Equity Analyst, LightStream Research

Oshadhi Kumarasiri

An equity research analyst with over 7 years of experience in multiple sectors. Previously worked for one of the world's largest asset managers with about USD2.5trn in AUM, covering small and micro-cap companies in the consumer sphere across Europe and developed Asia. Also experienced in covering multiple industries including banking, insurance and asset management, retail, tech, telco and REIT.

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

China Zhengtong Auto Services Hldg / Equity Bottom-Up

China Zhengtong Auto Services Hldg (1728 HK)

<p>China Zhengtong Auto Services (ZhengTong) is a leading 4S dealership group with 141 dealership stores in 41 cities across 17 provinces within China. The company mainly focuses on luxury automobile brands such as Porsche, Mercedes-Benz, BMW, Audi, Jaguar and Land Rover and Volvo. About 87% of the dealership stores are dedicated to luxury brands. BMW is the most important brand for the company as 29% of the total stores are BMW stores while 6% of the stores are Mini stores (BMW acquired Mini in the year 2000).</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/112/419/original/image_80806356421578030990187.png?1578030988" class="editor-image img-responsive" data-smartkarma-image-id="112419"></figure><div class="content-caption"><em>Source: Company Disclosures </em></div><p>China’s auto sales started to stagnate with the slowdown in Chinese economy. During the last couple of years, it even started to decline as various factors such as the US China trade tension and the weak industrial output slowed down the Chinese economy and disposable income growth. Additionally, the government subsidies were also lowered for low-emission cars while the overall emission standards within China got tighter. As a result, auto sales declined for two consecutive years.          </p><p>However, the following luxury car brands, Audi, BMW, Jaguar, Land Rover, Mercedes-Benz, VW and Volvo have shown some signs of a recovery lately. These brands are the main brands of ZhengTong, and therefore the company is likely to benefit from this recovery in the above brands, possibly more than the peers.</p><p>We feel the market may have overlooked ZhengTong as the share price has dropped more than 30% during the year. On the other hand, the share prices of similar companies who are exposed to high end auto brands such as Mercedes, Lexus, Audi, Jaguar, Land Rover, Porsche, VW and Volvo (Zhongsheng and China Yongda Automobiles) have increased more than 50%.</p><p>ZhengTong is rather small compared to Zhongsheng and China Yongda Automobile. We believe it could have been a reason for ZhengTong to go unnoticed while the share price of the other two companies rallied. Additionally, ZhengTong doesn’t release a full earnings release for quarters as the company reports its results on a semi-annual basis. Thus, the signs of the recovery would have evaded most investors. Given all that, we feel the market may not see Zhengtong’s recovery until its 2H2019 results. Thus, we anticipate an earnings surprise and a rally in share price post earnings.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/112/418/original/image_15199534431578030990187.png?1578030988" class="editor-image img-responsive" data-smartkarma-image-id="112418"></figure><div class="content-caption"><em>Source: Cap IQ</em></div>

China Zhengtong Auto Services (ZhengTong) is a leading 4S dealership group with 141 dealership stores in 41 cities across 17 provinces within China. The company mainly focuses on luxury automobile brands such as Porsche, Mercedes-Benz, BMW, Audi, Jaguar and Land Rover and Volvo. About 87% of the dealership stores are dedicated to luxury brands. BMW is the most important brand for the company as 29% of the total stores are BMW stores while 6% of the stores are Mini stores (BMW acquired Mini in the year 2000).Source: Company Disclosures China’s auto sales started to stagnate with the slowdown in Chinese economy. During the last couple of years, it even started to decline as various factors such as the US China trade tension and the weak industrial output slowed down the Chinese economy and disposable income growth. Additionally, the government subsidies were also lowered for low-emission cars while the overall emission standards within China got tighter. As a result, auto sales declined for two consecutive years.          However, the following luxury car brands, Audi, BMW, Jaguar, Land Rover, Mercedes-Benz, VW and Volvo have shown some signs of a recovery lately. These brands are the main brands of ZhengTong, and therefore the company is likely to benefit from this recovery in the above brands, possibly more than the peers.We feel the market may have overlooked ZhengTong as the share price has dropped more than 30% during the year. On the other hand, the share prices of similar companies who are exposed to high end auto brands such as Mercedes, Lexus, Audi, Jaguar, Land Rover, Porsche, VW and Volvo (Zhongsheng and China Yongda Automobiles) have increased more than 50%.ZhengTong is rather small compared to Zhongsheng and China Yongda Automobile. We believe it could have been a reason for ZhengTong to go unnoticed while the share price of the other two companies rallied. Additionally, ZhengTong doesn’t release a full earnings release for quarters as the company reports its results on a semi-annual basis. Thus, the signs of the recovery would have evaded most investors. Given all that, we feel the market may not see Zhengtong’s recovery until its 2H2019 results. Thus, we anticipate an earnings surprise and a rally in share price post earnings.Source: Cap IQ

China Yongda Automobile Services Hldg (3669 HK)

China Zhengtong: Tailwinds from China’s Luxury Car Market Resilience Going Unnoticed - Quantamental