Zhongsheng shares rally on Jardines investment
The share price of Zhongsheng Group rose 8.85 per cent yesterday after Jardine Strategic announced it was investing HK$5.6 billion in the car dealer.
Jardines bought 236.5 million new Zhongsheng shares at HK$10.80 each, with the HK$2.57 billion deal giving it an 11.1 per stake in Zhongsheng. It also bought a HK$3.09 billion convertible bond that, if converted, would increase its stake to about 20 per cent.
The deal marks Jardines' first big investment in a listed mainland company.
"We have joint ventures in China but this would be the first material stake in a listed company [on the mainland]," said Neil McNamara, the director of group corporate affairs at parent firm Jardine Matheson.
Zhongsheng operates 163 dealerships across 15 provinces. Toyota and Mercedes-Benz are the firm's two biggest brands, contributing 25 per cent of revenue in 2012, according to Macquarie.
Jardines' subsidiary Zung Fu is a Mercedes-Benz dealership network with 29 outlets on the mainland, "so there is a strategic fit" between the entities, Macquarie said in a note to clients.
McNamara said Jardines was looking to expand regional businesses into the mainland.
He said subsidiary Hongkong Land had "significant" property in Beijing, and that it was also looking to expand its Mannings pharmacies and 7-Eleven convenience stores into the mainland.
"We are looking at areas of business that we operate in regionally, and to see if we can expand those into the mainland," he said.
The car dealership business was attractive because it offered exposure to the profitable business of after-sales car servicing, said Scott Laprise, a Beijing-based automotive analyst with CLSA.
"Car sales are erratic, but services are locked in, and it's very high margin, especially for luxury cars," he said.