20211115-招银国际-CARINC_–_Steady_3Q2021_results,_maintain_OW_3页_626kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary issued by CMBI Fixed Income Department, focusing on the financial performance and outlook of CARINC (a company involved in car rental and used car disposal) for the third quarter of 2021. The commentary also touches on Car Inc. (likely a related entity) and its financial activities, including new car acquisitions, used car disposals, and debt management.

Main Points

1. Rating Outlook for CARINC

• CARINC '22 and CARINC '24 are maintained at Overweight (OW).
• The rationale is that CARINC serves as a diversification play, given the high volatility of similarly-rated Chinese property bonds.

2. Financial Performance in 3Q2021

• Total revenue declined -3% YoY to RMB1,529 million, primarily due to a -6% YoY drop in car rental revenue caused by a Covid resurgence in August.
• Car rental revenue was RMB1,021 million.
• Used car disposal revenue was RMB493 million.
• EBITDA remained stable at RMB461 million, compared to RMB1,083 million in 1H21.

3. New Car Acquisition and Debt Management

• Car Inc. spent RMB993 million to acquire 10,414 units of new cars in 3Q21.
• Used car disposal brought in RMB493 million.
• Ending cash balance at 9M21 was RMB2,131 million, slightly down from RMB2,151 million in 1H21.
• Gross debt balance was RMB4,948 million, down from RMB5,036 million in 1H21.
• Refinancing of USD2022 bond was facilitated by a tender offer where USD93 million of bonds were repurchased, reducing the outstanding amount to USD279 million.

4. Challenges in Borgward Car Disposal

• Borgward car sales were limited, with only 500-800 units sold in 3Q21.
• This is below the target to significantly reduce Borgward's proportion in the fleet by 2022.
• Current Borgward fleet size is 37,000 units, out of a total fleet of 106,000 units.
• The difficulty in selling Borgward cars may cap the rating at 'B-', according to S&P on 19 October 2021.

Key Information

• Contact Information:

  • Polly Ng (吴宝玲): (852) 3657 6234 | pollyng@cmbi.com.hk
  • Glenn Ko, CFA (高志和): (852) 3657 6235 | glennko@cmbi.com.hk
  • Wilson Lu (路伟同): (852) 3761 8918 | wilsonlu@cmbi.com.hk
  • James Wen (温展俊): (852) 3757 6291 | jameswen@cmbi.com.hk

• CMBIS is a subsidiary of China Merchants Bank and operates under CMB International Securities Limited.

• Author Certification:

  • The views expressed in the report reflect the personal views of the author.
  • The author has no financial interest in the companies discussed.
  • No trading activity was conducted in the stocks covered within 30 days before or 3 days after the report was issued.

• Important Disclosures:

  • The report is not investment advice and is not suitable for all investors.
  • Past performance does not guarantee future results.
  • The report is intended for internal use and not for public distribution.
  • CMBIS is not liable for any losses or damages arising from reliance on the report.
  • The information is subject to change and not guaranteed.

• Disclaimer:

  • The report is only for specific recipients in different jurisdictions.
  • In the UK, it is only provided to persons under Article 19(5) or Article 49(2) of the Financial Services and Markets Act.
  • In the US, it is only for major US institutional investors.
  • In Singapore, it is distributed by CMBI (Singapore) Pte. Limited and is subject to Singapore regulations.

Conclusion

The credit commentary highlights CARINC's stable EBITDA and modest revenue decline in 3Q2021, driven by Covid-related disruptions. Despite this, the company continues to acquire new cars and manage its debt effectively, with refinancing efforts underway. However, the limited success in disposing Borgward cars may limit its credit rating. The report emphasizes diversification benefits and the importance of independent evaluation by investors.