22 January 2019

DCH skids but belts up for better 2014

A steadily growing auto market in China does not always guarantee gains for car dealerships, as Dah Chong Hong’s (01828.HK) 2013 results demonstrate.

Profit for the company, which sells and services foreign brands, slipped 14 percent to HK$900 million (US$115.40 million). It would have been worse if its Hong Kong car business hadn’t made strong growth in market share. The company’s food and consumer section was also stalled last year by another macro trend — Beijing’s clampdown on spending public money on dining and entertainment.

The big problem at its main business, car dealerships, is in its profit mix. Demand for DCH’s imported trucks dropped as infrastructure projects slowed. And discontinuation of its Bentley PRC distributorship didn’t help.

J.P. Morgan has identified a number of bumps in the road for the broader mainland car industry this year, including limits on car purchases and slowing credit growth. But DCH is less pessimistic and is looking ahead to 10 percent overall market expansion in 2014, led by demand from second and third-tier cities.

DCH will keep enlarging its dealership network while also working to set up a national insurance agency to generate more related income.

Insurance is a natural extension for the company and makes perfect sense, but DCH may have to watch its back for online competition. Retailer Suning Commerce (02024.CN), for example, has just secured an insurance brokerage license to augment its online platform. Other e-commerce firms and dedicated websites like Autohome (ATHM. US) may also become active players.

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EJ Insight writer

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