Company profile:
Dongzheng Financial, a non-wholly-owned subsidiary of Zhengtong Motors, registered in China on March 11, 2015, is the only auto financing company with dealer background approved and supervised by the China Banking and Insurance Regulatory Commission in China. Specializes in providing auto financing products and services to purchase luxury brand cars. By the end of 2018, Dongzheng Financial's dealer network covers 182 cities in China, including Beijing, Shanghai, Shenzhen, Guangzhou, 36 second-tier cities and 142 third-tier and other secondary cities. In 2017, the company's average loan principal to retail loan customers reached 220000 yuan, ranking third among all auto financing companies in China in 2017, far higher than the industry average loan principal of 98411 yuan in the same period.
Sino-Thai point of view:
The luxury car market is growing strongly, and the penetration of auto finance continues to increase: according to the report, luxury car sales increased sharply from 510.2 billion yuan in 2013 to 1.0727 trillion yuan in 2017, with a compound annual growth rate of 20.4 percent from 2013 to 2017. The increase in disposable income of Chinese consumers, the increase in the penetration of auto financial services in the Chinese market and the reduction in tariffs on imported cars in China are all good for China's luxury car market. Compared with mature markets with an average penetration rate of more than 60 per cent, China's auto finance penetration rate is still low, at only 30.4 per cent in 2017 and is expected to reach 43.8 per cent in 2022. By the end of 2017, in terms of total loans, the market size had increased from 384.7 billion yuan in 2013 to 1.014 trillion yuan, with a compound annual growth rate of 27.4 percent. Due to escalating consumption, diversified funding sources and improved regulatory environment, the total loan amount in China's auto finance market is expected to continue to record a strong growth rate in the next five years, and is expected to reach 2.376 trillion yuan by 2022.
In terms of operating performance: in the three years ended December 31, 2018, Dongzheng Financial realized operating income of 332 million yuan, 461 million yuan and 815 million yuan respectively, with revenue growth rates of 39% in 2017 and 76.6% in 2018. The increase in interest income from loans and advances is mainly due to a substantial increase in interest income from retail loans from 378 million yuan in 2017 to 709.6 million yuan in 2018. Income from fees and commissions increased by 61.5% to 330.1 million yuan in 2018. The increase in consultancy fees was mainly due to the increase in the growth of retail loans, and the increase in service fees for joint retail loans.
Valuation: based on 2.13 billion shares after the global public offering (including 530 million H shares to be issued under the global offering, 1.52 billion unlisted foreign shares held by Zhengtong Motor and 80 million domestic shares held by Dongfeng), the market capitalization of the corresponding company is HK $89.6-13.44 billion, which is lower than that of its Hong Kong counterparts. The company's corresponding price-to-earnings ratio is about 17.3-26 times, excluding listing fees, the price-to-earnings ratio is about 17.2-25.8 times, which is higher than the industry average; the price-to-book ratio is about 1.8-2.23 times, higher than the industry average. In terms of profitability, the 18-year ROE and ROA were 19.92% and 5.72% respectively, higher than the industry average. Considering the company's industry status, performance and valuation, we give it a rating of 67 points, with a rating of "neutral".
Risk tips: (1) market competition risk (2) liquidity risk