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Entering a new phase

Investment Thesis

Rebuilding dealership business. The company is actively negotiating with automakers to re-establish relationships and trust. But the process needs time, and we expect only gradual improvements in profitability in the near-term. In
1H21, the company incurred operating losses of Rmb762m.

Divestment of auto finance business. While this is a fastgrowing business, divestment could help to lessen the financial burden on the company’s balance sheet. As of Jun21, the net gearing was about 3.3x. ZhengTong is seeking a potential buyer and aims to complete the transaction by end Dec-21.

New major shareholder. Xiamen ITG has become the major shareholder and could help to strengthen the ZhengTong
dealership business. ZhengTong is now under the umbrella of a state-owned enterprise, which may lead to financial
stability.

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Valuation

Our new TP of HK$1.20 is based on 10x PE FY22F, discount to sector average of 11x. Based on current valuation, we
believe the expected turnaround has been priced in.

Where we Differ

Our FY21-22 estimates are lower compared to consensus due to lower growth expectations of its dealership
operations.

Key Risks to Our View

The turnaround of the auto dealership business may take longer than expected.