“Automotive Aftersales” Investment: JD Capital’s Way to Integrate Trillion-Level Market Stock

2016-11-21

Source:Global Automotive Forum
9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As China’s car sales growth slows down and new car inventory rises up, all kinds of automobile manufacturers and sellers have felt the pressure. “Winter is coming for the auto industry.” In the age of “high base and low growth”, trillion-level automotive aftermarket is becoming a brave new land for all investors and enterprises.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Different from automobile manufacturing and selling, the core feature of automotive aftermarket lies in “stock”, covering life-long aftersales services, including maintenance, parts supply, second-hand car trading, automobile finance and insurance, automobile travel and other fee-based services. Until 2015, China’s car ownership grew to 172 million, based on which the total aftermarket scale exceeded RMB 800 billion, and is expected to exceed RMB 1 trillion in 2018.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Driven by the Internet, favorable policies and capital, it has become an inevitable trend for automotive aftermarket to integrate resources and restructure ecosystem of the industry,” said JD Capital, already an investor in this field.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It is introduced that, among the whole industrial chain, JD Capital has already invested in many sub-industries including parts manufacturing, car selling, after-sale services and second-hand car trading. Invested projects include vehicle after-sale service provider NTS Automobile Service, car dealers Jiaochen Group and Nanling Automobile (830865), and parts manufacturer Huifeng Transmission (834137), Shuangying Group (837677), and Dongguan Hongtu, etc.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “In the future, we will focus on layout of automotive aftermarket and integration of stock, thus creating unicorns with Chinese characteristics,” said JD Capital’s automotive after-sale industry fund team. 9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Focus on automotive aftersales in a trillion-level market9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

With the sustained rapid development of national economy and the continuous increase of residents’ purchasing power, the demand for cars keeps growing. However, the growth of automotive sales starts to decelerate for diminishing subsidies brought by “automobiles going to countryside” policy and increasing restrictions from license plates curb, traffic restriction scheme and environmental policy against emissions. Such a slowdown has gradually spread from main engine plants to parts producers and automobile dealers.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

b1副本.jpg9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

  car sales      sale growth9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Project targets with unconventional leaping development potential are most often favored by our group, but it is hard for us to find such a potential in automotive pre-sale segments,” said JD Capital.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Different from pre-sale market, the core of automotive aftermarket lies in its “stock resources”. To estimate conservatively, China’s car ownership is expected to reach 300 million by 2020. “Based on this number, we believe that the market value of China’s car maintenance and second-hand car trading can reach two trillion yuan, while that for automobile finance and insurance can amount to two hundred billion. The huge market scale provides us with enough room to layout and prepare.”9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

b2副本.jpg9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

car ownership (100 million)9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“Meanwhile, under the influence of consumption upgrading, vehicle aging and mobile Internet technology, China’s automotive aftermarket witnesses the launching of many ‘Automotive + Internet + Finance’ programs featuring innovations of technology, model and mechanism, which has provided abundant investment opportunity and imaginary space for automotive aftermarkets,” the automotive after-sale industry fund team said, “In addition, plenty of favorable policies will also invigorate these industries.”9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Learn from others and develop domestic industrial bellwethers9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Private cars went popularized in America as early as nearly 100 years ago, whereas China has just stepped into the automobile age in 2006, since when private cars surpassed service cars to become the main force of Chinese consumption service.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Due to broad market areas, huge market capacity and numerous vehicle types, the Chinese automotive market is expected to converge with the American market. Some also predict that the Chinese automotive industry has a chance to get close to or even surpass American automotive industry in the ten years to come based on its fast development in the recent decade.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to relevant materials, the American automotive aftermarket has gone through the processes of chain-oriented and Internet-enabled operation, during which period the chain giants like AutoZone and NAPA have gained a market value of about 100 billion after long-term M&As. Over the past two decades, the scale of these enterprises has grown by nearly 50 times, with the level of informatization and the capacity of supply chain management constituting enterprises’ core competitiveness, and M&A serving as a catalyst to realize scale effect in a fast way.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Though car ownership in China is half of that in America, China’s aftermarket concentration level is still much lower. Though the number of professional institutions in China are many, few has scaled up or become mature. Therefore, it is hard to satisfy the growing domestic consumer demand. 9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Take care repair and second-hand car services as an example. At present, there are 480,000 automobile repair factories, 25,000 parts shops and 160,000 second-hand car shops in China. However, less than 10 repair chain enterprises and second-hand car dealers gain a revenue of over RMB 1 billion. This signifies a huge space for industrial integration and improvement.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Professional institutions in the aftermarket of America and China9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Country                      4S Shop   (ten thousand)       Repair Shop(ten thousand)    Parts Shop(ten thousand)9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

America                      1.3                                         17                                              3.69ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

China                      2.2                                         48                                              2.59ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Contrastive Analysis    69%                                        182%                                     -31%9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Compared with America, there are surplus stock resources in China’s automotive aftermarket,” according to the responsible person from JD Capital’s automotive after-sale industry fund, “What we are trying to do is to integrate stock resources under the industrial pattern of sufficient quantity and limited scale.”9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Through Internet + automotive aftermarket, innovate the business mode 9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

At present, JD Capital, based on its experiences and resources in automotive industrial distribution, has sorted out three investment lines in the field of aftersales, namely automotive repair, second-hand car and parts supply. The funds team will focus on quality stock industrial resource, and invest in projects featuring “business innovation + model innovation” and relevant to “automotive + finance” and “automotive + Internet”.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The popular mode in automotive aftermarket, “Internet +”, is considered by JD Capital as an effective way to solve information asymmetry, cut intermediate links and reduce differences caused by habits and non-standard services in different regions, thus realizing a service closed-loop and satisfying customers’ expectations in terms of service, products and payment procedures. There is huge potential in business modes with off-line core resources. Mychebao.com, a second-hand car online trade platform JD Capital invested in 2015, is a typical case in this regard.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As a second-hand car e-commerce platform, Mychebao.com applies the C2R business mode to second-hand cars through the establishment of O2O e-commerce online platform. It provides timely second-hand car auctions for domestic automotive dealers, second-hand car operating agencies, enterprises and car owners by such one-stop services as door-to-door inspection, online auction, safe payments and after-sale maintenance. At present, Mychebao.com has thousands of signed buyers. Based on the independently developed VPQS inspection system that is internationally advanced (combining inspection standards of China, America, Canada and other countries, and covering 150 inspection items and 1602 inspection standards), Mychebao.com also provides door-to-door free inspection services conducted by national-level inspection engineers and appraisers. 9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to the project leader, second-hand car audition platform is just an entrance to the whole second-hand car market. Individual buyers, once attracted to Mychebao.com, could hold the market entrance. Then, Mychebao.com can gradually penetrate other fields like second-hand car finance, insurance, maintenance and service. An integrated platform of second-hand car trading and aftermarket business will finally be built up. 9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Focus on stock integration, layout the whole business chain9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“We will help enterprise to broaden market share, enhance bargaining ability and improve core competitiveness through stock integration both in depth and in width, thus building an after-sale enterprise which values 1 or even 10 to 100 billion in the future,” JD Capital said.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In practice, JD Capital will take share or hold equities of automotive aftermarket bellwethers. Taking advantages of capital operation and industry securitization, it will also cooperate with selected bellwethers to integrate present resources in the same sub-industries. The acquisition of Dongguan Modern Metal Precision Die Casting Co., Ltd. (Dongguan Hongtu) by Tianrun Crankshaft Co., Ltd. (Tianran Crankshaft), one case JD Capital recently concluded, is typical in this regard.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As China’s leading manufacturer of crankshaft, connecting rods and other components of automobile engines, Tianrun Crankshaft takes a market share of over 40% in heavy trucks and other commercial vehicles. And Dongguan Hongtu, a wholly foreign-owned enterprise established in Hong Kong, mainly engages in aluminum alloy die-casting for passenger vehicles, and works stably with GM, Ford and other mainstream automobile manufacturers worldwide.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

“We believe that the automobile industry will become more intelligent, environmental-friendly and lightweight. To reduce the weight of automobiles, replacing steel with aluminum and magnesium alloy in auto parts production is the main solution. The same case goes with new energy vehicles. Supporting Tianrun Crankshaft in its merger and integration not only helps it push through limitations of the commercial vehicle market and enter the larger passenger vehicle market, but locates a path conforming to the development tendency of the automobile industry.”9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2015, JD Capital became a shareholder of Dongguan Hongtu. Shortly after that, Tianrun Crankshaft proposed to issue shares and purchase all stocks of Dongguan Hongtu in cash. “Upon the completion of this M&A, the main businesses of the two parties are expected to form positive synergies. Tianrun Crankshaft can not only expand its business to the field of aluminum alloy die castings, but pioneer into the passenger vehicle market and overseas market quickly with Dongguan Hongtu’s accumulated resources,” according to JD Capital.9ZG九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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