Ping An's point of view:
Yongda Auto plans to use Yangzi New Materials and add high-quality dealers to A-shares. After the transaction was completed, all assets and liabilities of Yangzi New Materials were sold, 100% of Yongda Automobile Group's shares were acquired, the listed company changed its main business to passenger car sales and comprehensive services, and high-quality dealers were added to A-shares.
Focus on luxury brands and share the dividends of the rapid development of the luxury car market. The overall growth rate of passenger car sales in China has declined to single digits in recent years, yet the luxury car market has maintained rapid growth of more than double digits. Yongda's distribution network covers the whole country, mainly in East China. Luxury and ultra-luxury brands account for more than 80% of revenue. Focusing on luxury and ultra-luxury brands, it will share the dividends of China's automobile consumption structure upgrade.
Based on channel advantages, post-market business has entered a period of rapid development. The number of steady-state cars owned in China is expected to be twice that of the US, and it will be the world's largest automotive aftermarket in the future. There is vast room for gold mining in the aftermarket of dealers in China, and leading enterprises with a market capitalization of 100 billion will inevitably appear in the future. Dealers are naturally strong offline players. With their advantages in various aspects such as military experience, personnel, channels, products, and scale, they are likely to become the most competitive players in the aftermarket field. Currently, Yongda Auto's aftermarket business accounts for 71% of gross profit. After-sales maintenance and agency services are cash-heavy businesses. The financial leasing and handcart industry will face huge market space in the future, and Yongda Automobile's financial leasing and handcart business is expected to become a star business with high growth in the future.
Seize the golden period of mergers and acquisitions to quickly grow bigger and stronger. The maturity of the automobile consumer market will inevitably lead to mergers and acquisitions of dealers. China's auto market has moved from a stage of high growth to a stage of single-digit growth. Dealers' profit margins on new car sales have declined year by year, spawning mergers and acquisitions integration in the industry. High-quality dealers with strong financial strength have seized the opportunity and rapidly expanded and strengthened. Yongda's acquisition of Baozun in Jiangsu further strengthened Bing's market position in Jiangsu. After Yongda enters the A-share market behind the scenes, it will continue to vigorously carry out mergers and acquisitions to grow bigger and stronger.
Profit forecasts and investment suggestions: Yongda Auto focuses on selling luxury and ultra-luxury brands to share opportunities for consumption upgrades in the Chinese auto market; actively developing the post-market, financial leasing and personal vehicle businesses have huge potential to grow; and seize the industry downturn to actively expand and strengthen mergers and acquisitions. The company's net profit is estimated to be $87/1,04/1.26 billion in 2016-2018, based on a share capital of 1,548 million yuan after the transaction is completed (not considering supporting financing), and the corresponding EPS is 0.56/0.67/0.82 yuan. First coverage, giving a “recommended” rating.
Risk warning: backdoor listing failed; luxury car market slump; financial leasing/handcar development fell short of expectations.