19 May 2019

Auto e-commerce plays running ahead of fundamentals

Chinese auto information website Autohome (ATHM.US) is said to have been the third best performer on the US markets over a week after the mainland firm’s listing on the New York Stock Exchange on Dec. 11.

Autohome’s biggest two rivals also did very well this year. Bitauto (BITA.US) has seen its share price jump nearly threefold in year to date while Pacific Online Ltd. (00543.HK), whose core asset is automobile portal PCauto, has gained over 30 percent in the same period.

Investor sentiment has been clearly buoyed by China’s booming auto market. In the first eleven months this year, auto sales in China have surpassed the full-year 2012 figure. Annual sales are now set to surpass the 20-million unit mark for the first time.

Autohome, Bitauto and PCauto are all vertically integrated websites, which means they enable users to browse car details, check prices and make purchases.

According to Bitauto’s latest earnings release, its total revenue in the second quarter this year was US$55.1 million, with about half coming from advertising business. As for Autohome, advertising revenue accounted for 74 percent of its total revenue for the nine months ended September.

In addition to advertising income, there are great hopes that auto portals will become major distribution platforms as well by attracting orders online and driving customers to showrooms.
There are expectations that they could become major e-commerce platforms. A buyer can place an order through the internet and then go in person to take delivery from one of the automakers’ outlets.

Many Chinese consumers find that the car reviews function is particularly useful. However, when asked if they are ready to buy cars solely through the internet, many people hesitate. Given this situation, the auto e-commerce business — although having huge potential — could take a long time to grow to a reasonable scale in the country.

As car buyers’ shopping habits have to undergo significant change for the online business to zoom ahead, the current hoopla surrounding auto portals may be a bit excessive.  

Share prices have probably moved much ahead of the companies’ profit growth potential.

Bitauto has a trailing price-to-earnings ratio of 60X, while Autohome is even trading at 92 times its 2012 earnings. Both figures are far higher than the overall market PE of 10.4X as represented by the Shanghai Composite Index.

– Contact the writer at [email protected]


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