Goldman Sachs reaffirms a "neutral" rating on Guangzhou Automobile Group (02238) and raises the target price to 2.6 Hong Kong dollars.

Goldman Sachs released a research report stating that they are reiterating their "neutral" rating on Guangzhou Automobile Group (02238) with a target price raised from HK$2.4 to HK$2.6. Considering the performance forecast, Goldman Sachs lowered their profit forecast for Guangzhou Automobile Group last year by 70% and lowered profit forecasts for the current and next year by 2% to 5% to reflect the continuing industry competition and expected decrease in sales volume for Guangzhou Automobile Group. Goldman Sachs mentioned that Guangzhou Automobile Group announced last month that their net profit for last year is expected to be between 800 million to 1.2 billion RMB, a year-on-year decrease of 73% to 82%, significantly lower than the median estimate of 73% by the bank. This means that the net profit for the last quarter of last year is between 680 million to 1.1 billion RMB, while they had a loss of 82 million RMB in the same period of the previous fiscal year, however, this is 75% lower than the median estimate. The company explained that the main reasons for the year-on-year decrease in net profit were a 20% decrease in car sales volume, and sales subsidy expenses of 18 billion RMB under intense industry competition.