AN increase in sales and earnings at Guangzhou Automobile Group Co. is prompting analysts to bet a 45-percent plunge by its shares this year is overdone.

At least five analysts reiterated buy ratings on the stock last week after vehicle market data for China showed U.S. brands losing share, and Morgan Stanley upgraded the shares to overweight. Just one of 38 analysts recommend selling, while 33 say buy and four hold.

Guangzhou Auto, a partner for Toyota Motor Corp., Honda Motor Co. and Fiat Chrysler Automobiles NV, has been ensnared in this year’s rout in Chinese car stocks. Investors have brushed aside sales and profitability gains to focus on trade tensions with the United States and China’s relaxed foreign-ownership rules — a move that opens the door for the global players to set up their own ventures in the country.

Yet the company’s numbers show growth, albeit slowing. First-half carunit sales rose 5.5 percent after the company launched eight new and altered models, and net income increased 10 percent to 6.9 billion yuan (US$1 billion). Cost control has also helped Guangzhou Auto improve its gross margin by more than half over the past two years.

“The stock fell out of favor this year, despite its low valuation,” said Toliver Ma, an analyst at Guotai Junan International. Ma is among those with a buy rating on the stock, which is trading at a nearly 50-percent discount to the average price earnings ratio of a group of 32 Asian automakers.

Ma said the company’s model cycle remains strong and expects its sales to benefit from demand for its Japanese partner brands. (SD-Agencies)