On Monday, JPMorgan issued a downgrade for Guangzhou Automobile Group Co., Ltd. (2238:HK) (OTC: GNZUF), shifting the stock's rating from Overweight to Neutral. The firm also adjusted the price target to HK$2.20, a decrease from the previous HK$4.50. The revision reflects a more cautious outlook on the automotive sector, acknowledging intensified competition and pricing pressures, especially within the mass market segment.
The downgrade arrives amidst a challenging environment for foreign automobile brands in the market, as evidenced by the decline in Japanese brands' market share to 11.7% in the first seven months of 2024 from 14.4% and 18% in the fiscal years 2023 and 2022, respectively. JPMorgan anticipates these brands will continue to face margin pressures without a significant recovery in market share, a scenario which the firm does not currently foresee.
For Guangzhou Automobile Group specifically, the firm recognizes the company's efforts in expanding exports through localized production, enhancing their Advanced Driver Assistance Systems (ADAS) in collaboration with Huawei, and implementing cost reduction strategies. However, JPMorgan predicts that the competitive landscape is unlikely to improve in the near term, which could negatively impact the company's earnings and valuation multiple.
Reflecting these concerns, JPMorgan has reduced its earnings estimates for Guangzhou Automobile Group for the fiscal years 2024 and 2025 by 68% and 52%, respectively.
The new June 2025 price target of HK$2.20 also aligns with a revised earnings forecast. Despite the downgrade, the firm notes that Guangzhou Automobile Group's high dividend yield, which stands at approximately 12%, could help sustain the company's valuation, leading to the neutral stance on the stock.
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