[ET Net News Agency, 2 November 2018] Morgan Stanley cut its target price for Baoxin
Auto Group (01293) to HK$1.5 from HK$2.8, and maintained its "underweight" rating.
The research house said Baoxin's high new car sales exposure to BMW and JLR makes it
more vulnerable to the weakness of these two brands. Potential weakness in luxury car
demand might further erode its sales growth and profitability, and synergy with Evergrande
is still uncertain.
Morgan thinks the weakness of BMW and JLR bodes ill for Baoxin's profitability in 2H and
onwards. Although luxury car sales growth in China has outperformed overall PV sales
growth year-to-date, Morgan expects a potential slowdown in the economy to weigh on luxury
car sales in 4Q and onward, hence pressuring Baoxin's luxury car margins.
It said Baoxin is the only HK-listed auto dealer it covers that recorded a YoY earnings
decline in 1H, implying lower operating efficiency. Morgan believes this leaves it more
vulnerable to potential weakness in luxury car sales. (KL)