Chinese-funded auto dealers are expected to bring their dismal performances on the stock market to an end, thanks to the upcoming merger and acquisition (M A) tide.
Baoxin Auto Group Limited (01293.HK) saw its stock price surge 36.05 percent to 3.51 HK dollars on Wednesday, after it received an expression of interest from China Grand Automotive Services Co., Ltd. (600297.SH) in a possible cash offer for its shares.
Baoxin Auto's performance gave a strong push to the stock prices of other auto dealers including Zhongsheng Group Holdings Ltd. (00881.HK) and China Zhengtong Auto Services Holdings Limited (01728.HK).
Many investment banks are optimistic about the acquisition of Baoxin Auto by the Chinese auto dealers, saying the transaction will benefit both sides.
Deutsche Bank maintained its "buy" rating on Baoxin Auto and set its target price at 4.4 HK dollars per share. It said that China Grand Automotive Services Co., Ltd., as a nationwide car distributor, purchased 45 4S stores in the first half of this year, but most of its stores are located in central China and western China regions.
Meanwhile, the main concentration of Baoxin Auto's outlets is in southwest China and northwest China. Thus, the two companies can complement each other's advantages, said the investment bank.
Morgan Stanley said Baoxin Auto, as one of the top ten car distributors in Chinese mainland, will have its leadership strengthened through the transaction. Statistics show about 70 percent Chinese auto dealers ran in the red in the middle of this year.
According to China Automobile Dealers Association, some small-sized auto dealers went bankrupted in the first half of this year, while some big dealers were engaged in mergers and acquisitions. Analysts say the Chinese auto dealership industry has entered into a reshuffle period.