Trans-China Automotive Holdings Limited IPO Launch

Trans-China Automotive Holdings Limited (“Trans-China”) has officially launched its Initial Public Offering ("IPO") on the Catalist of Singapore Exchange on 1 November 2021.

In this article, we will be looking at some of the key highlights for this upcoming Catalist IPO.

Details of Offering

Trans-China will be offering 85.0 million ordinary shares at S$0.23 which comprises of:

• 2.9 million ordinary shares by way of public offer.
• 82.1 million ordinary shares by way of placement.

Based on the offer price and enlarged post-IPO share capital of 257 million shares, Trans-China's market capitalisation will come in at around S$134.4 million.

The Public Offer has closed as of 12.00 noon today (9 November 2021).

Trans-China expects to commence trading on the Catalist of Singapore Exchange on a “ready” basis at 9.00 a.m. on 11 November 2021.

Corporate Profile for Trans-China

Headquartered in Hong Kong and Shenzhen with a history dating back to 2009, Trans-China is a leading automobile dealership group focused on the distribution of premium and ultra-premium automobiles under the BMW, McLaren and Lotus brands. Its dealerships are in key cities in the People’s Republic of China (“PRC”) namely, Foshan, Shenzhen, Guangzhou, Chongqing, Changsha and Wuhan.

In addition to the sale of automobiles, the Group provides after-sales services including maintenance and repair services as well as the sale of automobile parts and accessories. It provides automobile agency services as an ancillary business, which includes related automobile registration and administration for financing and insurance services in the PRC.

Group Structure

Management Team

Mr. Francis Tjia is the Founder, Executive Director, Executive Chairman and CEO of Trans-China. He was appointed to the Board upon incorporation of the Company on 18 December 2015 and is responsible for overseeing the strategic planning and growth of Trans-China.

Mr. Michael Cheung is the Executive Director & Chief Finance Officer (“CFO”) of Trans-China. He is responsible for overseeing the overall financial functions, corporate governance and corporate communications. Before joining in 2015, Mr. Cheung served in various finance roles, beginning with assurance and audit with PricewaterhouseCoopers LLP (“PwC”) in Vancouver, Canada and San Francisco, California in 2001.

Historical Financial Performance

For FY2020, Trans-China's revenue grew by 11.8% year-on-year to RMB4.21 billion. The increase was attributable to an increase in the sale of automobiles and partially offset by a decrease in after-sales services revenue.

Despite the gradual improvement in topline, Trans-China's profit after tax surged by more than 300% year-on-year to RMB109.9 million in FY2020. The spectacular jump to its bottom line was contributed by the following:

• Fair value gain on convertible notes
• Higher Other income due to an increase in handling and commission fees
• Reversal of Provision for Impairment of Property Plant and Equipment
• Lower net finance costs

For 1Q FY2021, Trans-China's revenue surged by nearly 86% year-on-year to RMB1.29 billion. The huge jump in its topline was mainly due to an increase in both the sale of automobiles and after-sales services revenue and partly due to the COVID-19 related disruptions which its dealerships experienced in 1Q FY2020.

With the surge in its revenue, its profit after tax catapulted by more than 1500% year-on-year to RMB46.83 million.

Here is the revenue breakdown for Trans-China across the years:

Dividend Policy

Currently, Trans-China does not have a formal dividend policy. The form, frequency and amount of future dividends will be subject to the factors outlined below, as well as other factors deemed relevant by the Board:

• The level of cash and retained earnings.
• Actual and projected financial performance.
• Projected levels of capital expenditure and expansion plans.
• Working capital requirements and general financial condition.
• Restrictions on payment of dividends imposed as a result of financing arrangements (if any); and
• Financial, regulatory or general economic conditions.

Use of IPO Proceeds

Trans-China intends to utilize the net proceeds from the upcoming IPO towards the following purposes:

• Expanding the number of dealerships, showrooms and service centres in existing cities such as Guangzhou, Shenzen, Chongqing and more.
• Expanding its dealership network to new regions, as well as diversifying into other premium and ultra-premium automobile brands.
• General working capital purposes.

Business Strategies & Future Plans

In conjunction with this IPO, Trans-China has laid out some of its upcoming business strategies and future plans.

Firstly, it intends to increase business presence in the regions where Trans-China have existing operations through organic growth including setting up new dealerships and acquisition of existing dealerships in cities with affluent populations.

Secondly, the Group will grow its dealership network to new cities and regions by capitalising on new dealership opportunities made available by the various automobile OEMs in new regions.

Thirdly, it will look towards securing new dealerships for other premium and ultra-premium automobile brands by way of setting up new dealerships or acquiring existing dealerships.

On the diversification front, Trans-China may diversify into complementary businesses by broadening business scope upstream, downstream, horizontally or vertically into related ventures that complement existing business scope in the PRC and overseas.

The above may include collaboration with suitable partners through joint ventures or strategic alliances to expand pre-owned automobile sales business and automobile-related services businesses.

Risks Factors for Trans-China

While we see potential in the upcoming growth of Trans-China, we also noted some risks according to their prospectus including:

• Primarily dependent on the sales of BMW and McLaren automobiles.
• Government related policies on automobile imports, purchases and ownership.
• Significant competition from other automobile dealers carrying the same brands or types of automobiles.
• Rising labour costs and labour shortage.

Conclusion

In summary, below are some competitive advantages that Trans-China has to offer:

• Well-established automobile brands and have strategic presence in geographically affluent provinces in the PRC.
• Maintain strong business relationships with BMW and McLaren.
• Customer-focused strategy which emphasises on providing consistent quality services.
• Ability to expand our Group’s dealerships both organically and through acquisitions.
• Experienced and committed management team.

With the amount raised from this IPO, Trans-China will have enough resources on hand to deploy its intended expansion plan and secure its future growth trajectory.

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