Key investment points: Zhengtong Auto, a luxury car dealer with a broad scope for development. As one of the top 100 car dealers in the country, the company ranked third in terms of scale in the Hong Kong stock car dealership sector. As of the first half of 2018, the company had 138 dealership stores, and the agency brands were mainly luxury brands such as Porsche, Mercedes-Benz, BMW and Audi. The company is committed to developing a one-stop business model. Its business scope covers value-added services such as new car sales, after-sales product services, auto insurance, auto finance, and used cars. Among them, the company's auto finance business is leading in the industry and has broad development space. Luxury car dealer with excellent profit and operating efficiency, leading auto finance business: (1) The company's revenue scale has increased steadily. In 2017, the company's revenue reached 35.5 billion yuan, with a year-on-year growth rate of 12.5%. In the first half of 2018, the company's revenue growth rate reached 20.1%. In terms of specific business, in the first half of 2018, the year-on-year growth rates of new car sales volume and after-sales service revenue reached 19.6% and 24.3%, respectively, and the auto finance business growth rate reached 50.2%. (2) Luxury car and non-new car sales business account for a high proportion, the business structure continues to be optimized, and profitability is leading in the industry. As of the first half of 2018, the company's luxury brand distribution outlets accounted for 89%. At the same time, the company's share of new car sales declined, the share of after-sales, auto finance and other businesses with higher gross margins continued to increase, the company's business structure continued to optimize, and profitability continued to improve. The company's gross margin reached 12.3% in the first half of 2018, the highest level in the industry. (3) Multi-brand coverage, distribution brands starting a new product cycle. The effects of lower tariffs on imported vehicles and parts are gradually reflected, and luxury brand sales continue to recover. At the same time, the company's main distribution brands, BMW and Audi, have begun or are about to start a new product cycle, and the company will continue to benefit from the new product cycle. (4) Auto finance, used cars and SOMCS plans: Strong profitability and broad development space. A fully closed-loop automobile consumer finance service system has initially taken shape. Among them, Dongzheng Finance specializes in automobile consumer loans. In the first half of 2018, Dongzheng's total assets reached 8.134 billion yuan, achieving gross profit of about 300 million yuan and gross margin of 63.8%. At the same time, Dongzheng has completed equity reforms, laying the foundation for future value release in the capital market. From an industry perspective, the current penetration rate of China's auto finance is only 40%, and there is broad scope for future development. At the same time, the company's auto finance sector has maintained a rapid growth trend since its launch. At the same time, the company's sector not only has complete business coverage and perfect risk control systems, but can also finance through interbank and ABS It is at the leading level in the industry by obtaining capital at a lower cost. The “used car development strategy” was settled. The company has completed the replacement of used cars, the construction of a digital retail network platform, and the site selection of the first retail center. Currently, new car dealers in China account for a very low share of the used car business. With the gradual opening up of policies, the market size of the used car industry will continue to rise. The new business model SOMCS accelerates network expansion. SOMCS is equivalent to a trusteeship plan. This plan is a strategic cooperation to implement consolidated and fully managed trusteeship. Compared with acquisitions, the company can achieve rapid distribution network expansion at a very low cost. At the same time, as a dealer with professional management capabilities, Zhengtong can help partner stores improve overall profitability and operational efficiency, and accelerate the increase in industry concentration. The company's 2018H1 performance: The company's revenue grew rapidly, and the auto finance business maintained a high growth rate. In the first half of 2018, the company's total revenue was 18.78 billion yuan, an increase of about 20.1% over the previous year. Among them, new car sales revenue increased 19.6% year on year to 15.8 billion yuan; after-sales service business revenue increased 24.2% year on year to 2.26 billion yuan; and financial services business revenue increased 50.2% year on year to 3.7 billion yuan. The company's gross profit increased 32.9% year on year to 2.3 billion yuan, and gross margin increased 1.2 percentage points from 11.1% to 12.3%. The company's operating efficiency remains stable. The company's average inventory turnover in the first half of 2018 was 44.4 days, up 3.8 days from the same period last year; the company's sales, management and financial expenses as a share of total gross profit increased 5 percentage points to 74.2% year on year, mainly due to exchange losses due to RMB depreciation during the period. The company's net profit was increased by 37.8% year on year to 700 million yuan, net profit of the company increased by 0.4 percent year on year to 3.8%, and operating efficiency increased steadily. Investment suggestions: The company's revenue is expected to reach 44.1 billion yuan and 54.4 billion yuan respectively in 2018-2019, with growth rates reaching 24.3% and 23.4% respectively; the company's net profit is expected to be 1,551 billion yuan and 2,029 billion yuan respectively in 2018-2019, with year-on-year growth rates of 30.2% and 30.9%, and earnings per share of 0.63 yuan and 0.83 yuan respectively. Currently, the company's stock price corresponding to the price-earnings ratio for 2018-2019 is 7.1x and 5.47x respectively. Considering the impact of the company's continuously improving operating efficiency, continuously optimized business structure, and policies such as deleveraging and tight credit, we gave the company a reference price-earnings ratio of 9.5x, with a reference market value of HK$16.9 billion, covering it for the first time, and giving it a “buy” rating. Risk warning: the risk of economic downturn; the sales volume of new automobile products falls short of expectations; once again, competition in the industry is fierce, a price war breaks out among dealers; the import tariff policy is changing again; the cost of auto finance business rises and the risk of default.