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Editor of Every Economic Report: Huang Sheng

On July 22, in response to the rumors on the Internet that "Guanghui Auto purchased the assets of its major shareholder Guanghui Group at a high premium through a private placement of 37.8 billion yuan, and the purchased assets included 9.8 billion yuan in intangible assets, and also generated 18.8 billion yuan in goodwill assets", Guanghui Automotive Service Group Co., Ltd. issued a statement on its official website to deny the rumors.

It is worth noting that Guanghui Auto issued an announcement on the evening of July 21, stating that the company received a "Regulatory Work Letter on Matters Related to the Termination of Listing of the Company's Shares and Convertible Corporate Bonds" issued by the Shanghai Stock Exchange on July 21.

Guanghui Auto denies purchasing major shareholder's assets at a high premium: rumors are misunderstood

Regarding the rumors, Guanghui Auto responded as follows:

1. According to public information, in 2015, Guanghui Auto injected about 22.8 billion yuan in assets and went public through the shell company "Meiro Pharmaceutical". Since then, Guanghui Auto has raised a total of 17.37 billion yuan through private placement and public issuance of convertible bonds, including two private placements and one convertible bond financing, all of which were used to support the development of the company's main business: 6 billion yuan of supporting funds raised by issuing shares to purchase assets in 2015; 8 billion yuan of funds raised by private placement of shares in 2017; 3.37 billion yuan of funds raised by publicly issued convertible corporate bonds issued in 2020. The total amount of financing for the three times is 17.37 billion yuan.Rather than the "37.8 billion yuan in financing" mentioned in the rumors, this calculation method may have misunderstood the asset injection of 22.8 billion yuan, which leads to a deviation in understanding.

2. The rumor that "the company paid a high premium to purchase the assets of the major shareholder Guanghui Group, and 9.8 billion of the purchased assets are intangible assets" is also not true. According to the 2023 annual report, the company's intangible assets are 7.911 billion yuan, including 2.695 billion yuan in land use rights, 5.087 billion yuan in franchise rights, 95.2429 million yuan in software and others. Among them, land use rights are recorded at the actual price paid, and because they were purchased earlier, they are undervalued assets; manufacturer-authorized franchise rights are intangible assets recognized during the corporate merger process.This is because the Group took over the brand automobile retail business of the acquired unit and obtained the franchise rights authorized by the brand manufacturer, which does not fall into the category of "purchasing assets of the major shareholder Guanghui Group at a high premium".

3. The rumor also mentioned that "goodwill assets of 18.8 billion were also generated." Goodwill is formed by the difference between the merger cost and the fair value of the net assets of the acquired party on the date of purchase when enterprises under different control merge during the reporting period, and by Guanghui Auto's acquisition of 4S stores during its development and growth. It is also not formed by "purchasing the assets of the major shareholder Guanghui Group." In fact, when the company recognized goodwill in the merger and acquisition that year, it did not re-evaluate the goodwill after resetting the net assets of some acquisitions. In addition, since the core net assets of 4S stores are land assets, and the value of land assets has been doubling at a fast rate, the land assets were not re-evaluated when the original net assets were determined, resulting in a large portion of the goodwill being a premium on the value of the land, causing the company's overall goodwill balance to be large, which is actually mostly a risk-free land value premium.

Guanghui Auto plans to delist!

On the evening of July 21, Guanghui Automobile issued an announcement stating that the company received a "Regulatory Work Letter on Matters Related to the Termination of Listing of the Company's Shares and Convertible Corporate Bonds" issued by the Shanghai Stock Exchange on July 21, 2024.

Guanghui Automobile announced that because its stock price closed below 1 yuan for 20 consecutive trading days from June 20, 2024 to July 17, 2024, the company's stock and convertible bonds have reached the conditions for delisting.

Guanghui Auto's shares and convertible bonds have been suspended since July 18. The Listing Review Committee will review whether to terminate the listing within 15 trading days after the hearing process ends, and require it to complete the transfer of shares within 45 trading days from the date of delisting.

The closing price of the company's stock on June 20, 2024 was 0.98 yuan per share, which was below RMB 1 for the first time. As of July 17, 2024, the closing price of the company's stock was 0.78 yuan per share, which was below RMB 1 per share for 20 consecutive trading days.

Public data shows that as one of the largest domestic auto dealers, Guanghui Auto has established a national auto dealer network covering 28 provinces, autonomous regions and municipalities, operating a total of 735 business outlets. Guanghui Auto has been ranked at the top of the "Top 100 Chinese Auto Dealer Groups Ranking" issued by the China Automobile Dealers Association from 2011 to 2023.

The company has more than 50 passenger car brands ranging from ultra-luxury, luxury to mid-to-high-end. As of the end of the reporting period, the company operated 735 dealerships covering 28 provinces, autonomous regions and municipalities across the country, with 16.15 million base customers.

Since 2024, the price competition in the automobile industry has been fierce, and the profitability of automobile dealers has declined sharply. In the first quarter of 2024, Guanghui Auto achieved operating income of 27.79 billion yuan, a year-on-year decrease of 11.49%; net profit attributable to the parent company was 70.94 million yuan, a year-on-year decrease of 86.61%.

Guanghui Auto expects that its net profit attributable to shareholders of the parent company will be a loss in the first half of 2024, with an estimated loss of 583 million yuan to 699 million yuan.

Guanghui Auto said that the industry's competitive landscape has intensified, and major automakers have launched price wars to grab market share, causing the company's new car sales volume and gross profit margin to decline compared with the same period last year.

Affected by the above factors, United Credit Rating Co., Ltd. ("United Credit") recently conducted tracking analysis and evaluation on the credit status of Guanghui Auto and its related bonds, and decided to downgrade Guanghui Auto's long-term credit rating to AA, downgrade the credit rating of "Guanghui Convertible Bond" to AA, and adjust the rating outlook to negative.

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