UBS downgraded Chinese auto dealers, slashed target prices on falling margins

 

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UBS said in a research note that it remained pessimistic on the Chinese auto dealer sector as the premium new car margins were expected to decline in the second half of the year, primarily due to the increasing inventories and intensifying price competition, as well as the fact that Tesla and the three new-comer automakers “Nio, Xpeng, Li Auto” are taking market shares from the traditional premium car brands at a faster-than-expected pace.

Investors were advised to avoid the auto dealer sector in the current macroeconomic environment, as both the valuation and earnings of the sector were expected to drop, it said.

UBS downgraded Yongda Auto from Buy to Neutral and Zhongsheng Holdings from Buy to Sell, expecting the market to reduce the earnings forecasts for the two companies substantially in the next three months, according to the note.

The bank slashed the target price for Yongda Auto to HK$7 from HK$13 and slashed target price of Zhongsheng to HK$36 from HK$84.

Yongda Auto is trading 5.4% down at HK$6.37 as of 2:46 pm, local time. Zhongsheng is trading 5.1% down at HK$41.3.