[ET Net News Agency, 2 August 2019] Daiwa Research initiated coverage on China
ZhengTong Auto Services (01728) with an "outperform" call and a target price of HK$3.3.
The research house forecast a 20% decline for Zhengtong's earnings in 1H mainly on
weak market demand, before a robust earnings recovery in 2H (+33%), led by growth in both
its after-sales business and auto finance services.
For new car sales, Daiwa expects margins to recover HoH, driven by the ramp-up of the
new 3 Series and other new model launches by BMW, which contributed 27% of sales volume in
2018. It also expects stronger revenue growth over 2020-21 (+9%, versus 6% in 2019),
backed by accelerating new store expansion and the fast-growing auto finance service, with
improving blended gross margins. (KL)