Hong Kong, April 26, 2019 -- Moody's Investors Service says that China Grand Automotive Services Co.,
Ltd.'s 2018 results support its B1 corporate family rating and
positive outlook.
"China Grand Auto grew its revenue and expanded its EBITDA margin
despite a decline in auto sales in China in 2018," says Gerwin
Ho, a Moody's Vice President and Senior Credit Officer.
"While the company's debt leverage was flat in 2018 versus
a year ago, Moody's expects leverage will improve in the next
12 to 18 months as the company moderates its acquisitions and investments,"
adds Ho, who is also Moody's Lead Analyst for China Grand Auto.
China Grand Auto's revenue grew 3% year-on-year
to RMB166 billion in 2018, mainly reflecting growth in service-related
revenue.
The company's new vehicle unit sales were flat year-on-year
at 881,655, accounting for 3.7% of total passenger
vehicle sales in China in 2018, up from 3.6% in 2017.
The company operated in 839 locations at the end of 2018, including
777 4S (sales, spare parts, services and survey) dealership
stores that covered about 50 brands. Headquartered in Shanghai,
it maintains a presence in 28 regions across China, with particularly
strong market positions in West and Central China.
Moody's expects China Grand Auto's revenue to rise about 3% year-on-year
in 2019, supported by growth in new vehicle unit sales and rising
service-related revenue, including for auto maintenance,
commissions and auto leasing.
The company's adjusted EBITDA margin also improved to about 6.7%
in 2018 from 6.5% in 2017, driven by increasing revenue
contributions from its higher-margin service-related businesses.
Service-related revenue accounted for 14.1% of the
company's total revenue in 2018, up from 12.5% in
2017. In particular, the contribution from auto maintenance
to total revenue rose to 9.2% in 2018 versus 8.2%
a year ago.
Gross margins for the company's service-related operations
are higher than for its new vehicle sales and, as such, account
for the majority of gross profit. In particular, auto maintenance
contributed 31.8% of gross profit in 2018 and 31.7%
in 2017.
Moody's believes the company will continue to grow its service-related
revenue, including auto maintenance, supported by its large
and growing customer base.
Moody's expects that China Grand Auto's EBITDA margin will remain stable
at about 6.8% over the next 12-18 months, as
greater contributions from higher margin service-related revenue
offsets competition-related pricing pressure.
The company's adjusted debt rose to about RMB64 billion at the end
of 2018 from RMB61 billion at the end of 2017 to fund its operations,
investments and acquisitions.
However, offset by rising EBITDA, the company's debt
leverage, as measured by adjusted debt/EBITDA, remained flat
at about 5.8x at the end of 2018 from a year ago.
Moody's expects that China Grand Auto's adjusted debt/EBITDA improve to
about 5.4x over the next 12-18 months, while EBITDA/interest
should reach about 3.8x during the same period versus about 3.7x
in 2018.
China Grand Auto's liquidity position is moderate. At the end of
2018, its restricted and unrestricted cash of RMB25 billion was
insufficient to cover its short-term debt of RMB37 billion.
Nonetheless, Moody's expects that the company will be able to rollover
its debt with domestic banks, given its profitable operations,
strong market position, and inventory of branded cars.
The company also has a good track record of access to diversified funding
channels, including onshore debt instruments such as corporate bonds,
medium-term notes, and asset-backed securities,
as evident in the company's issuance of USD100 million and USD300
million of offshore bonds in January and March of 2019.
The principal methodology used in this rating was Retail Industry published
in May 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Established in 2006, China Grand Automotive Services Co.,
Ltd. is listed on the Shanghai Stock Exchange and was 32.5%-owned
by the unlisted Xinjiang Guanghui Industry Investment (Group) Co.,
Ltd. (B2 stable) at the end of 2018.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Gerwin Ho
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077