Investment Bank Research Brief
The reason is that weak demand for luxury fuel vehicles, falling financial commissions and store closures have led to slow recovery of dealer profits and a drag on after-sales business.
The reason is that weak demand for luxury fuel vehicles, falling financial commissions and store closures have led to slow recovery of dealer profits and a drag on after-sales business. Industry consolidation continues to suppress new car prices, and even leading dealers are unable to survive alone. It is not expected that earnings will recover until the integration is completed in 2027. The market is already aware of the plight of auto dealers, but Morgan Stanley believes that the timing and extent of earnings recovery may be far worse than market expectations, and the current decline in stock prices may not fully reflect the reality that the profit turning point is far away. One-sentence conclusion: China's auto dealer industry is going through a painful consolidation period, and its profitability fundamentals have not bottomed out. Morgan Stanley's comprehensive downgrade indicates that sector risks are far from being released, and investors should remain extremely cautious. Positive/negative: negative for Shengsheng Group, Yongda Automobile, and Meidong Automobile. The industry's downward cycle and earnings deterioration trend may not yet be fully priced in by the market, and there are further downside risks. Catalysts: 1) Monthly/quarterly operating data of major dealers (such as new car sales, after-sales gross profit margin); 2) Terminal prices and new car launch strategies of luxury car brands (such as BMW and Mercedes-Benz); 3) The implementation of government policies to stimulate automobile consumption.