UBS Group published a report indicating that China Rising (00881.HK) has signed a strategic cooperation agreement with Chongqing Sokon Industry Group Stock (601127.SH) to operate Huawei AITO specialized stores under an authorized distribution model, with operations expected to commence in January next year. Management guidance suggests that the commission rate for AITO automobiles will be 4.5%, and the company will also provide related after-sales, automobile finance, and insurance services.

The report states that even considering the contribution from AITO stores, it does not expect China Rising's profits to rebound significantly, as retail discounts for Germany's three major automobile manufacturers, Audi, BMW, and Mercedes-Benz, rose to historically high levels last month, reducing the attractiveness of traditional high-end brands in China. This is influenced by the increased competitiveness of Chinese brands and the aging of Mercedes-Benz and Lexus models. Additionally, electric vehicles will also have a long-term impact on China's automobile after-sales market, as the study indicates that dealers and independent after-sales service providers are affected, primarily due to decreased mileage of internal combustion vehicles. The firm anticipates that China Rising's after-sales service revenue growth this year and beyond will be in the single digits.

The firm assigns a valuation of 15 times the projected PE for AITO per store by 2025, higher than China Rising's traditional 12 times PE, with 40 AITO stores representing a market cap of 6.4 billion yuan. Following the announcement of the related strategy, China Rising’s stock price has cumulatively risen approximately 40% or added 12 billion yuan to its market cap. The firm believes that the market has given an overly high valuation to AITO stores, and it has raised its target price for China Rising from 8.2 yuan to 9.4 yuan, maintaining a 'sell' rating.