EV positioning and equities clearer with establishment of Aiche
Transformation to step up as R&D capacity increasesEstablishing Aiche for direct control over Green FieldMotor
On Jan 4, Harmony Auto announced that Henan Harmony and HarmonyFuteng (a JV with Hon Hai and Tencent) had established Aiche Co., withcontributions of 28% and 55% interests. Henan Harmony would transferits 87.57% interests in Green Field Motor to Aiche. Upon completion,Aiche will be holding 87.57% interests in Green Field Motor and becomeits direct controlling shareholder.
EV positioning and equities become clearer
Under the new shareholding structure, Harmony Auto will be holding43.4% interests in the EV business, which can allow it to fine-tune theproduct mix and introduce new investors. We expect “Aiche” to becomethe brand of the company is economic EVs. In 4Q16E, the company willroll out high-speed EVs (using lithium batteries, having a range of 150 km,max. speed at 100 km/h, at a price of less than RMB80k after subsidy),distinguishing the brandings between Aiche and Green Field. We alsoexpect it to launch another brand for its high-end EVs (with a range of 350km, max. speed at 180-190 km/h, at a price between RMB200-250k aftersubsidy).
Increasing R&D capacity to step up transformation
We believe the company will obtain the qualifications for producing EVsby acquiring licenses and roll out economic and high-end EVs in 2016 and2018. Its R&D team for economic EVs (with 200 staff) is originated fromGreen Field Motor, while the one for high-end EVs will be establishedthrough global recruiting. Its high-end EVs will combine the technologiesof Foxconn and Tencent, giving buyers a brand new experience.
Maintain BUY and TP at HK$6.91
We give a premium to the valuation on the company as it is transformingfrom a traditional dealer to an EV maker and after-sales service provider.We maintain BUY and the TP at HK$6.91, implying 13.2x 2016E P/Ewhich is higher than the average of 8.4x of the auto dealer sector. Werecommend buying amid recent market weakness.