UOB Kay Hian has initiated “buy” on Trans-China Automotive Holdings with a target price of 39 cents.
The counter is valued based on a forward price-to-earnings (P/E) range of 6 times FY2022 earnings of RMB180.2 million ($38.3 million).
“This is at a 25% discount to its dealership network and, coupled with better operating efficiency, could see its discount to peers narrow,” writes the brokerage’s Singapore research team in a Nov 26 report.
Trans-China Automotive Holdings is a premium automobile dealership group with operations in China.
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Headquartered in Hong Kong and Shenzhen, the group is the first China-based car dealership group to list on the Singapore Exchange (SGX).
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The group launched its initial public offering (IPO) on the Catalist board on Nov 1.
To the team at UOB Kay Hian, Trans-China Automotive Holdings is among the best-in-class premium automobile dealerships in the Greater Bay Area with four BMW dealerships, four McLaren showrooms and one Lotus showroom.
The group’s dealership network rakes in an average sales volume of 2,516 per dealership in 2020 for BMW automobiles, well above the 1,342 per BMW dealership in China.
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The group’s dealership in Foshan is also the top-ranked dealership in the city, with a 38% market share in 2020.
In addition to being the dealer of well-established automobile brands, the group is riding on the burgeoning growth of luxury car ownership in China.
The country has been experiencing rapid economic growth with the number of high-net-worth individuals (HNWIs) growing at a compound annual growth rate (CAGR) of 54.4% from 2016 to 2020.
“Consumer demand for premium and ultra-premium automobiles is expected to grow with the rising number of HNWIs, given their spending power and higher propensity to spend on aspirational products, [which are] often regarded as status symbols,” says the team.
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According to Frost & Sullivan, the premium automobile ownership in China is expected to hit 46.3 million in 2025, growing at a CAGR of 9.8% from 2021 to 2025, it adds.
As at 12.30pm, shares in Trans-China Automotive Holdings are trading 0.5 cent lower or 1.72% down at 28.5 cents.
Photo: Trans-China Automotive