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A. Stotz Investment Research

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Zhongsheng (881 HK): Caters to China's Luxury Car Demands

Zhongsheng: New Benz and Streamlining to Grow Margins

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Equity Bottom-Up

<ul><li>Improving asset turnover, improving operating profit, and good price momentum relative to its sector</li><li>Strong sales of mid to high end cars in China should be further supported by upper middle and affluent classes, expected to grow to an estimated 30% by 2020 versus current 17% of urban population</li><li>Its auxiliary business related to auto sales, such as insurance brokerage and auto finance commission, should grow supported by rising popularity of leasing as well as other alternative financing</li><li>Trades at attractive 17CE* 10.4% ROE/PB versus Asian sector at 6.8%</li><li>Risks: Intense competition in the segment could reduce margins</li></ul>* Consensus Estimates

Improving asset turnover, improving operating profit, and good price momentum relative to its sectorStrong sales of mid to high end cars in China should be further supported by upper middle and affluent classes, expected to grow to an estimated 30% by 2020 versus current 17% of urban populationIts auxiliary business related to auto sales, such as insurance brokerage and auto finance commission, should grow supported by rising popularity of leasing as well as other alternative financingTrades at attractive 17CE* 10.4% ROE/PB versus Asian sector at 6.8%Risks: Intense competition in the segment could reduce margins* Consensus Estimates

Zhongsheng (881 HK): Middle Class Growth Driving Auto Demand

Zhongsheng Group

Zhongsheng (881 HK): Middle Class Growth Driving Auto Demand