Morgan Stanley cuts Longshine stock rating, raises target

Morgan Stanley downgraded Longshine Technology Group from Overweight to Equal-weight, raising the price target to RMB 14.00 from RMB 12.00, citing a fully recognized market valuation of the company's strategic shift towards its EV charging platform. The downgrade reflects concerns over Longshine's high forward P/E ratio of 43x (2025) and 32x (2026) relative to its projected EPS CAGR of 29% (2025-2028), as well as limited visibility into its RWA business, suggesting the stock is now expected to perform in line with the broader market.

Analysis

Morgan Stanley has adjusted its stance on Longshine Technology Group, downgrading the stock from Overweight to Equal-weight while simultaneously increasing the price target to RMB 14.00 from RMB 12.00. This revision stems from the assessment that the market has now fully priced in the anticipated benefits from Longshine's strategic repositioning, which involved divesting non-core assets like non-grid projects and OTT hardware to focus on its more profitable EV charging platform—a strategy previously lauded by the firm in its September 2024 upgrade. Current valuation metrics are a key concern, with the stock trading at a forward price-to-earnings (P/E) ratio of 43 times for 2025 and 32 times for 2026, based on Morgan Stanley's forecasts. This valuation is considered elevated when juxtaposed with the company’s projected earnings per share (EPS) compound annual growth rate (CAGR) of 29% from 2025 to 2028. Furthermore, a lack of visibility into Longshine's Risk-Weighted Assets (RWA) business contributed to the decision, leading to an Equal-weight rating which implies expected performance in line with the broader market. The raised price target to RMB 14.00 signals modest potential upside from current levels, reflecting acknowledgment of the company's strategic execution, but indicates that the risk-reward profile no longer justifies an Overweight recommendation.

Key Decisions for Investors

• Investors should consider that the positive impact of Longshine's strategic shift to its EV charging platform may now be largely reflected in the current stock price, warranting a review of expectations for future outperformance.
• Carefully evaluate Longshine's valuation, particularly its forward P/E ratios of 43x for 2025 and 32x for 2026 relative to its 29% projected EPS CAGR, to determine if the growth outlook justifies the premium.
• Monitor disclosures and seek further clarity on Longshine’s RWA business, as limited visibility in this segment is a cited concern influencing Morgan Stanley's revised rating.
• While the price target increase to RMB 14.00 suggests some upside, the downgrade to Equal-weight implies that the stock is now viewed as more suitable for investors seeking market-perform returns rather than significant alpha.