报告名称：China Grand Auto(600297)Leader in auto dealers’transformation
报告类型：点评报告
报告日期：2015-12-24
研究机构：中金公司
股票名称：广汇汽车
股票代码：600297
页数：4
简介：Investment positives
The auto dealer industry is about to change. Most auto dealers will be forced out of this market due to theworsening profitability. In fact, the fundamental task of auto dealers is not to expand profit margin, but to increase assetturnover ratio. Auto dealers often have low profit margin but high leverage. With even lower profitability than theirChinese counterparts, the US auto dealers managed to maintain decent cash flow and earnings by increasing their assetturnover ratio. Most Chinese auto dealers cannot afford such a business model.
Good corporate governance is the key factor that allows CGA to benefit from the industry changes. 1)Rich M&A experiences on the back of M&A operation and management expertise: CGA’s store count increased fivefolds over the past four years, with 75% of its stores acquired via M&A, while its expenses have been low. 2) Excellentasset management: CGA is the only auto dealer with 500 stores. Despite an expanding business, CGA still has ahigher asset turnover ratio than its rivals. 3) Strong financing ability: CGA has lower financial expenses and interestexpenses than its listed rivals.
Interest rate cuts conducive to auto dealers’ M&A. Given the lower interest rates and low asset prices, thereturns on acquired assets alone would be enough to cover the funding cost of M&A.
Active participant in the industry transformation. As the most active player in the auto finance market, CGA’sauto finance business now contributes 30% of its earnings, and will likely become a new growth driver going forward.As China’s largest auto dealer in terms of store count, CGA’s role in the used vehicle market cannot be neglected.
Financials
M&A will likely serve as the key growth driver in 2016~2017. We expect CGA’s revenue to grow 26.4% in 2016 and14.9% in 2017 driven by its store count growth of 24% and 12.8%. The injection of Baoxin’s aftersales servicesbusiness will likely improve its profitability in 2016, and its gross margin is expected to expand 47.5ppt. Its financialexpense ratio will likely decline 0.3ppt thanks to the interest rate cuts. We expect CGA’s net profit to grow 40.8%to Rmb2.7bn in 2016 and 20% to Rmb3.2bn in 2017.
Valuation and recommendation
The industry downturn offers an opportunity for CGA to realize a new round of growth through industry consolidationand the company may benefit from the strong momentum of the automotive aftermarket thanks to its strong services,distribution networks and talent resources. We set our TP at Rmb18 based on 28x 2016e P/E.
Risks
Fiercer competition.

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