Trans-China Automotive Holdings - UOB Kay Hian 2021-11-26: A Premium Drive Gearing Up For The Fast Lane


Trans-China Automotive Holdings - A Premium Drive Gearing Up For The Fast Lane

  • Trans-China Automotive is a premium automobile dealership group mainly operating in China’s affluent Greater Bay Area. The company carries well-established automobile brands such as BMW and McLaren, riding on the strong demand for premium automobiles and the line-up of electric vehicles slated for launch.
  • Initiate coverage on Trans-China Automotive with BUY call.

Trans-China Automotive Holdings - Company Background

  • Trans-China Automotive Holdings (TC Auto, SGX:VI2) is headquartered in Hong Kong and Shenzhen and its business comprises:
    1. sale of automobiles;
    2. provision of after-sales services, which include maintenance and repair services and the sale of automobile parts and accessories; and
    3. the ancillary business of providing automobile agency services, which include related automobile registration, financing and insurance services in China (accounted for under Other Income).
  • Trans-China Automotive focuses exclusively on the premium and ultra-premium segments.
  • Trans-China Automotive’s Executive Director, Executive Chairman and Chief Executive Officer and Controlling Shareholder, Mr Francis Tjia, has been involved in the automobile retail business and dealership business since the early 1990s. In 2009, Mr Tjia incorporated Trans-China Automotive’s controlling shareholder, TCA International. In 2015, TCA International undertook a reorganisation exercise and transferred its BMW dealerships in Foshan, Shenzhen, Guangzhou and Chongqing, as well as the McLaren showrooms, to Trans-China Automotive.

Among the best-in-class premium automobile dealerships in GBA.

  • Trans-China Automotive operates four BMW dealerships, four McLaren showrooms and one Lotus showroom. Three of its BMW dealerships are in the Greater Bay Area (GBA). Trans-China Automotive is ranked third by number of BMW dealerships in the GBA.
  • Trans-China Automotive’s dealership network punches above its weight, with an average BMW automobile sales volume of 2,516 per dealership in 2020, well above the average of 1,342 per BMW dealership in China. Trans-China Automotive’s Foshan dealership is also the top-ranked dealership in Foshan, occupying a 38% market share in 2020 with a large area of over 20,000sqm. In general, Trans-China Automotive’s large dealerships, accommodated in the affluent and growing GBA market, enjoy a higher automobile sales volume per store, as well as higher after-sales service capacity with above-average absorption ratios.

Dealer of well-established automobile brands.

Riding on burgeoning growth of luxury car ownership in China.

  • China has to Frost & Sullivan, premium automobile ownership in China is expected to hit 46.3m in 2025, growing at a CAGR of 9.8% from 2021 to 2025.

After-sales with promising prospects.

Clear expansion strategy post-IPO.

  • Organically, Trans-China Automotive plans to increase the concentration of businesses in regions where its businesses exist, namely Shenzhen, Foshan, Guangzhou and Chongqing. Additionally, the group may expand via acquisitions of existing dealerships.
  • Trans-China Automotive is also looking to grow its dealership network to new regions outside of the cities in which it already operates, mainly in the southern coastal region of China, and in particular, the GBA.
  • Further, Trans-China Automotive plans to diversify to other premium and ultra-premium automobile brands, by way of setting up new dealerships or acquiring the existing dealerships of other premium and ultra-premium brands.
  • In addition, Trans-China Automotive is looking to broaden its business scope upstream, downstream, horizontally and vertically, into ventures which would complement its existing businesses.

Valuation of S$230m; growing dealership network.

Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-26
SGX Stock Analyst Report BUY INITIATE BUY 0.39 SAME 0.39