Unloved Chinese car site deserves a test drive

Yixin

16/03/2021 02:27

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
    HONG KONG, March 16 (Reuters Breakingviews) - An unloved
Chinese online car-sales site deserves a test drive. Shares in
$12 billion Autohome  2518.HK  rose a modest 2% in their Hong
Kong trading debut, raising $688 million, 30% less than planned
earlier. Yet an asset-light model and a chunky net profit margin
suggest it has room to run as consumer demand recovers. 
    China’s largest internet dealer makes money through
advertisements and sales of both new and used vehicles in the
world’s largest automotive market. That hasn’t excited investors
much. Its New York stock lags those of U.S.-listed peers like
TrueCar  TRUE.O  and CarMax  KMX.N , as well as local rival
Yixin  2858.HK . The trio’s shares have almost doubled in value
over the past 12 months, while Autohome’s are up just 27%.  
    It has been a tough couple of years in the People’s
Republic. A policy-induced slowdown in car sales driven by
changes to subsidies and emissions standards battered the top
line, and that was before the pandemic showed up. Autohome’s
revenue growth shrank to less than 3% last year, compared with
16% in 2019. Its plans to expand overseas to the UK and Germany
would be better put on hold. 
    But a look under the bonnet is encouraging. The company has
kept its net profit margin at around 40% for the past three
years, far higher than Chinese and American peers. In 2020,
managers protected profitability with tight cost controls while
rivals started losing money. Yet the enterprise trades at just
22 times EBITDA. Yixin fetches 31 times and CarMax is valued at
47 times, according to Refinitiv. Autohome is similarly cheaper
on a price-to-earnings basis. 
    The company may never garner the kind of giddy valuations
applied to other Chinese stocks that marry automotive and
technology themes, in particular electric-vehicle makers Nio
 NIO.N  and Xpeng  XPEV.N . That doesn’t mean it couldn’t figure
out a way to generate more buzz. A smaller car seller, Kaixin
Auto  KXIN.O , saw its shares rally by some 2,300% over a period
of two months last year after it said it planned to expand into
new energy vehicles. Autohome is also exploring ways to do more
with clean cars, according to its Hong Kong prospectus. In the
long run, reliable and dull models are safer to drive. 
    On Twitter https://twitter.com/KatrinaHamlin
    
    CONTEXT NEWS
    - Shares of China's Autohome closed at HK$180 in the
company’s Hong Kong trading debut on March 15, up 2.1% from its
issue price of HK$176.3. The online car-trading platform, which
also has a New York listing, raised HK$5.3 billion ($688
million) for investment in technology, new businesses and for
expansion to overseas markets.
    - For previous columns by the author, Reuters customers can
click on  HAMLIN/  
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Prospectus    https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0304/2021030400013.pdf
China's online vehicles platform Autohome rises in Hong Kong
debut      urn:newsml:reuters.com:*:nL1N2LD04M 
BREAKINGVIEWS - Beware Chinese used-car dealer’s sticker price  
  urn:newsml:reuters.com:*:nL1N2IC022
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 (Editing by Pete Sweeney and Sharon Lam)
 ((katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))