Investment Rating - Zhongsheng Group Holdings (0881.HK): Overweight (OW) with a price target of HK$15.00, down from HK$17.00, implying a 32% upside [10][38] - Meidong Auto Holdings (1268.HK): Equal-weight (EW) with a price target of HK$2.20, up from HK$2.10, implying a 12% upside [10][38] - Yongda Automobiles Services (3669.HK): Equal-weight (EW) with a price target of HK$2.40, down from HK$2.50, implying a -2% downside [10][38] Core Insights - The new car margin for luxury internal combustion engine (ICE) brands is expected to remain negative in 2025, with dealer margins hitting historical lows in 2024 due to increased discounts [2][12] - Zhongsheng's after-sales revenue grew by 9% year-on-year in 2024, outperforming Yongda, which saw stagnant growth [3][19] - The opening of Huawei and Xiaomi stores is anticipated to contribute significantly to earnings growth in 2025, with Zhongsheng expected to see a 9% increase and Yongda a 70% increase in incremental earnings [4][25] Summary by Sections New Car Margin - The new car margin for dealers reached a historical low in 2024, with Zhongsheng's sales margin falling to -2.6% and aggregate new car margin dropping from 10.6% in 2021 to 2.4% in 2024 [2][12] - The preference for Chinese electric vehicles (EVs) over global ICEs is expected to continue, impacting new car margins negatively [2][12] After-Sales Performance - After-sales performance is diverging among dealers, with Zhongsheng achieving a 9% increase in after-sales revenue in 2024, while Yongda's growth remained flat [3][19] - Zhongsheng's centralized repair facilities are a key factor in its ability to capture after-sales market share [3][20] Store Openings and Growth - Zhongsheng has opened 33 Huawei AITO stores, contributing to a 9% increase in earnings, while Yongda has opened 11 Huawei stores and plans to expand further [4][31] - Xiaomi store openings are expected to bring additional earnings, with estimates of Rmb10-15 million net profit per store for Yongda [25][31] Valuation and Market Position - Zhongsheng and Meidong are trading below their 5-year historical average P/E ratios, while Yongda is above average [26][32] - The report suggests that Zhongsheng's after-sales business and new car sales from Huawei stores will drive recovery in earnings from the 2024 trough [5][35]