2H15 in net loss across-the-board business retreat
Baoxin's FY15 net profit fell by 68.9% YoY to RMB220.1m (73% below bothDBe and Bloomberg consensus) mainly due to 1) decline in new car salesvolume/ASPs/margins, and 2) decline in ASP of after-sales business amidservice/spare part price cut. Revenue from new car sales decreased 25.0% YoYto RMB20.8bn on 15.1% YoY volume growth, 16% below our expectation, withnew car margin dropping 0.8ppt due to price discounts amid inventorypressure, in our view. Revenue from the after-sales business also registered asmall decline of 1.6% YoY to RMB3.0bn, 13% below our expectation with2.1ppt YoY drop in after-sales gross margin to 45.2%. Meanwhile, leasingincome surged by 5.8x YoY to RMB6.2m, although contribution to totalrevenue is tiny. On a sequential basis, Baoxin recorded RMB181.2m net loss in2H15 on the back of 19.2% YoY decline in new car volume. Based on Baoxin’s9M15 results announcement in December 2014, the loss was indeed recordedin 3Q15 at RMB248.2m, while there is a marginal RMB67.1m 4Q15 net profit.
Deutsche Bank view – share price to be supported by partial offer; Hold
We think that Baoxin’s 2H15 disappointment is possibly attributable to weaksales of its major brands, and distraction by China Grand’s (600297.SS,RMB12.47, not rated) bid for the company. That said, we still expect Baoxin’sshare price to be supported by the formal partial offer in December, whereChina Grand agreed to buy up to 75% of Baoxin’s shares at HKD5.99/share.Therefore, we maintain the Hold rating.