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On Friday, Deutsche Bank (ETR:DBKGn) analysts adjusted their stance on Dongfeng Motor (489:HK) (OTC: DNFGY), downgrading the stock from Buy to Hold and setting a new price target of HK$4.70, up from the previous HK$4.00. According to InvestingPro data, the company, currently valued at $4.84 billion, has seen its stock surge over 113% in the past six months, though analysis suggests the stock is now slightly overvalued. The change in rating comes after Dongfeng Motor reported a net profit of Rmb58 million for the full year of 2024, which was a significant improvement from the Rmb3.89 billion net loss recorded in the full year of 2023.
The analysts noted that Dongfeng Motor’s gross profit rose by 38.2% year-over-year to Rmb13.6 billion, attributing the increase to a combination of 7% revenue growth and a 2.9 percentage point improvement in gross margin to 12.8% in 2024, compared to 9.9% in the previous year. InvestingPro analysis reveals the company maintains a strong financial position with more cash than debt on its balance sheet, though it still faces challenges with relatively weak gross profit margins industry-wide. The improvement in gross margin was particularly noted in the local-brand passenger-vehicle operation, which expanded its gross margin by 4.5 percentage points to 12.9% in 2024, driven by a 26.4% growth in sales volume to 439,000 units.
Additionally, the overall passenger-vehicle operation saw its operating loss decrease by 79% year-over-year to Rmb1.35 billion. There was also a significant reduction in the operating loss of the commercial-vehicle operation, which fell by 46% year-over-year to Rmb1.92 billion. However, the "Financing service and other" operation experienced a 47% year-over-year decline in operating profit, down to Rmb1.83 billion.
The upgrade in the price target reflects the positive developments in Dongfeng Motor’s profitability and margin improvements across its operations. Despite the downgrade to a Hold rating, the raised price target suggests that Deutsche Bank acknowledges the progress Dongfeng Motor has made over the past year in turning its financial situation around from a substantial net loss to a break-even position. InvestingPro highlights additional positive indicators, including an impressive free cash flow yield and an 18-year track record of consistent dividend payments. Subscribers can access 11 more exclusive ProTips and detailed financial metrics to make more informed investment decisions.
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