From Losses to Expectations of Recovery: How should ZHONGSHENG HLDG (00881) 2025 Annual Report be interpreted?

Recently, ZHONGSHENG HLDG (00881) handed in an unimpressive "report card" for 2025: total revenue for the year was 164.03 billion yuan, a decrease of 2.2% year-on-year; net loss attributable to the parent company was 1.673 billion yuan, compared to a profit of 3.212 billion yuan in the same period last year, turning from profit to loss. Looking at the profit statement alone, this is a significantly pressured annual report. However, to attribute this to "the failure of the traditional distribution model" or even "a fundamental collapse" is clearly too linear of a judgment. On the second day after the release of this "loss financial report", the company's stock price rose by 8.07%; and in the week following the financial report release, some institutions continued to provide profit recovery expectations for 2026, including Citi, UBS, Jefferies, CICC, and many other brokerages maintaining or giving "buy" ratings. At least from the market reaction perspective, the differences have not ended: after the release of ZHONGSHENG HLDG's annual report, some institutions still maintained positive ratings, while others continued to remain cautious. Perhaps the debate is not about how bad Zhong Sheng's performance in 2025 was, but whether its profit center is undergoing a reevaluation that is worth considering. The first key to analysis: Loss is real, but should not be equated with "operational collapse" linearly One of the most common misconceptions in the market is to equate ZHONGSHENG HLDG's loss in 2025 with a simultaneous failure of its operational capability. However, the reality is not so straightforward. According to internal and external analysis, the profit pressure faced by ZHONGSHENG HLDG this time is compounded by at least three factors: firstly, under the price war, there is a widespread situation of new car purchase prices being lower than terminal sales prices, leading to an expansion of new car sales gross loss to 3.709 billion yuan; secondly, the tightening of automobile finance commission policies, resulting in a 38.7% year-on-year decline in commission income; thirdly, goodwill and intangible asset impairment of 2.291 billion yuan, amplifying the fluctuations in the profit statement. In other words, this loss includes both real operational constraints and concentrated clearance at the accounting level. If it is bluntly compressed into a statement like "the company is failing", that is an emotional judgment, not a rational analysis. What is truly worth noting is whether the company under profit pressure still has the ability to adjust. According to the annual report, in 2025, ZHONGSHENG HLDG's net cash flow from operating activities was 9.405 billion yuan, an increase of 5.966 billion yuan year-on-year; free cash flow was 5.931 billion yuan; total cash at the end of the year was 20.438 billion yuan, and convertible bonds and 2026 bonds have been repaid. Of course, this cannot be exaggerated as "cash covers everything," as that is not the case. However, it at least indicates that amidst the industry-wide pressure and tightening liquidity background, ZHONGSHENG HLDG still has a strong inventory management, operational capital adjustment, and financing maneuvering space. For a distributor, this ability may not immediately profit recovery, but it determines whether a company is passively pressured or still has room for active adjustment during a clearance period. The second key: Under long-termism, the focus should be on how profit centers are shifting If the new car business reflects the most ferocious competition in the industry, then the after-sales sector is the part of Zhong Sheng's annual report that should not be overlooked. In 2025, the company's after-sales service revenue was 22.911 billion yuan, an increase of 41.1% year-on-year; after-sales service gross profit was 11.05 billion yuan, an increase of 8.2%, with the gross profit growth rate exceeding the revenue growth rate. More importantly, while the number of entries for after-sales service only increased by 0.2% for the whole year, the number of entries for accident vehicle repairs increased by nearly 10%. This indicates that the improvement in the after-sales sector is not simply a matter of "more store entries," but rather relies on increasing the proportion of higher single production and higher gross profit business. For a car distributor, this is more important than saying "after-sales also increased," because it directly points to the change in the profit center. More interesting than the growth itself is the change in customer sources. According to the annual report, in 2025, non-Zhong Sheng car customers contributed to 41.9% of accident vehicle repair entries. This number indicates that Zhong Sheng's repair services are gradually moving away from the role of "ancillary services after car sales" towards a platform capability that is full brand and social. In other words, if the market still only sees Zhong Sheng with the old logic of "luxury car distributor", it may already be underestimating its value restructuring in the aftermarket. What is truly worth reassessing is not just whether it can still sell cars, but whether it is starting to have the capacity to convert a one-time car purchase relationship into a long-term, full-service lifecycle relationship. The third key: A dual positioning of luxury and new energy, not just about the number of stores, but future profit entry points Faced with the continuous increase in the penetration rate of new energy vehicles and the shrinking profit space of traditional luxury brands, what luxury dealers really need to answer is not "whether they have a new energy layout", but "whether new energy can bring new flow entry points and subsequent service relationships." From this perspective, Zhong Sheng has not been without achievements in the past year. In 2025, the company's new car sales volume was 497,000 units, an increase of 2.5% year-on-year; among them, luxury brand sales were 311,400 units, an increase of 6.2%, and the market share of luxury brand sales increased to 62.6%; the new energy brand AITO contributed 8.2%. At the same time, the company proposed to further expand its cooperation with the Huawei ecological car brand based on the AITO brand, and expand its strategic cooperation with the Geely Group, with the goal of multiplying the number of new energy stores by the end of 2026. More importantly is the direction of network adjustments. Zhong Sheng is not simply "shrinking"; it is undergoing structural rejuvenation: since the second half of 2024, the company has closed and converted 50 low-efficiency or redundant stores in the same city, while opening 104 new facilities, including 84 dealerships and 20 body spray centers, by the end of 2025 there were a total of 453 brand stores and 46 body spray centers. If the market only sees "store closures", it is easy to draw pessimistic conclusions; but looking at closures, optimization, and new openings together, a more realistic judgment is that Zhong Sheng is clearing out the old network and reallocating resources to more efficient and closer nodes to aftermarket and new energy structures. In conclusion, what valuation should the market give to Zhong Sheng? The key lies not in "whether it is cheap or not", but in "is the market underestimating it." The current market's undervaluation of Zhong Sheng has a basis in reality. The distributor industry has been under tremendous pressure in the past year: according to recent data from the China Automobile Dealers Association, 55.7% of dealers in China recorded losses in 2025, only 44.3% achieved sales targets, and 81.9% of dealers faced price inversion; in February 2026, the regulatory authorities further introduced rules to regulate the price war and misleading promotions in the automotive industry. In other words, the market's pessimism towards the automotive distributor sector is not unfounded. However, the problem lies in the fact that the current pricing in the market may have adequately reflected the pressure of the old profit model, but may not have taken into account the speed at which new profit support points are forming. The existence of seller disagreements also indicates this: optimistic institutions are still betting on improving new car gross margins in 2026, continued growth in after-sales gross margins, and expansion of new energy sales, while conservative institutions are concerned that the downward trend in financial commissions and the pressure on new car profits are not short-term phenomena. In other words, the real debate in the market is not about whether Zhong Sheng "is worth watching," but whether its recovery is slow, weak, or fundamentally unachievable. At least for now, Zhong Sheng still has three clues worth tracking: whether new car gross profits can gradually approach breakeven, whether after-sales gross profits can continue to grow faster than revenue, and whether new energy store and customer operations can truly be transformed into new service flow. If these three lines are validated, the current valuation is likely not just reflecting pessimism, but underestimating the significance of the shift in profit center. If the validation fails, the market's caution naturally has its basis. But in any case, to simply categorize ZHONGSHENG HLDG as a "sample of traditional distributors reaching their limit" is at least premature.