[ET Net News Agency, 19 December 2019] Goldman Sachs raised its target price for
Guangzhou Automobile Group (GAC)(02238) to HK$11.1 from HK$9.8 and maintained its "buy"
rating.
The research house said the market structure of Chinese auto consumption is changing. It
estimated new car buyers were 2/3 of industry sales in the past five years, while
replacement demand will be 2/3 in the next five years. Experienced customers value brands
with the high resale price plus competitive fuel-economy, which benefits GAC Toyota and
GAC Honda at the expense of sub-scaled manufacturers who compete via discounts and looks.
Goldman expects GAC's earnings misses in 1Q-4Q 2019 will turn into earnings beats in the
forward reporting periods. It expects GAC's collective new launches to not only transform
GAC's sales in the forward quarters but also convert volume to earnings. (KL)