HSBC Global Research raised its target price for Zhongsheng Group Holdings (00881) to HK$46 from HK$38. HSBC maintained its "buy" rating as it believes that Zhongsheng is showing a high level of stabilization in earnings and strong growth in after-sales revenue, which should positively impact the shares.
The research house said Zhongsheng is HSBC's preferred pick in the dealership space, given its highest after-sales absorption rate and lowest earnings volatility. HSBC performed a sensitivity analysis on the potential slowdown in 2H luxury sales as the macroeconomy slows and if exports do not pick up. Zhongsheng showed the highest resilience in earnings.
HSBC tested the earnings sensitivity on a 5% change in new car sales or 50bps change in new car sales. Based on its sensitivity analysis, Zhongsheng should suffer the least if volume or margin deteriorates.
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