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Zhongsheng Group, which has a good momentum of development, has been promoted to the second largest car dealer group in China, with a net profit of 4.5 billion yuan last year and 360 dealerships. Recently, Zhongsheng Group issued an announcement to acquire six Mercedes-Benz 4S stores and two Jaguar Land Rover 4S stores.

Zhongsheng Dalian, an indirect wholly-owned subsidiary of Zhongsheng Group, agreed to buy 100 per cent stakes in eight target companies for 720 million yuan, according to the announcement. The target company owns six Mercedes-Benz 4S dealerships in Hubei, Fujian, Yunnan and Jiangxi, and two Jaguar Land Rover 4S dealerships in Jiangsu and Jiangxi, and the target company owns three sites in China.

Zhongsheng Group said that the consideration in this transaction was determined by fair negotiations between the parties on normal commercial terms and by Zhongsheng Dalian after taking into account a number of factors, including, but not limited to, the attached goodwill, customer base, potential profitability and consolidated net asset value of the brand operated by the target company. The Board is of the view that this transaction will strengthen the Group's luxury brand portfolio, enable the Group to expand its network coverage of 4S dealerships in key areas throughout the country, and help further expand the Company's operating scale and competitive advantage.

By the end of 2019, Zhongsheng Group had a total of 360 dealerships, including luxury brands such as Mercedes-Benz, Lexus, Audi, BMW, Volvo and Jaguar Land Rover, as well as mid-range brands such as Toyota, Nissan and Honda. Most of these are brands that make money in 2019.

According to the results announcement of Zhongsheng Group, the company's total revenue in 2019 was 124.0425 billion yuan, an increase of 15.1% over the same period last year, while the profit attributable to the owner of the parent company was 4.502 billion yuan, an increase of 23.8% over the same period last year.

In 2019, Zhongsheng Group increased to 360 dealerships, with total sales of 455700 units, an increase of 10.6 per cent over the same period last year. Among them, luxury brands sold 228000 units, accounting for 50 per cent of the group's total sales.

Total revenue from new car sales was about 106.199 billion yuan, an increase of 13.9 percent over the same period last year. Among them, Mercedes-Benz is the group's auto brand with the highest revenue from new car sales, accounting for about 29.3% of the total new car sales.

In addition, the revenue from the after-sales service and boutique business was 17.843 billion yuan, an increase of 22.9% over the same period last year, accounting for 14.4% of the group's total revenue.

Other income and net income were 3.109 billion yuan, an increase of 21.4% over the same period last year. Other income and income mainly include service income from automobile insurance and auto financial services, profits from second-hand car trading business, rental income and interest income, etc.

According to a report released by Morgan Stanley, the acquisition is expected to bring synergy to China Sheng Group and its lower financing costs, raising its profit forecast for 2020-2022 by 2-4 per cent to reflect the increase in profit contribution of new stores. The target price is correspondingly raised from HK $50 to HK $60, maintaining the "overweight" rating.

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