Analyst Rachel Miu of DBS maintained a Buy rating on Guangzhou Automobile Group Co (GNZUF – Research Report), with a price target of HK$4.10.
Rachel Miu has given Guangzhou Automobile Group Co a Buy rating due to a combination of factors that demonstrate the company’s growth potential and strategic positioning in the automotive industry. Key among these is the company’s aggressive sales targets for 2024, aiming for a 10% year-over-year growth with self-brand sales expected to rise by 22%. The self-brand electric vehicle (EV) unit, which includes the Trumpchi and AION brands, has shown remarkable performance, and its production optimization alongside a favorable cost environment is anticipated to enhance profitability in the fiscal year 2024. Moreover, the decision by GAC AION to venture into the Rmb200-300k price segment with its HYPER brand is likely to bolster margins over the medium term, backed by a substantial 125% increase in NEV sales in 2023.
Additionally, the collaborative efforts with Japanese JVs (joint ventures) to electrify their fleet is a critical component of Miu’s positive outlook. Despite a challenging year for the Honda and Toyota JVs with declining sales, the introduction of new EV models is expected to rejuvenate sales in 2024. For instance, GAC-Toyota’s launch of the Bozhi brand and the upcoming EV models, as well as GAC-Honda’s initiative to introduce a new electric crossover, are strategic moves to enhance the EV business. The market tends to follow the performance of these JVs, and their recovery is deemed essential for GAC’s financial health. Furthermore, the stock’s attractive valuation, trading at 2 standard deviations below the historical average P/E ratio, coupled with the strong growth potential of the NEV unit, solidifies the rationale behind the Buy recommendation.
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Guangzhou Automobile Group Co (GNZUF) Company Description:
Guangzhou Automobile Group Co. Ltd. engages in the research and development, manufacturing, sales and after-sales services of passenger vehicles, commercial vehicles, motorcycles and auto parts. The company’s business activities include the import and export of automobile-related products, automobile leasing, disassembling, and automobile credit. It also engages in the provision of logistics services, finance leasing, commercial factoring, renewable resources, insurance, insurance brokerage services, and equity investment. The company operates in five segments: Research & Development, Manufacture of Vehicles & Motorcycles, Parts & Components, Commercial Services and Financial Services. The Research & Development segment is mainly responsible for the groups general development plan of new products and new technology, as well as implementation of material R&D projects. The Manufacturer of Vehicles and Motorcycles segment products include GAC Mitsubishi ASX, Pajero, Outlander, Toyota Camry, Highlander, Yaris L, E’Z, Levin, standard motorcycles, sport bikes and scooters. The Parts and Components segment operates through its subsidiary and its controlling, investee companies and associated companies and Tong Fang Logistics in the upstream and downstream of the automobile industrial chain. The Parts and components segment includes engines, gearboxes, car seats, HVAC systems, auto lamps, automation accessories, redirectors, shock absorbers and accessories. The Financial segment provides financial investment, insurance, insurance broker, financial lease, automobile credit, and other related services. The company was founded on June 6, 1997 and is headquartered in Guangzhou, China.
