Singapore Exchange Ltd (SGX)

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Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

Bayerische Motoren Werke (BMW) / Equity Bottom-Up

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Established in 2015, the Group specialises in the business of automobile dealerships in the premium and ultra-premium market segment in China. The Group’s main revenue drivers are in the sale of automobiles and the provision of after-sales services. 
	 </li>
	<li>
The Group’s total revenue grew 85.7% from RMB696.5 million in 1Q2020 to RMB1,293.2 million in 1Q2021, while gross profit increased 92.8% from RMB58.6 million in 1Q2020 to RMB113.0 million in 1Q2021. 
	 </li>
	<li>The Group plans to use the proceeds from the IPO to increase the number of dealerships, showrooms and service centres in cities with existing operations, grow its dealership network to new regions, diversify to other premium and ultra-premium brands and expand into other complementary businesses. </li>
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Trans-China Automotive specialises in the business of automobile dealerships in the premium and ultra-premium market segment in China, which includes: (i) the sale of automobiles; and (ii) the provision of after-sales services (e.g. maintenance and repair services, and sale of automobile parts and accessories). 
The Group carries automobile brands comprising BMW, McLaren and Lotus, and have dealerships in cities in China, namely in Foshan, Shenzhen, Guangzhou, Chongqing, Changsha and Wuhan.
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 <img src='https://api2.sgx.com/sites/default/files/2021-11/Capture_6.PNG' alt='Cars' />
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 <div class='content-caption'>Cars</div>
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Highlights of the IPO based on Offer Document (click <a href="https://api2.sgx.com/sites/default/files/2021-11/Trans-China%20Automotive%20Holdings%20Limited%20Offer%20Document.pdf">here</a>) 1. Business Segments 
Trans-China Automotive operates 2 main business segments: 

<ul>
<li>
Sale of Automobiles

	<ol>
<li>
Sale of new automobiles - Sale of new automobiles under dealership agreements and arrangements with automobile Original Equipment Manufacturer (OEMs) which are the BMW Distributors (BMW China and BMW Brilliance), McLaren Distributor and Lotus Distributor. The Group’s BMW dealerships distribute both internationally and locally manufactured BMW models and is a key revenue driver for the Group.</li>
		<li>
Sale of pre-owned automobiles - Sale of pre-owned automobiles mainly arrive from customer trade-ins and auction companies and other suppliers of used cars not limited to the brands carried by the Group.</li>
		<li>
Automobile Agency Services - Provision of automobile agency services, as an ancillary business, to customers which includes referrals for automobile financing, referrals for insurance and car registration agency services, and where the Group receives referral fees.</li>
	</ol>
</li>
	<li>
Provision of After-Sales Services - Provision of after-sales services include repairs and scheduled servicing, maintenance and inspection of automobiles that are mainly purchased from the Group and its automobile OEMs. It also sells automobile parts and accessories as well as merchandise that feature the brands the Group carry.</li>
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 <img src='https://api2.sgx.com/sites/default/files/2021-11/Capture_7.PNG' alt='Revenue breakdown by business segment' />
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 <div class='content-caption'>Revenue breakdown by business segment</div>
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2.  Business Strategies and Future Plans (refer to Page 244 of the offer document) 
Increasing the concentration of business in regions with existing operations

<ul>
<li>Through organic growth, the Group will expand its dealership network by capitalising on its know-how, relationships and positive brand image established by its existing dealerships to secure new dealerships.</li>
	<li>The Group may also expand its dealerships through acquisitions of existing dealerships, in particular from smaller companies seeking to exit the business, that are strategically important to its geographical coverage. 
	 </li>
</ul>
Expanding business through growing dealership network, diversifying into other automobile brands, and complementary businesses

<ul>
<li>The Group’s dealerships are currently strategically located in cities with affluent populations in the southern coastal region of China. Nevertheless, it believes that there is significant market potential and demand for automobiles and its related services in other regions of China.</li>
	<li>In line with its strategy to focus on premium and ultra-premium automobile brands, the Group intends to secure new dealerships for other premium and ultra-premium automobile brands.</li>
	<li>The Group also strives towards broadening its business scope, into related ventures to complement its existing business, both in China and overseas. 
	 </li>
</ul>
3. Competitive strengths (refer to Page 242 of the offer document for a complete list of competitive strengths)

<ul>
<li>
Well-established automobile brand – Focus on the premium and ultra-premium market segments of automobiles provides greater resilience and profitability compared to mass-market brand automobiles.</li>
	<li>
Strong business relationships with reputable brands – The Group has established relationships with BMW and McLaren, both in terms of the length of time and the depth of the working relationships.</li>
	<li>
Experienced and committed management team – The Group has an experienced and dedicated management team, led by founder and Executive Director, Executive Chairman and CEO, Mr. Francis Tji who has more than 20 years of experience in the automobile industry in China.</li>
</ul>
 4. Prospects (refer to Page 245 of the offer document for a complete list of prospects)

<ul>
<li>
Strong demand for premium and ultra-premium automobile brands in China – The Group expects the growing higher-income population in the PRC to have positive effect on premium and ultra-premium automobile sales. Premium automobile ownership is expected to grow at a CAGR of 9.8% for the period from 2020 to 2025, while Ultra-premium automobile ownership is expected to exceed 1 million vehicles for the first time in 2021 and to reach 1.4 million vehicles in 2025.</li>
	<li>
New and promising demand for new energy vehicle market – Government subsidies, developing infrastructure and favourable industrial investment policies have contributed to the electric vehicle (EV) industry’s robust growth since 2016. It is estimated that nearly one in five new vehicles purchased in China in 2025 is likely to be an EV.</li>
	<li>
Favourable prospects of BMW automobiles sales and after-sales services - In 2020, the Group’s sales were well above the national average at 2,516 vehicles per BMW dealership. BMW is expected to open more dealerships in different locations in China, especially in second and third tier cities. 
	 </li>
</ul>
5. Key Risks Factors (refer to Page 59 of the offer document for a complete list of risk factors)

<ul>
<li>
Dependent on dealership agreements – The Group relies on the automobile OEMs for the rights to operate its dealerships and showrooms and for the supply of new automobiles and automobile parts and accessories.</li>
	<li>
Dependent on the sales of BMW and McLaren automobiles – Revenue from the sales of new BMW automobiles which are supplied by the BMW Distributors accounted for approximately 81.2%, 81.3%, and 82.5% of total revenue for FY2018, FY2019 and FY2020. Revenue from the sales of new McLaren automobiles accounted for approximately 6.0%, 5.0% and 5.2% of total revenue for FY2018, FY2019 and FY2020.</li>
	<li>
Dependent on automobile OEMs – New automobile sales are influenced by the automobile OEMs’ abilities to anticipate changes in consumer tastes, preferences and requirements as well as their branding, marketing and promotional activities. Product defects and automobile recalls may adversely affect the automobile OEMs. 
	 </li>
</ul>
Financials &amp; Valuation

<ul>
<li>The Group’s total revenue grew 85.7% from RMB696.5 million in 1Q2020 to RMB1,293.2 million in 1Q2021, while gross profit increased 92.8% from RMB58.6 million in 1Q2020 to RMB113.0 million in 1Q2021.</li>
	<li>According to the Offer Document, Trans-China Automotive’s post-invitation earnings per share (EPS) is 3.8 Singapore cents based on the audited FY2020 income statement. With an Invitation Price of S$0.23, the price-to-earnings (P/E) ratio is approximately 6.1x.</li>
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 <img src='https://api2.sgx.com/sites/default/files/2021-11/Capture_8.PNG' alt='Financial Performance' />
 </figure>
 <div class='content-caption'>Financial Performance</div>
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Additional Information from Offer Document (click <a href="https://api2.sgx.com/sites/default/files/2021-11/Trans-China%20Automotive%20Holdings%20Limited%20Offer%20Document.pdf">here</a>)

IPO Details

<ul>
<li>Invitation price at S$0.23 per Invitation Share</li>
	<li>Invitation of 85.0 million Invitation Shares
	<ul>
<li>2.9 million Offer Shares by way of public offer; and</li>
		<li>82.1 million Placement Shares by way of placement</li>
	</ul>
</li>
	<li>Net proceeds approximately S$16.3 million</li>
	<li>Parties who have applied for and have been allotted 5.0% or more of the Invitation Shares include (see full balloting results <a href="https://links.sgx.com/FileOpen/Trans-China%20Automotive%20Holdings%20Limited%20-%20Balloting%20Results.ashx?App=Announcement&amp;FileID=690177">here</a>):
	<ul>
<li>Aberdeen Asset Management Asia Ltd</li>
		<li>Adedayo Funds Pte Ltd</li>
		<li>Starchase North Motorsports Pte Ltd</li>
		<li>Templeton Capital Pte Ltd</li>
		<li>Pheim Asset Management</li>
		<li>Boustead Singapore Limited</li>
	</ul>
</li>
	<li>Estimated IPO Market Capitalisation of S$134.4 million based on post-invitation share capital of 584.3 million Shares</li>
	<li>Net proceeds approximately S$16.3 million</li>
	<li>Use of net proceeds:
	<ul>
<li>S$11.0 million – Increasing the number of dealerships, showrooms and service centres in cities with existing operations, namely in Foshan, Shenzhen, Guangzhou, Chongqing, Changsha and Wuhan</li>
		<li>S$3.0 million – Expanding business through growing dealership network to new regions, diversifying to other premium and ultra-premium automobile brands, expanding and diversifying into complementary businesses</li>
		<li>S$2.3 million – General working capital purposes </li>
	</ul>
</li>
</ul>
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Established in 2015, the Group specialises in the business of automobile dealerships in the premium and ultra-premium market segment in China. The Group’s main revenue drivers are in the sale of automobiles and the provision of after-sales services. 
	 
	
The Group’s total revenue grew 85.7% from RMB696.5 million in 1Q2020 to RMB1,293.2 million in 1Q2021, while gross profit increased 92.8% from RMB58.6 million in 1Q2020 to RMB113.0 million in 1Q2021. 
	 
	The Group plans to use the proceeds from the IPO to increase the number of dealerships, showrooms and service centres in cities with existing operations, grow its dealership network to new regions, diversify to other premium and ultra-premium brands and expand into other complementary businesses. 

 

Trans-China Automotive specialises in the business of automobile dealerships in the premium and ultra-premium market segment in China, which includes: (i) the sale of automobiles; and (ii) the provision of after-sales services (e.g. maintenance and repair services, and sale of automobile parts and accessories).  
The Group carries automobile brands comprising BMW, McLaren and Lotus, and have dealerships in cities in China, namely in Foshan, Shenzhen, Guangzhou, Chongqing, Changsha and Wuhan.



      
    
    Cars


Highlights of the IPO based on Offer Document (click here)  1. Business Segments  
Trans-China Automotive operates 2 main business segments: 



Sale of Automobiles

	

Sale of new automobiles - Sale of new automobiles under dealership agreements and arrangements with automobile Original Equipment Manufacturer (OEMs) which are the BMW Distributors (BMW China and BMW Brilliance), McLaren Distributor and Lotus Distributor. The Group’s BMW dealerships distribute both internationally and locally manufactured BMW models and is a key revenue driver for the Group.
		
Sale of pre-owned automobiles - Sale of pre-owned automobiles mainly arrive from customer trade-ins and auction companies and other suppliers of used cars not limited to the brands carried by the Group.
		
Automobile Agency Services - Provision of automobile agency services, as an ancillary business, to customers which includes referrals for automobile financing, referrals for insurance and car registration agency services, and where the Group receives referral fees.
	

	
Provision of After-Sales Services - Provision of after-sales services include repairs and scheduled servicing, maintenance and inspection of automobiles that are mainly purchased from the Group and its automobile OEMs. It also sells automobile parts and accessories as well as merchandise that feature the brands the Group carry.




      
    
    Revenue breakdown by business segment


2.  Business Strategies and Future Plans (refer to Page 244 of the offer document)  
Increasing the concentration of business in regions with existing operations


Through organic growth, the Group will expand its dealership network by capitalising on its know-how, relationships and positive brand image established by its existing dealerships to secure new dealerships.
	The Group may also expand its dealerships through acquisitions of existing dealerships, in particular from smaller companies seeking to exit the business, that are strategically important to its geographical coverage. 
	 

Expanding business through growing dealership network, diversifying into other automobile brands, and complementary businesses


The Group’s dealerships are currently strategically located in cities with affluent populations in the southern coastal region of China. Nevertheless, it believes that there is significant market potential and demand for automobiles and its related services in other regions of China.
	In line with its strategy to focus on premium and ultra-premium automobile brands, the Group intends to secure new dealerships for other premium and ultra-premium automobile brands.
	The Group also strives towards broadening its business scope, into related ventures to complement its existing business, both in China and overseas. 
	 

3. Competitive strengths (refer to Page 242 of the offer document for a complete list of competitive strengths)



Well-established automobile brand – Focus on the premium and ultra-premium market segments of automobiles provides greater resilience and profitability compared to mass-market brand automobiles.
	
Strong business relationships with reputable brands – The Group has established relationships with BMW and McLaren, both in terms of the length of time and the depth of the working relationships.
	
Experienced and committed management team – The Group has an experienced and dedicated management team, led by founder and Executive Director, Executive Chairman and CEO, Mr. Francis Tji who has more than 20 years of experience in the automobile industry in China.

 4. Prospects (refer to Page 245 of the offer document for a complete list of prospects)



Strong demand for premium and ultra-premium automobile brands in China – The Group expects the growing higher-income population in the PRC to have positive effect on premium and ultra-premium automobile sales. Premium automobile ownership is expected to grow at a CAGR of 9.8% for the period from 2020 to 2025, while Ultra-premium automobile ownership is expected to exceed 1 million vehicles for the first time in 2021 and to reach 1.4 million vehicles in 2025.
	
New and promising demand for new energy vehicle market – Government subsidies, developing infrastructure and favourable industrial investment policies have contributed to the electric vehicle (EV) industry’s robust growth since 2016. It is estimated that nearly one in five new vehicles purchased in China in 2025 is likely to be an EV.
	
Favourable prospects of BMW automobiles sales and after-sales services - In 2020, the Group’s sales were well above the national average at 2,516 vehicles per BMW dealership. BMW is expected to open more dealerships in different locations in China, especially in second and third tier cities. 
	 

5. Key Risks Factors (refer to Page 59 of the offer document for a complete list of risk factors)



Dependent on dealership agreements – The Group relies on the automobile OEMs for the rights to operate its dealerships and showrooms and for the supply of new automobiles and automobile parts and accessories.
	
Dependent on the sales of BMW and McLaren automobiles – Revenue from the sales of new BMW automobiles which are supplied by the BMW Distributors accounted for approximately 81.2%, 81.3%, and 82.5% of total revenue for FY2018, FY2019 and FY2020. Revenue from the sales of new McLaren automobiles accounted for approximately 6.0%, 5.0% and 5.2% of total revenue for FY2018, FY2019 and FY2020.
	
Dependent on automobile OEMs – New automobile sales are influenced by the automobile OEMs’ abilities to anticipate changes in consumer tastes, preferences and requirements as well as their branding, marketing and promotional activities. Product defects and automobile recalls may adversely affect the automobile OEMs. 
	 

Financials &amp; Valuation


The Group’s total revenue grew 85.7% from RMB696.5 million in 1Q2020 to RMB1,293.2 million in 1Q2021, while gross profit increased 92.8% from RMB58.6 million in 1Q2020 to RMB113.0 million in 1Q2021.
	According to the Offer Document, Trans-China Automotive’s post-invitation earnings per share (EPS) is 3.8 Singapore cents based on the audited FY2020 income statement. With an Invitation Price of S$0.23, the price-to-earnings (P/E) ratio is approximately 6.1x.




      
    
    Financial Performance


Additional Information from Offer Document (click here)

IPO Details


Invitation price at S$0.23 per Invitation Share
	Invitation of 85.0 million Invitation Shares
	
2.9 million Offer Shares by way of public offer; and
		82.1 million Placement Shares by way of placement
	

	Net proceeds approximately S$16.3 million
	Parties who have applied for and have been allotted 5.0% or more of the Invitation Shares include (see full balloting results here):
	
Aberdeen Asset Management Asia Ltd
		Adedayo Funds Pte Ltd
		Starchase North Motorsports Pte Ltd
		Templeton Capital Pte Ltd
		Pheim Asset Management
		Boustead Singapore Limited
	

	Estimated IPO Market Capitalisation of S$134.4 million based on post-invitation share capital of 584.3 million Shares
	Net proceeds approximately S$16.3 million
	Use of net proceeds:
	
S$11.0 million – Increasing the number of dealerships, showrooms and service centres in cities with existing operations, namely in Foshan, Shenzhen, Guangzhou, Chongqing, Changsha and Wuhan
		S$3.0 million – Expanding business through growing dealership network to new regions, diversifying to other premium and ultra-premium automobile brands, expanding and diversifying into complementary businesses
		S$2.3 million – General working capital purposes 
	





Trans-China Automotive - China-based Automobile Dealership Group - Debuts on SGX