On Thursday, Morgan Stanley (NYSE:MS) maintained an Overweight rating on Zhongsheng Group Holdings (881:HK) (OTC: ZSHGY), with a steady stock price target of HK$19.00. The firm's analysis centered on the company's unchanged outlook for 2024, which includes expectations of steady year-over-year (YoY) growth in new car volumes, a significant increase in used car sales, and a substantial rise in repair and maintenance revenue.
Zhongsheng Group, which operates a network of automotive dealerships, is targeting a maintenance of new car sales at approximately 500,000 units, while aiming for a 30% YoY growth in used car volume, raising it to 213,000 units. The company expects a 10% YoY increase in repair and maintenance revenue, reaching Rmb22 billion in 2024.
The analysis by Morgan Stanley highlighted the potential for dealers of Mercedes, Lexus, and BMW (ETR:BMWG) to benefit from rebates provided by original equipment manufacturers (OEMs). For Mercedes dealers, market share concentration is anticipated to allow them to retain these rebates rather than passing them on to customers.
Lexus dealers, despite substantial retail discounts on the ES range, are believed to be compensated by generous rebates from the OEM. Meanwhile, BMW dealers are expected to see improvements in dealer cash flow as a result of recent rebates, though these are not projected to significantly influence earnings.
The company's management also noted the growth of Zhongsheng's retained customer base, which has expanded from 3.8 million at the end of 2023 to 3.9 million currently. This customer base growth is not solely reliant on new car sales; Zhongsheng also acquires after-sales customers through used car sales to retail individuals and auto insurance customers who did not purchase a new car from them.
InvestingPro Insights
As Zhongsheng Group Holdings (OTC: ZSHGY) continues to focus on expanding its automotive dealership network and after-sales services, recent metrics from InvestingPro provide additional context to Morgan Stanley's analysis.
With a market capitalization of $4.33 billion and an attractive P/E ratio of 6.41 as of the last twelve months of Q4 2023, the company presents a value investment opportunity. This is further supported by the fact that Zhongsheng is trading at a low earnings multiple, indicating potential undervaluation relative to its earnings capacity.
The company's commitment to shareholder returns is evident from its consistent dividend growth, having raised its dividend for 7 consecutive years and maintained dividend payments for 14 consecutive years. The dividend yield stands at a significant 6.69%, as of the latest data, which may appeal to income-focused investors. Moreover, the InvestingPro Tips highlight that the company's management has been aggressively buying back shares, a move that can signal confidence in the business and typically bodes well for stock price performance.
For readers looking to delve deeper into Zhongsheng's financial health and strategic positioning, InvestingPro offers a wealth of additional tips. There are 11 more tips available, which can provide insights into aspects such as gross profit margins, industry standing, and future profitability predictions. To access these insights, consider subscribing to InvestingPro, and don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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