UOB Kay Hian
Date of Report: Friday, 29 August 2025
Zhongsheng Group Holdings Faces Earnings Pressure: Target Price Slashed Amid Auto Industry Headwinds
Overview: Zhongsheng Group Holdings Under Strain as Market Dynamics Shift
Zhongsheng Group Holdings (Stock Code: 881 HK), a leading importer and retailer of luxury and mid- to high-end automobile brands, has posted disappointing first-half 2025 financial results. The report, issued by UOB Kay Hian, maintained a SELL rating and significantly cut the target price from HK\$10.50 to HK\$7.00, reflecting a 54.1% downside from the current share price of HK\$15.25.
Key Facts and Shareholder Data
- Market Cap: HK\$36.38 billion (US\$4.66 billion)
- Shares Issued: 2,403 million
- Major Shareholder: JSH Investment Holdings Ltd. (21.05%)
- 52-week trading range: HK\$20.55 – HK\$8.17
- Recent Performance: 1-month +13.1%, 3-month +30.6%, 6-month +20.3%, 1-year +78.8%, YTD +9.2%
1H25 Financial Performance: Misses Across Core Segments
Zhongsheng’s net profit for 1H25 plummeted 36% year-on-year to Rmb1 billion, a result that was 29% below UOB Kay Hian’s estimate and 48% below consensus. The earnings miss was attributed to weak performance in after-sales revenue, after-sales gross margin, and a sharp drop in pre-owned car average selling price (ASP).
| Metric |
1H25 |
YoY Change |
HoH Change |
2025F |
| Revenue (Rmbm) |
77,322 |
-6.2% |
-9.8% |
160,341 |
| Gross Profit (Rmbm) |
4,209 |
-14.6% |
-26.7% |
10,674 |
| Gross Margin (%) |
5.4 |
-0.5ppt |
-1.3ppt |
6.7 |
| EBIT (Rmbm) |
1,905 |
-30.9% |
-34.7% |
5,664 |
| Net Profit (Rmbm) |
1,011 |
-36.0% |
-38.1% |
2,915 |
| Operating Cash Flow (Rmbm) |
5,948 |
+103.3% |
N/A |
4,136 |
| Free Cash Flow (Rmbm) |
4,208 |
+168.8% |
N/A |
2,126 |
Business Segment Breakdown
New-Car Sales
- Sales volume fell 1.7% year-on-year to 229,000 units, in line with estimates.
- Gross margin for new-car sales improved 0.8ppt year-on-year, but dipped 0.6ppt half-on-half to -2.5%, marking the third consecutive semi-annual period of negative margin.
After-Sales Services
- Revenue remained flat at Rmb14 billion, missing the expected 3% growth.
- Gross margin plunged 6.4ppt year-on-year and 4.7ppt half-on-half to 40.7%, below the full-year forecast of 45%.
Pre-owned Car Sales
- Sales volume up 9.6% to 111,000 units, missing the full-year estimate of 271,000 (+30% YoY).
- Average selling price collapsed 67% to Rmb27,000, far below the assumption of Rmb61,000.
- Price war in China’s new car market since 2024 has severely impacted the segment.
Stock Impact: Headwinds Intensify for Zhongsheng Group Holdings
Disruptive Market Forces
- Intense price competition in China’s auto industry and market share losses for internal combustion engine (ICE) vehicles to electric vehicles (EVs) are driving earnings headwinds.
- The core brands Zhongsheng sells—Toyota, Lexus, Mercedes-Benz, and BMW—are trailing in electrification, exacerbating sales declines.
- Sluggish new-car sales are expected to reduce after-sales revenue, the key profit generator for auto dealers.
EV Stores Not Immune to Price War
- Despite expanding into EV dealership stores for brands like Tesla and Aito, intense price competition has eroded profitability—even with higher sales growth.
Major Forecast Adjustments
- After-sales service revenue growth for 2025-27 cut to 0% (from 3%/2%/1%).
- After-sales service gross margin assumptions lowered to 45%/44%/43% (from 46%/45%/44%).
- Pre-owned car sales volume growth for 2025-27 slashed to 9%/6%/3% (from 20%/10%/5%).
- Pre-owned car ASP estimates for 2025-27 cut by 22-23% to Rmb48,000, Rmb43,000, and Rmb39,000 respectively.
Outlook: Earnings Revision and Valuation
- Net profit forecasts for 2025-27 cut by 31%/28%/24% to Rmb2,026 million, Rmb1,944 million, and Rmb1,895 million.
- SELL rating maintained, target price slashed to HK\$7.00, using a rolled-over 8x PE multiple (1 SD below the historic mean one-year forward PE), reflecting a more bearish outlook for 2026 EPS.
Key Financials: Multi-Year Projection
| Year |
Net Turnover (Rmbm) |
EBITDA (Rmbm) |
Operating Profit (Rmbm) |
Net Profit (Rmbm) |
EPS (fen) |
PE (x) |
Dividend Yield (%) |
Net Margin (%) |
ROE (%) |
| 2023 |
179,290 |
10,558 |
8,340 |
5,018 |
209.4 |
6.6 |
5.3 |
2.8 |
11.4 |
| 2024 |
168,124 |
8,552 |
5,675 |
3,212 |
135.1 |
10.3 |
4.5 |
1.9 |
7.0 |
| 2025F |
153,417 |
7,217 |
4,416 |
2,026 |
84.9 |
16.3 |
2.1 |
1.3 |
4.3 |
| 2026F |
142,797 |
7,007 |
4,301 |
1,944 |
81.5 |
17.0 |
2.1 |
1.4 |
4.1 |
| 2027F |
132,788 |
6,859 |
4,233 |
1,895 |
79.4 |
17.5 |
2.0 |
1.4 |
3.9 |
Balance Sheet and Key Metrics
| Year |
Total Assets (Rmbm) |
Total Debt (Rmbm) |
Shareholders’ Equity (Rmbm) |
Net Debt/Equity (%) |
Interest Cover (x) |
| 2024 |
110,171 |
48,765 |
46,829 |
30.9 |
3.6 |
| 2025F |
104,430 |
46,826 |
47,355 |
38.7 |
2.8 |
| 2026F |
104,765 |
46,053 |
48,590 |
33.2 |
2.7 |
| 2027F |
105,139 |
45,327 |
49,804 |
26.5 |
2.7 |
Profitability and Growth Trends
- EBITDA margin expected to remain below 5.2% through 2027.
- Net margin projected at 1.3%-1.4% in 2025-27, indicating continued profitability pressures.
- ROE to decline from 7.0% in 2024 to 3.9% by 2027.
- Turnover and net profit expected to decline annually through 2027.
Conclusion
Zhongsheng Group Holdings faces mounting challenges from the transition to electric vehicles, fierce price competition, and declining margins in both after-sales and pre-owned car segments. Despite attempts to diversify into EV dealerships, the company’s core business model is under threat, with major earnings and valuation downgrades now in place. Investors should be wary of ongoing headwinds as the automotive retail landscape continues to evolve in China.
About UOB Kay Hian
UOB Kay Hian is a leading Asia-based brokerage and research provider, offering in-depth coverage and analysis of regional equities. This report was produced independently by its analyst team and is distributed according to local regulatory requirements and disclaimers.
