What happened
Harmony New Energy Auto announced on Jan 4 that Harmony,Harmony Futeng and outside investors would jointly establishZhejiang Aiche International Electric Vehicle Company (AicheCompany) with a registered capital of Rmb500mn. Harmony willnow transfer its entire 87.57% interest in Green Field Motor toAiche Company.
Comments
Dec 7 2015 share-transfer agreement will not proceed.In the previous agreement, Harmony would transfer 55%interests in Greenfield to Harmony Futeng, and its holding wouldreduce from 87.57% to 54.13%. Futeng would be the biggestshareholder of Greenfield . In this new agreement,Aiche will be the biggest shareholder, holding 87.57% interests,and Harmony’s holding will reduce to from 54.13% to 43.3%compared with the previous plan. Harmony, Honghai andTencent will hold Greenfield’s share through Aiche.
New company created to introduce outside investors. Webelieve that the change in interest transferring structure will helpto introducing outside investors. According to theannouncement, Harmony, Harmony Futeng and outsiderinvestors will hold 28%, 55% and 17% stakes in Aiche,respectively. Outside investors will hold a 14.89% interest inGreen Field through Aiche rather than directly buying stakes inHarmony Futeng from Harmony.
Progress of NEV business to be share-price catalyst.Supported by its new energy vehicle (NEV) business, Harmony istrading at a low valuation (8.8x 2016e P/E). We think that thedownside risk is limited, especially given that the entire dealersector is bottoming out. The market is awaiting more progresson the NEV business. We expect catalysts to include theintroduction of new management or experienced technicians andprogress in the development of higher-end NEVs.
We maintain our earnings forecast and TP of HK$8.Maintain BUY.