Zhongsheng shares fall on earnings

PUBLISHED : Wednesday, 17 August, 2011, 12:00am
UPDATED : Wednesday, 17 August, 2011, 12:00am

Shares in mainland car dealer Zhongsheng Group slumped almost six per cent yesterday after it reported first-half earnings that lagged analysts' estimates.

Zhongsheng, which operates 114 dealerships selling brands such as Mercedes-Benz and Toyota, said first-half profit rose 34 per cent to 510.61 million yuan (HK$623.4 million) - or about a third of the 1.5 billion yuan in full-year profit forecast by a Bloomberg survey of analysts.

Acquisitions and organic growth boosted Beijing-based Zhongsheng's total number of dealerships to 114, up from 69 a year ago and 98 at the end of last year. That helped revenue almost double to 16.29 billion yuan in the first half, up from 8.81 billion a year ago. However, this was still only 38 per cent of the 43.4 billion in sales that analysts expect for the full year.

Zhongsheng chairman Huang Yi said first-half sales of mid-to-high-end brands - including Toyota, Nissan and Honda - were hit by supply chain disruptions caused by the March 11 earthquake and tsunami in Japan.

Despite the weak first-half sales for the affected brands, Huang said the Japanese carmakers' mainland supply chains had recovered fully by June and none of the carmakers were planning to lower their full-year sales targets.

By contrast, first-half sales in the luxury segment - including Mercedes, Lexus, Audi, Porsche, Lamborghini and the Volkswagen Phaeton - remained strong. They accounted for 51 per cent of the group's overall revenue from new car sales, compared with 35 per cent a year ago.

Gross margins on new car sales edged up to 7 per cent in the first half, from 6.8 per cent a year ago, owing to the higher mix of luxury cars.

The dealer's revenue from its after-sales and servicing business, where gross profit margins were almost 47 per cent, rose to 653 million yuan from 396 million yuan a year ago. Zhongsheng plans to add 40 dealerships this year, half through acquisitions and half through new stores. Zhongsheng shares are down 19.4 per cent so far this year.