What's new
Chauffeured car services business, UCAR announced it isimplementing a restructuring plan, which will see itsshareholder acquire Huaxia United, to which UCAR willthen transfer its business. The percentage of interest held byCAR Inc. (listco) in Huaxia will stay the same as in UCAR.We expect the restructuring to be preparation forHuaxia’s public listing in the domestic capital market. Itis expected to list in the NEEQ (China’s new third board) in 2016.
Comments
Huaxia’s listing may boost CAR Inc.’s valuation.According to the Series B round of financing, the value ofHuaxia’s stakes is equivalent to 9% of CAR Inc.’s marketcap. Benefitting from NEEQ’s high valuation level (48xaverage P/E), the chauffeured car industry’s huge growthpotential, and unique competitive advantage of UCAR,Huaxia’s valuation may increase rapidly after the listing.
Bigger synergy between car rental and chauffeuredservices. Public listing may bring funding and brandadvantages to chauffeured car services business. For thelistco, long term rental revenue may increase significantly tosupport the development of UCAR. Utilization rate ofshort-term rental may also increase as these vehicles couldbe used as chauffeured cars in their spare time.Valuation and recommendationWe maintain our Conviction BUY rating and HK$19.7 TPon CAR Inc.; we expect recurring profit to grow 88%/53% in2015/16. The stock is currently trading at 22/15x 2015/16e P/E.
Risks
Competition intensifies; lower than expected price for used cars.