Car dealership group Trans-China Automotive prices IPO at S$0.23 per share

CAR dealership group Trans-China Automotive Holdings (TCA) on Monday (Nov 1) lodged its final prospectus, offering around 85 million shares at S$0.23 each for placement in its initial public offering (IPO).

Headquartered in Hong Kong and Shenzhen, TCA specialises in car dealerships in the premium and ultra-premium market segments under the BMW, McLaren and Lotus brands.

Upon successful listing, TCA will become the first car dealership group with operations in China to list on the local bourse.

The shares, to be listed on the Catalist board, comprise around 82.1 million placement shares and 2.9 million invitation shares under the Singapore public offer.

The invitation represents approximately 14.6 per cent of the enlarged share capital of 584.3 million shares of TCA. Based on the offer price and the post-offer share capital, TCA's market capitalisation upon the listing will be about S$134.4 million.

The public offer will close at noon on Nov 9, and trading is expected to commence on Nov 11.

RHT Capital is the issue manager and full sponsor while UOB Kay Hian is the underwriter and placement agent.

The IPO and issuance of shares will deliver about S$16.3 million in net proceeds. These funds will go towards increasing the number of dealerships, showrooms and service centres in cities with existing operations including Foshan, Shenzhen, Guangzhou, Chongqing, Changsha and Wuhan.

Proceeds will also be used to expand its dealership network to new regions as well as diversify its premium car brands.

TCA's two main business segments are car sales and provision of after-sale services including repairs and scheduled servicing, maintenance and inspection of cars. In addition, TCA also sells pre-owned cars that come mainly from customer trade-ins, auction companies and other suppliers of used cars and are not limited to the brands it carries.

For the first quarter ended March 31, 2021, TCA generated a revenue of 1.3 billion yuan (S$274.3 million), 85.7 per cent higher than 696.5 million yuan over the same period in 2020. Net profit stood at 46.8 million yuan in Q1 of 2021, 16 times the 2.9 million yuan reported in the previous year.

The strong set of Q1 results was in part due to an increase in both the sale of cars and after-sales services revenue amid a recovery from Covid-19 disruptions.

For FY2020, total revenue rose 11.8 per cent from 3.8 billion yuan in FY2019 to 4.2 billion yuan in FY2020. Net profit was 109.9 million yuan for FY2020, four times the 23.6 million yuan the previous year.

TCA was founded in 2009 by executive chairman and chief executive officer Francis Tjia who has more than 20 years of industry experience.

Even though China is the largest car market in the world, car ownership there is still relatively limited, said Tjia in a media briefing on Monday.

In North America and Western Europe, for instance, there are about 600 cars on the road for every 1,000 people. In China, that number is just around 150 for every 1,000 people.

There is therefore still a lot of upside for growth in China, said Tjia.

"We want to have a strategic presence in key automobile markets - that's why we focus on the very large, wealthy metropolitan areas. As China gets wealthier, I think ownership rates will start to approach what we see in North America or in Western Europe," said Tjia.

The premium segment also tends to be more resilient.

"I do expect to see cyclicality in the overall business cycle," said Tjia in response to queries on how inflation might affect TCA's operations.

"I would never claim that China is going to be immune from short- or medium-term business cycles. But what does stand out is that in the premium segment, we've always seen continuous, positive growth," he said, adding that there is a burgeoning demand from high net worth individuals.

The number of high net worth individuals in China is expected to increase at a compound annual growth rate of 8.5 per cent between 2020 and 2025; and this is expected to have a positive impact on ownership of premium cars.

Another trend that TCA is keeping a close eye on is the electrification of vehicles.

China is the world's largest new energy vehicle market, accounting for more than 50 per cent of global sales volumes of electric vehicles in 2020, according to data from Frost & Sullivan.

Tjia said that the company is prepared to meet the demand for electric vehicles. All of TCA's dealerships, for instance, have charging stations. The group is also authorised by BMW to sell electric vehicles as well as to repair and maintain them.

The adoption of electric vehicles will not happen overnight, said Tjia, which is why TCA will still carry traditional internal combustion engine cars.

That said, electrification is here to stay and TCA will be on the lookout for original equipment manufacturers that are ready to meet the demands of electrification disruption in the next few years.

On choosing to list in Singapore, Tjia said that car dealerships in China have been a very popular investment sector for many years and there are already several of such companies listed in Hong Kong.

Listing there would therefore mean facing an additional challenge of convincing investors to switch out of their existing exposure, he said.

There is appetite in Singapore for China-based consumer companies that are growth-oriented, signficant in size and have shown solid profitability, he added.

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