Asset Migration: ZHENGTONGAUTO Starts Again

Under the pressure of price wars and years of losses, ZHENGTONGAUTO has welcomed a complete takeover by state-owned assets. Through a series of asset sales and integrations, this veteran dealer is attempting to secure a chance for a fresh start. Key Points: ZHENGTONGAUTO sold industrial land in Shenzhen to an affiliate of its controlling shareholder, having previously acquired 50 4S stores from its parent company's affiliates. Over the past five years, ZHENGTONGAUTO has lost more than 15.1 billion yuan. Li Shida In the past two years, the changes in China's automotive circulation industry have been familiar to most dealers: new car prices have repeatedly dropped, and promotional wars between brands have become the norm. The 4S system, which once relied on scale and turnover to maintain profits, has been forced to survive amid thinner margins and greater uncertainty. Against this backdrop, dealers with already tight capital structures have faced even greater pressure. For China ZHENGTONGAUTO Service Holdings (1728.HK), this pressure has ultimately manifested in a series of asset disposals and equity restructuring actions. Last week, the company announced the sale of the Shenzhen Huianqi project for approximately 803 million yuan. The main asset of this project is an industrial land still under development, and the proceeds will mainly be used to repay bank loans and supplement general working capital. The buyer is an affiliate of the local state-owned enterprise Xiamen Guomao Holdings, belonging to the controlling shareholder of ZHENGTONGAUTO. In fact, this transaction is not an isolated event but part of a systematic "burden reduction" operation initiated by ZHENGTONG after completing the transfer of control. In early 2025, Xiamen Guomao Holdings, through its subsidiary Xinda Automobile (Hong Kong) Co., Ltd., will acquire approximately 66% of ZHENGTONG's expanded share capital through a placement. After further integration in June, the shareholding ratio will rise to over 90%, causing the company's public shareholding to fall below the minimum requirement of the Hong Kong Stock Exchange, leading to a suspension of trading since July 2025. State-Owned Asset Migration After the transfer of control was completed, automotive assets within the Guomao system began to concentrate in ZHENGTONG. Last month, the company, through its wholly-owned subsidiary Xiamen ZHENGTONG, acquired all dealership and export businesses of Xinda Guomao Automobile from Xiamen Guomao, with a total price of approximately 793 million yuan, covering nearly 50 4S stores, including brands such as BMW, Audi, Lexus, Hongqi, as well as new energy brands like Tesla, IM Motors, and Hongmeng Zhixing. Looking back further, on July 31, 2020, ZHENGTONGAUTO signed a letter of intent with Xiamen Guomao to sell 29.9% of its equity to Xiamen Guomao at a 30% premium. This transaction was completed in August 2021. In November 2022, Guomao Holdings promised the regulatory authorities that it would resolve the competition issue between ZHENGTONG and Xinda in the automotive dealership field within five years. Three years later, this commitment has been gradually fulfilled. For ZHENGTONGAUTO, reaching this point was unexpected. Founded in 1999, this automotive dealer started in Shanghai, rapidly expanding by relying on luxury brand agency, and was listed on the Hong Kong Stock Exchange in 2010, becoming one of the first automotive dealers in China to enter the capital market. Over the next decade, ZHENGTONG expanded primarily through acquisitions, covering mainstream luxury brands and once ranking among the top dealers in the country Five-Year Huge Loss of 15.1 Billion Yuan The company's core business model is primarily based on traditional 4S dealerships, with revenue heavily reliant on new car sales, while after-sales service and used car businesses with high profit margins account for a limited proportion. In an environment where price wars for new cars have become the norm and the proportion of direct sales by car manufacturers is increasing, the pricing power of dealers has been continuously squeezed. Even if sales are decent, the price difference continues to narrow, and profit margins are rapidly eroded. In the first half of 2025, the company's gross margin was only about 3.3%. Over the past five years, the company has accumulated losses exceeding 15.1 billion yuan. In 2020, it suffered a significant loss of 8.5 billion yuan due to the pandemic, followed by a price war in the automotive industry, resulting in a loss of 990 million yuan in the first half of last year, with an annualized loss of nearly 2 billion yuan, which has not yet stabilized. Revenue has decreased from 25 billion yuan in 2022 to 21 billion yuan in 2024, with approximately 8.89 billion yuan in the first half of 2025, a year-on-year decline of nearly 10%. From an operational perspective, the full takeover by state-owned assets makes integration inevitable. The sale of industrial land in Shenzhen essentially transfers non-core, heavy asset projects to the controlling shareholder's system, allowing the listed company to exchange for cash flow and reduce debt pressure, thus buying time for the restructuring of its main business. As for acquiring 50 4S stores for 793 million yuan, the price per store is only about 17 million yuan, which includes several mainstream new energy brands, aligning with the company's direction to accelerate its transformation into new energy. At the same time, Zhengtong also acquired 100% equity of Guomao Automobile (Thailand) for approximately 22.13 million yuan. Although this company has not yet commenced substantial operations, this move is equivalent to providing Zhengtong with an initial platform for overseas expansion, reserving space for future development in automobile exports, transshipments, and related cross-border businesses