Despite Europe's debt crisis and fears of a slowdown in the Chinese economy next year, Baoxin Auto aims to grow the number of car dealer stores on the mainland by 30 per cent every year over the next five years.
The luxury car dealer, which sells European luxury brands including BMW, Jaguar Land Rover and Audi, will list on the mainboard of Hong Kong's stock exchange on December 14. International institutional investors' demand for Baoxin's initial public listing had been 'overwhelming', said a banker who declined to be named.
Sales of luxury cars on the mainland would surge 44 per cent to 1.3 million next year, after growing 30 per cent to 900,000 cars this year, Baoxin chairman Yang Aihua said.
'Demand will still be strong next year, so we are bullish about our business. We hope to gain more luxury car brands,' Yang said.
The company's IPO prospectus, however, warns that the global economy is facing significant risks, which may adversely affect the mainland economy and would hurt Baoxin's business, which is entirely based on the mainland.
'Any slowdown in China's economy may adversely affect demand for our automobiles. If there is any further fiscal or credit tightening by the Chinese government, demand for our automobiles as well as our access to external financing may decrease,' the prospectus says.
Mainland sales of luxury cars are expected to rise at a compound annual growth rate of 26 per cent from this year to 2014, Euromonitor International says. In contrast, growth of passenger car sales in general slowed to 5.86 per cent in the first 10 months this year from 20 to 40 per cent in the past two years. China is the world's largest passenger car market.
Baoxin expects to raise net proceeds of HK$2.97 billion from its IPO, assuming the midpoint of its offer price range between HK$8.50 and HK$10.80 per share. It will devote 80 per cent of its net proceeds, or HK$1.84 billion, to expanding its dealership network on the mainland. 'We are very interested in opening stores in western China,' Yang said.
The company plans to open showrooms in Zhejiang, Shandong and Tianjin, plus two dealership stores in Shandong and Liaoning, by the end of this year. More new stores and a repair centre are on the cards next year in Tianjin, Guangdong, Jiangsu, Shandong, Zhejiang, Shanghai, Liaoning and Beijing.
Beijing and Guangdong will be new markets for Baoxin, which now has stores in the provinces of Liaoning, Tianjin, Shandong, Zhejiang and Jiangsu, as well as Shanghai. These six regions accounted for 47.2 per cent of its luxury car sales on the mainland, company president Yang Hansong said.
The number of stores operated by Baoxin expanded from 20 at the end of last year to 28 as of September 30.
Net profit margin rose from 3.4 per cent in 2009 to 4 per cent in 2010 and 4.1 per cent in the first half. Revenue soared 54.2 per cent to 5.23 billion yuan in the first half, while net profit surged 63 per cent to 213.9 million yuan.
Morgan Stanley is the sole global co-ordinator of Baoxin's IPO, while the joint sponsors are Morgan Stanley and JP Morgan.Topics: Shandong Economy of the People'S Republic of China Shandong Business