UBS maintains Guangzhou Automobile Group-A at 'Sell' and cuts target price to Rmb6.00

Overview

This is UBS's earnings review on Guangzhou Automobile Group-A. After the company's 2025 results came in below expectations and it posted a Rmb8.8bn net loss, UBS cut earnings forecasts and the target price, arguing that weak JV growth and an uncompetitive own-brand cost structure will continue to weigh on the stock.

Core views

The core view is: first, it will be difficult for JV sales to rebound in 2026. GAC Honda remains under pressure from falling sales and dealer network contraction, while GAC Toyota has support from localized R&D and cost reduction, but profit growth is expected to be limited; second, the own-brand business is already sizable, but expenses, R&D capitalization, and amortization burdens are heavy, leaving it less cost-competitive than LeapMotor; third, amid weak demand and intense competition, the company may still be loss-making in 2026-27E, making valuation recovery difficult.

Analysis framework

The report mainly assesses Guangzhou Automobile Group-A's investment value through earnings estimate revisions, sales scenarios, JV profit contribution, a cost comparison between the own-brand business and LeapMotor, and P/BV valuation.

Methodology notes

• Valuation methodsP/BV valuation

  Deriving the target price from 0.6x 2026E P/BV

  UBS sets the target price at Rmb6.00, based on 0.6x 2026E P/BV, slightly below Guangzhou Automobile A-share's trading range over the past few years of losses.

• Peer comparisonCost structure comparison

  Comparison of GAC's own-brand business with LeapMotor

  The report compares sales volume, revenue, gross margin, selling expenses, G&A expenses, and R&D capitalization, and concludes that GAC's own-brand cost structure is weaker.

• Earnings forecastEarnings forecast revisions

  Downward revisions to 2026/27E gross margin and net profit forecasts

  Because of weak demand, pressure on JVs, and rising own-brand expenses, UBS cuts its 2026/27E gross margin forecasts by 4.9ppt/3.9ppt to 2.4%/3.5%, respectively.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Guangzhou Automobile Group-A (601238.SS)

  Research target

  Strengths

  It has profitable JV businesses such as GAC Toyota, and its own-brand Aion and Trumpchi already have meaningful sales and revenue scale.

  Weaknesses

  A large 2025 loss, low own-brand gross margin, high selling and administrative expenses, and substantial pressure from R&D capitalization and future amortization.

  Comparison

  Its own-brand sales and revenue are close to LeapMotor's, but gross margin, expense efficiency, and R&D capitalization pressure are clearly worse.

  Risks

  Sales continue to undershoot expectations, JV profits decline, raw material costs rise, and expense spending weighs on earnings.

• GAC Honda

  Joint venture

  Strengths

  It remains one of Guangzhou Automobile Group's important JV businesses.

  Weaknesses

  Sales continue to decline, falling by more than half year on year to about 40k units in Q1 2026.

  Comparison

  It is weaker than GAC Toyota and is under active restructuring and a profit-first strategy.

  Risks

  Further dealer network contraction, and even the risk of JV closure.

• GAC Toyota

  Joint venture

  Strengths

  About 750k units in sales and about Rmb5bn in net profit in 2025, so it remains profitable.

  Weaknesses

  Profit growth is expected to be limited in 2026, and contributions from electrified models are insufficient.

  Comparison

  More resilient than GAC Honda, but its hybrid models are being eroded by Chinese-brand EVs.

  Risks

  Intensifying competition from Chinese-brand EVs, and relatively low sales contribution from BEV models such as bZ4X and bZ3X.

• Aion and Trumpchi

  Own-brand businesses

  Strengths

  Combined 2025 sales of 609k units and revenue of Rmb68bn, which is a sizable scale.

  Weaknesses

  The cost structure is not competitive, gross margin is low, and expense and R&D capitalization pressure is high.

  Comparison

  Compared with LeapMotor, the scale is close, but gross margin and expense efficiency lag significantly.

  Risks

  New model launches and overseas network expansion may further increase R&D and selling expenses.

Key data

• 2025 net lossRmb8.8bnThe 2025 result was below expectations and was an important reason for the target price cut.
• Target priceRmb6.00Cut from Rmb6.50, based on 0.6x 2026E P/BV.
• Current priceRmb7.17Price date is 2026-04-09.
• GAC Honda salesAbout 40k units in Q1 2026, down more than half year on yearThe report believes the sales decline may lead to further dealer network contraction.
• GAC Toyota 2025 sales and profitAbout 750k units; net profit of about Rmb5bnStill profitable, but further growth room in 2026 is limited.
• Own-brand 2025 scale609k units; revenue of Rmb68bnIncluding Aion and Trumpchi, with a scale close to LeapMotor.
• Own-brand gross margin-7.4%Dragged by roughly Rmb5bn of development cost amortization and about Rmb1bn of capitalized R&D impairment.
• 2026/27E net loss forecastRmb3.3bn / Rmb1.1bnUBS expects losses to continue.

Impact & implications

The report is negative for Guangzhou Automobile Group-A: in the short term, the target price cut and maintained Sell rating reflect limited visibility on earnings recovery; in the medium term, JV sales and profit elasticity are being squeezed by competition from Chinese-brand EVs, and if the own-brand business cannot materially lower costs, it may continue to drag on group earnings and valuation.

Risks

• Intensifying competition in the SUV market causes Trumpchi profit to fall short of expectations.
• GAC Toyota sales come in below expectations.
• GAC Honda sales come in below expectations.
• Rising raw material costs.
• High difficulty in reducing own-brand costs; R&D amortization and selling expenses continue to weigh on profitability.

What to watch

• Whether the company can achieve management's 2 million-unit sales target in 2026.
• Whether the own-brand business can rebound from the 2025 decline to a target above 1 million units.
• Progress in GAC Honda restructuring and changes in the dealer network.
• GAC Toyota's hybrid and BEV sales performance amid competition from Chinese-brand EVs.
• Changes in 2026-27E gross margin, R&D amortization, selling expenses, and administrative expenses.