2025 to 2027 to reflect the situation where the profit margins on new cars are lower than expected after the rectification of "high interest and high commission" automotive financial products.

The report indicated that although the new car business is expected to further deteriorate in the second half of 2025, posing a downside risk to 2025 earnings, it is anticipated that the profitability of Chinese automobile dealers will bottom out in 2025 and rebound in 2026. A potential memory shortage could lead to reduced automobile production, which, if it occurs, would also benefit automobile dealers.

The firm prefers Zhongsheng, as the robust growth of after-sales services supports the recovery of profitability, lowering the target price from 21 yuan to 18 yuan, with a rating of "Overweight." The target price for YONGDA AUTO has been reduced from 2.3 yuan to 1.9 yuan, with a rating of "Market Perform." The target price for MEIDONG AUTO has been lowered from 2.1 yuan to 1.7 yuan, with a rating of "Market Perform."