What's new
On June 23, Yongda announced it had acquired four BMW 4S dealerships inShandong for a total price of Rmb423mn, paying 20% in cashand 80% by issuing Consideration Shares.
Comments
Acquired BWM 4S stores with combined payment method; valuereturn to help sector consolidation. The dealpayment includes 80% Consideration shares, which are based on an issue price ofHK$7.95 (closing price on June 21) could be ~48.69mn shares and ~2.9% of theenlarged total share capital. The value of auto dealers has been rising recently,which could help with sector consolidation; while small-scale dealer groupsmight show increasing willingness to sell their businesses.
New 5 Series price beats expectation; Yongda expands BWMexposure. BWM announced its new 5 Series price of Rmb449.9thd,below market expectation. In this deal, Yongda has selected BMW stores, helpingto expand Yongda’s BWM exposure and enhancing the profitability elasticity fromthe BMW 5 Series.
Sellers agreed sharepayment methods show high expectation in the industry leader. The sellers agreed 80% of the Consideration amount to be paid by share,which represents reforming payment method, and implies the players in autodealer sector have strong confidence in Yongda’s profitability, and high expectationfor the industry leader and the business models. Besides, the bargaining powerof leading auto dealer has enhanced.
Valuation and recommendation
We maintain our BUY rating and target price of HK$11.2, implying 14x 2017e P/E.
Risks
Deal process or/and consolidation miss expectation.
