ZHOSHK：弱市25财年的银色希望

CMBI Credit Commentary ZHOSHK:Silver linings of the weak FY25 Glenn Ko, CFA高志和(852) 3657 6235glennko@cmbi.com.hk Overreaction on the profit warning,maintain buy on ZHOSHK 5.98 01/30/28 Cyrena Ng, CPA吳蒨瑩(852) 3900 0801cyrenang@cmbi.com.hk Yujing Zhang张钰婧(852)3900 0830zhangyujing@cmbi.com.hk ZHOSHK 5.98 01/30/28 (rated BBB by S&P with a negative rating outlook)loweredup to 6.5pts with credit spread widened up to 362bps sinceannouncement of profit warning on 13 Mar’26.While Zhongsheng’s FY25 resultswere weak, we believe that the market over-reacted in view of continued positivefree cash flow (FCF) generation and net debt reduction, as well as limitedrefinancingpressuregivenits cash/ST debts ratio of 1.2x as ofDec’25.Additionally, we see silver linings of the weaker results taking cues fromnarrowing gross losses from new car sales in 2H25, lower manufacturer’ssuggestedretailprice(MSRF)andcontinuedgrowthofafter-sale Weaker FY25 results in line with the profit warning…. The weak FY25 results of Zhongsheng should be not a surprise after the profitwarning on 13 Mar’26. While Zhongsheng continued to report growth in volumeof new car sales in FY25 (2.5% to 497,316 units) and even in 2H25 (to 268,667units, up 17% hoh and 6.3% yoy), the company faced consistent pricing pressurefor new car sales. This, coupled withgovernment subsidy EVs, also affected thesales and ASP of used car.continue to widened and gross loss marginincreased to 2.9% in FY25 from 2.6% in FY24.Furthermore., the commissionincome dropped 38.7% to RMB2.6bn due to the termination of “high interest, high ….but we see the silver linings in the likes of MSRP …. Zhongsheng targets to have gross profit breakeven for new car sales in FY26 (vs gross losses of RMB3.7bn in FY25),supported by lower MSRF, expanding EV businesses and further in-market consolidation.As per Zhongsheng, thetraditional OEMs such as BMW, Mercedes Benz and Audi had lowered MSRP 10-25%.This helps directly reduceits COGS and improve its gross margin.Additionally, the flip side of termination of “high interest, high rebate” …. and increasing EV sales Zhongsheng has been scaling up EV businesses over the past 18 months.Its EV stores increased from 20 as ofDec’24 to 40 in Dec’25, accounted c9% of its store network.In addition to AITO, it will expand into EV brands suchas Geely.In FY25, sales of EVs, i.e. AITO accounted for 8.2% of its sale volume and helped lift the company’s grossmargin 0.9pct pt.We estimate the gross margin of EV sales to be 7-8%.Indeed, with the expansion of EV sales,Zhongsheng’s gross margin of new car sales in 2H25 improved to-1.9% from-4.1% in 1H25.Zhongsheng targetsto double the number of EV stores in FY26.It also plans to exit and transfer 50-150 underperforming stores.The Net debt reduction and sufficient liquidity profile Zhongsheng has been disciplined in expansion and focusingon optimizing its store network.It has been consistentlygenerating positive FCF for net debt reduction.In FY25, Zhongsheng repaid the remaining o/s amount of its CB dueMay’25 and early-redeemed the remaining ZHOSHK 3 01/13/26, totaling cUSD630mn.These reflect the company’ssufficient liquidity profile even under a challenging operating environment.The major refinancing requirement will thePanda bonds of RMB1bn at a coupon rate of 3.5% due 1 Aug’24.We are comfortable with its liquidity profile,taking Fixed Income DepartmentTel:852 3657 6235/ 852 3900 0801fis@cmbi.com.hk Author Certification The author who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities orissuer that the authorcovered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2) no part of his or her Besides, the author confirms that neither the author nor his/her associates (as defined in the code of conduct issued by TheHong Kong Securities and FuturesCommission) (1) have dealt in ortraded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2)will deal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the Hong Kong listed There are risks involved in transacting in any securities.The information contained in this report may not be suitable for the purposes of all investors. CMBIGMdoesnot provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial position or specialrequirements.Past performance has no indication of future performance, and actual events may differ materially from that which is contained in the report.The value This report or any information contained herein, have been prepared by theCMBIGM, solely for the purpose of supplying information to the clients ofCMBIGMand/orits affiliate(s) to whom