China’s auto stocks have collectively rallied 21% so far this year, but the gains have been concentrated in the new-energy vehicle sectors, with BYD Company, Li Auto, Xpeng Motors and Leapmotor being strong, while others underperforming or falling, especially car dealers, said JPMorgan said in a note.
For the second half of the year, the bank believed that carmakers with higher profit visibility will continue to outperform, such as BYD, thanks to its leadership in the plug-in hybrid (PHEV) car segment, its fast-growing export business and better sales mix from Denza, while startups that are still struggling to break even could stagnate or even see a correction, such as Xpeng and Leapmotor.
As for other companies such as Geely Auto, Great Wall Motor and joint venture state-owned carmakers, the broker was not hopeful regarding their earnings or stock performance.
JPM downgraded Xpeng from Neutral to Underweight but raised its target price from HK$29 to HK$40. It also downgraded Yongda Auto and Zhongsheng Group Holdings from Overweight to Neutral, with target prices cut from HK$7.5 to HK$3.5, and from HK$52 to HK$28, respectively. In addition, it lowered the target prices of Great Wall Motor from HK$9 to HK$8, while raising that of Leapmotor from HK$32 to HK$38.