Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
ZHENGTONGAUTO
HKEx Stock Code : 01728 
 
Corporate Profile
Principally engaged in 4S dealership business, motor-related logistics business and lubricant oil trading business in the People's Republic of China (the ˇ§PRCˇ¨).

Business Review - For the year ended December 31, 2012

Sustained growth in sales of premium and ultra premium branded new automobiles In spite of the impacts of global economic turmoil, sales volume of premium and ultra premium branded automobiles in China maintained a higher growth in 2012. As benefited from our strategy focusing on premium and ultra premium branded automobiles, the Group has achieved a satisfactory growth in its results. For the year ended 31 December 2012, sales of new automobiles was approximately RMB24,841 million, representing a year-onyear growth of approximately 91.8%. Revenue generated from sales of premium and ultra premium branded automobiles was approximately RMB21,834 million, up by 106.3% over the previous year, representing approximately 87.9% (2011: approximately 81.7%) of our total revenue generated from sales of new automobiles. In terms of sales volume, we sold 70,493 automobiles in total for the year ended 31 December 2012, representing a year-on-year growth of 75.7%, in which 45,810 automobiles were premium and ultra premium branded, up by114.3%, representing 65.0% of total sales volume in 2012.

In 2012, the Group set up a Lamborghini 4S store, a Porsche 4S store, two Audi 4S stores, a Volvo 4S store, a Volvo show room, a Jaguar Land Rover show room, an Imported Volkswagen show room. As at 31 December 2012, the Group had 86 dealership outlets, including 70 4S stores and 16 showrooms, out of which 70 dealership outlets were engaged in premium and ultra premium branded automobiles. In addition, the Group also has 11 dealership stores in construction located in first tier cities, such as Beijing, Shanghai, Guangzhou, Shenzhen, and second and third tier cities with potential for rapid development, such as Chengdu, Wuhan, Nanchang, Dongguan and Zhanjiang, involving brands like Jaguar/ Land Rover, BMW, Audi, Benz, Cadillac, Acura and Imported Volkswagen.

Huge economic potential of after-sales services business is emerging

A great importance has been attached to our after-sales services business. As one of our development strategies, the Group has fully tapped huge economic potential of after-sales services business by enhancing our quality of after-sales services as well as building up our brand of after-sales services. With increasing number of our dealership stores as well as rising accumulative sales volume of new automobiles, we own an enormous number of after-sales service customers. With this advantage, the performance of our after-sales services business has been promising, bringing about stable revenue and profit for the Group.

For the year ended 31 December 2012, the Group's after-sales services business contributed turnover of approximately RMB2,317 million, up by approximately 121.3% from the turnover of approximately RMB1,047 million over the same period last year. Gross profit generated from the after-sales services increased from approximately RMB457 million in 2011 to approximately RMB1,044 million, representing a growth of 128.4%. We have adhered to our operational notion of ˇ§customer comes firstˇ¨ by improving the quality of its after-sales services and establishing new model of after-sales services, increasing the gross profit margin of after-sales services business from 43.6% in 2011 to 45.1%. The Group has endeavored to enhance customer satisfaction as well as optimize the structure of after-sales services business, leaving the after-sales services business room for further improvement of gross margin.

Revenue and gross profit of our after-sales services business have grown rapidly with increasing share of our total revenue and total gross profit. In 2012, revenue and gross profit attributable to after-sales services increased to 8.4% and 42.6% from 7.3% and 33.0% in 2011 respectively. After-sales services business has become a new core business of the Group in addition to sales of new automobiles, effectively securing the Group stable earnings.

In the past, our after-sales services were merely provided in 4S dealership stores. In order to further expand the after-sales services business and reduce operational costs, the Group intends to set up premium branded automobiles professional repair stores for the purpose of providing our customers professional and express after-sales services. Currently, we have a Benz repair center and a BMW repair center under construction. Not only could the establishment of premium branded automobiles professional repair stores accelerate the expansion of geographical coverage of our after-sales services, but also effectively reduce the cost of after-sales services, consolidating the Group's leading position in after-sales services sector and fully tapping huge potential of our after-sales services business.

Further intensifying development of derivative services business

With further increases in vehicle market penetration and ownership in China, derivative services business of automobile industry will become our third core business following sales of automobiles and after-sales services. In 2012, our derivative services business made astonishing progress. We will continue to intensify the development and expansion of our derivative services business, generating greater income. In respect of sales of accessories for automobiles, we have expanded sales of automobile accessories and effectively reduced procurement costs depending on its dealership network upon the establishment of centralized procurement center. For pre-owned automobile business, we have increased the replacement rate of pre-owned automobiles and set up an advanced assessment system and trading platform for pre-owned automobiles with an aim to lay a concrete foundation of the development of pre-owned automobile business. For automobile financing and insurance agency, we have established cooperation relationship with well-known domestic financial and insurance institutions, providing favorable support to the rapid development of our automobile financing and insurance agency business. The derivative services business will provide the Group another impetus for development.

Business Outlook - For the year ended December 31, 2012

Faced with economic upheaval over the last year, the PRC government has taken on maintaining steady economic growth as its priority task goal. We believe the PRC government will implement loose monetary policy in a bid to sustain economic growth in a stable manner in 2013.

Being driven by the following favorable factors, the Group anticipates that China's premium automobile market will maintain rapid growth. Firstly, the current penetration of premium branded automobiles in China is much lower that the global average, providing room for the premium branded automobiles market to grow; secondly, with China's automobiles marketing getting mature, the growth in sales volume of premium branded automobiles will be bolstered by the demand for upgrade and replacement of automobiles; thirdly, expansion of product lines by premium branded automobiles manufacturers, progressive launch of entry level premium branded automobiles as well as expansion of domestic demand have promoted emerging affluent people who have buoyant demand for premium branded automobiles, in particular, entry level premium branded automobiles. We will capitalize its advantages of nationwide network to consolidate its position in first tier cities and expand into second and third tier cities so as to take up growth opportunities in premium branded automobiles market.

In addition, given China's automobile market getting mature, after-sales services business and derivative services business will overtake sales of new automobiles business becoming a major profit driver of automobile dealers in near future. As the Group has accumulated a large number of after-sales services customers from sales of new automobiles business over years, we are confident to tap such strategic opportunity to complete strategic transformation ahead of others by providing quality after-sales services to retain existing customers and attract new customers, in order to establish brand awareness and market leader position in the market of after-sales services for premium automobiles. Meanwhile, additional efforts will be made in developing derivative business, in particular sales of accessories for automobiles, pre-owned automobiles business, insurance agency business and automobile financing business, with an aim to further increase our profit.

Source: ZhengTong Auto (01728) Annual Results Announcement
Chairman N/A Issued Capital (shares) 2,210M
Par Value HKD 0.1 Market Capitalisation (HKD) 9,746M
 
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