UBS: Maintains "sell" rating on ZHONGSHENG HLDG (00881) with target price raised to 9.4 Hong Kong dollars.

UBS released a research report saying it maintains a "sell" rating on ZHONGSHENG HLDG (00881) and expects the stock price to rise by about 40% or increase market value by 12 billion yuan after the announcement of the relevant strategy. It believes that the market has overvalued the AITO stores, and it has raised the target price for Zhongsheng from 8.2 Hong Kong dollars to 9.4 Hong Kong dollars. The report states that Zhongsheng signed a strategic cooperation agreement with Chongqing Sokon Industry Group Stock (601127.SH) to operate Huawei AITO specialty stores under an authorized distribution model, which is expected to start operation in January next year. Management indicated that the commission rate for AITO cars is 4.5%, and the company will also provide related after-sales, automotive finance, and insurance services. The bank points out that even with the contribution of AITO stores, it does not expect a significant rebound in Zhongsheng's profitability. This is due to the fact that the retail discounts of the three major German carmakers Audi, BMW, and Mercedes-Benz reached historic highs last month, reducing the attractiveness of traditional high-end brands in China. Additionally, the competition from Chinese brands and the aging of Mercedes-Benz and Lexus models are affecting the company. Furthermore, the long-term impact of new energy vehicles on the Chinese automotive aftermarket is affecting dealers and independent service providers, mainly due to the decrease in mileage of internal combustion engine vehicles. The bank expects Zhongsheng's after-sales service revenue to grow in the single digits this year and beyond.