Summary of the report
Company overview
The company is the only auto financing company in China with a dealer background and approved and supervised by Bank of China Ltd. Insurance Regulatory Commission. The company focuses on providing auto finance products and services for the purchase of luxury brand cars. (I) retail loan business, which provides retail loans and other financial services for end customers to purchase cars; and (ii) dealer loan business, which provides loans to dealers. The company's H-shares listed on the main board of the Stock Exchange are spun off from Zhengtong Motors.
FY2016-FY2018, the company's income is about 280 million yuan, 420 million yuan and 760 million yuan respectively, the CAGR is 65%; the net profit is about 170 million yuan, 260 million yuan and 450 million respectively, and the net interest rate is about 62%, 61% and 60% respectively.
Industry status and prospects
According to cautionary statistics, the penetration rate of the overall retail auto finance market was 30.4% in 2017 and is expected to reach 43.8% by 2022. For the new passenger car segment, the penetration rate was 37.3% in 2017 and is expected to reach 54.0% by 2022. Although the penetration rate of used passenger car auto financial services was only 12.2% in 2017, it is expected to reach 26.4% by 2022.
By the end of 2017, in terms of total loans, the size of the market 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 sources of funds and improved regulatory environment, the total amount of loans in China's auto finance market is expected to continue to record a strong growth rate of 18.6% in the next five years, with a compound annual growth rate of 18.6%. The total loan amount is expected to reach 2.376 trillion yuan by 2022. In terms of the total principal of luxury car loans issued by all auto financing companies in 2017, the company accounted for 2.0% of the market share.
Advantages and opportunities
With Zhengtong's nearly 20 years of experience in the luxury brand car distribution industry, since its inception, the company has been focusing on providing auto financial products and services for the purchase of luxury brand cars. The business covers most luxury brands, including Porsche, BMW, Mercedes-Benz, Audi, Jaguar Land Rover and Volvo.
The company has a dealer network all over the country, which is composed of 1280 dealers in 182 cities in China, and has superior conditions to grasp the growing consumer demand for auto financial products and services.
Weakness and risk
The development of the company is affected by the business performance of cooperative dealers, and the two sides need to maintain a stable cooperative relationship.
If non-performing loans increase significantly, the company needs to make provision for impairment losses, which will have an impact on performance.
Investment valuation
Based on the IPO price (HK $4.20-HK $6.30) and 2018 net profit of RMB 450 million (per HK $1.17 to RMB1), the post-IPO market capitalization of the corresponding company is 17.5-26.3 times the 2018 fully diluted pro forma price-earnings ratio. Considering that the company is the only auto financing company in China with a dealer background, approved and supervised by the China Banking and Insurance Regulatory Commission, and relying on its parent company Zhengtong Motor, it has developed rapidly and finally gave IPO a special rating of "6".