Company Reports

Brilliance announced lower-than-expected profitability at BMW Brilliance Automotive, the 25%-owned associate with BMW. BBA’s first-half net profit declined 27% year over year, with a 3 percentage point contraction in net margin. Together with the withholding tax on dividends paid during the period, Brilliance reported a 61% net profit decline year over year. Given BBA’s weaker-than-expected profitability due to price competition pressure, we cut 2024-26 BBA earnings estimates by 3%-12%. Therefore, we lower our fair value estimate to HKD 3.60 from HKD 3.70.

Brilliance China Automotive’s earnings growth hinges on expanding Brilliance BMW Automotive, the joint venture with BMW, while limiting losses from its minivan business. While Brilliance sold a 25% stake in the BBA JV to BMW in 2022, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BBA's profits attributed to Brilliance, in our view.

Brilliance declared a special dividend of HKD 1.50 per ordinary share of the company with an ex-dividend date of April 26. We maintain our financial forecast but remove the special dividend from our fair value estimate. Hence, we lower our ex-dividend fair value to HKD 3.70 from HKD 5.20. Besides the dividend announced this time, the company also paid out two special dividends related to the disposal of the 25% stake in BMW Brilliance Automotive in a total of HKD 1.92 per share last year. We estimate that Brilliance, with a third dividend payment in May, will return about 75% of the net proceeds from the BBA disposal to shareholders.

Brilliance China Automotive’s earnings growth hinges on expanding Brilliance BMW Automotive, the joint venture with BMW, while limiting losses from its minivan business. While Brilliance sold a 25% stake in the BBA JV to BMW in 2022, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BBA's profits attributed to Brilliance, in our view.

No-moat Brilliance announced 2023 annual results with better-than-expected profitability at BMW Brilliance Automotive, or BBA, the 25%-owned associate with BMW. For the second half of 2023, Brilliance reported a net profit of CNY 4.0 billion, flattish compared with a year ago, with 10% growth in BBA's earnings contribution offset by income tax expense.

Brilliance China Automotive’s earnings growth hinges on expanding Brilliance BMW Automotive, the joint venture with BMW, while limiting losses from its minivan business. While Brilliance sold a 25% stake in the BBA JV to BMW in 2022, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BBA's profits attributed to Brilliance, in our view.

Brilliance China Automotive’s earnings growth hinges on expanding Brilliance BMW Automotive, the joint venture with BMW, while limiting losses from its minivan business. While Brilliance sold a 25% stake in the BBA JV to BMW in 2022, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BBA's profits attributed to Brilliance, in our view.

No-moat Brilliance China Automotive announced first-half 2023 results with BMW profitability better than we expected. Therefore, we raise our fair value estimate to HKD 3.50 from HKD 3.10. However, we believe the lack of interim dividend payout again is another setback to market sentiment. The company did not declare any additional dividends to the HKD 0.96 per share declared in July and HKD 0.96 paid in February, which account for less than 40% of the net proceeds from the disposal of the 25% stake in BMW Brilliance Automotive, or BBA. For the rest of the cash, the company has proposed an up to CNY 1.36 billion capital contribution to the loss-making minibus operation Renault Brilliance Jinbei Automotive Company, or RBJAC. In addition, management mentioned that the company is also exploring various other investment opportunities such as co-operation with BMW on components supply.

No-moat Brilliance announced a proposed capital contribution of up to CNY 1.36 billion in cash to the loss-making minibus operation Renault Brilliance Jinbei Automotive Co, or RBJAC, by its wholly owned subsidiary. The proposed plan, as part of the restructuring of the deeply troubled RBJAC, is still subject to court approval. Together with the disappointment over the absence of special dividend payout in March following the disposal of its 25% stake in Brilliance BMW Automotive, or BBA, the market is likely to have increased concerns on management’s intention for the use of its CNY 28 billion cash on hand. We view the event as a negative surprise and setback when investors are trying to rebuild confidence in the company’s management, and in this case, its capital allocation priorities.

No-moat Brilliance China Automotive announced 2022 results with profitability from the BMW Brilliance Automotive joint venture. However, we believe the lack of a further dividend payout is a major disappointment versus market expectations. The company did not declare any additional dividends besides HKD 0.96 per share paid in February, which accounts for less than 20% of the net proceeds from the disposal of a 25% stake in BBA. Our biggest concern remains Brilliance’s corporate governance practice and the persisting uncertainties relating to unauthorized guarantees, unauthorized pledged bank deposits, and unauthorized fund transfers.

Brilliance China Automotive’s earnings growth hinges on expanding Brilliance BMW Automotive, the joint venture with BMW, while limiting losses from its minivan business. While Brilliance sold a 25% stake in the BBA JV to BMW in 2022, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BBA's profits attributed to Brilliance, in our view.

Brilliance China Auto announced that the board believes it has fulfilled all the resumption guidance set out by The Stock Exchange of Hong Kong. Shares of the company resumed trading on Oct. 5. Earlier, as an additional attempt to satisfy the resumption guidance after trading had been suspended for more than a year, Brilliance issued its 2021 annual report and unaudited 2022 interim results. The independent auditor did not express an opinion on the company’s 2021 annual results and did not review the 2022 interim financials, which indicate persisting uncertainties relating to unauthorized guarantees, unauthorized pledged bank deposits and newly unveiled unauthorized fund transfers in the latest independent forensic investigation. We maintain our fair value estimate at HKD 9.90, with the improving BMW contribution offsetting the cut in revenue forecast.

Brilliance China Automotive’s earnings growth hinges on further expansion of Brilliance BMW Automotive, or BBA, while limiting losses from its minivan business. While the firm sold a 25% stake in the BMW JV in 2022 to BMW, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BMW JV's profits attributed to Brilliance, in our view.

After shares being suspended from trading for more than a year, Brilliance China Automotive announced preliminary 2020 annual results and 2021 interim results. We maintain our fair value estimate at HKD 9.90 while raising our 2021-22 net profit forecasts by 2% and 4%, respectively. Despite the solid BMW joint venture performance as reflected in the results, our biggest concern remains Brilliance’s corporate governance issues. The independent auditor did not express an opinion on the company’s 2020 financial results and as to whether the consolidated financial statements have been properly prepared in compliance with the disclosure requirements. This indicates uncertainties persist as issues relating to unauthorized guarantees and unauthorized pledged bank deposits are still under investigation. Even if trading resumes, we think investors are likely to continue staying on the sidelines until there is more clarity on the outlook.

Brilliance China Automotive’s earnings growth hinges on further expansion of Brilliance BMW Automotive, or BBA, while limiting losses from its minivan business. While the firm sold a 25% stake in the BMW JV in 2022 to BMW, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BMW JV's profits attributed to Brilliance, in our view.

We reduce our fair value estimate for Brilliance China Automotive to HKD 9.90 from HKD 10.10, after factoring in a larger amount of cash loss assumption in our base case, partly offset by higher profit expectation from the BMW JV. Our biggest concern remains Brilliance’s corporate governance issues. We maintain our view that a change in Brilliance’s major shareholders or other restructure is needed before investors start looking to invest in the firm. Trading remains suspended for nearly a year without clarity on the timing of resumption. However, the bigger question investors have is whether the large amount of cash loss resulting from internal control deficiencies will jeopardize the special dividend from disposal of the 25% stake in the BMW JV as management previously promised.

Brilliance China Automotive’s earnings growth hinges on further expansion of Brilliance BMW Automotive, or BBA, while limiting losses from its minivan business. While the firm sold a 25% stake in the BMW JV in 2022 to BMW, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BMW JV's profits attributed to Brilliance, in our view.

While the recent COVID-19 outbreaks across China pose some uncertainty to the supply chain, we think the production suspensions will be short-lived--evidenced by how most municipalities have been able to contain spreads in a matter of weeks. Therefore, the fair value estimates for our auto coverage are unchanged.

Brilliance China Automotive’s earnings growth hinges on further expansion of Brilliance BMW Automotive, or BBA, while limiting losses from its minivan business. While the firm is set to sell its 25% stake in the BMW JV by 2022, future localization of higher-end models and a rise in export volume will partially offset the drop in share of BMW profits attributed to Brilliance in our view.

Findings obtained by RSM reaffirm our view on Brilliance's poor internal control and corporate governance practices. As we discussed in a previous note “Unauthorized Guarantees and Missing Cash Knock FVE Back by 15%; Uncertainty Jumps to Extreme,” Brilliance issued a statement disclosing not only large amounts of unauthorized guarantees, made by its indirect wholly owned subsidiary SJAI, on Huachen’s loans but also a large amount of cash missing from its bank accounts. According to RSM, the primary cause of this series of incidents lies in the fact many Brilliance employees are beholden to Huachen, the heavily indebted parent company to whom Brilliance provided loan guarantees. We maintain the view that a change in Brilliance’s major shareholders or other restructure is needed before investors start looking to invest in this firm. We are also keeping our extreme uncertainty rating until there is a known long-term fix to these corporate governance issues. Now that the independent investigation has been completed, auditors have resumed preparing Brilliance's financial statements for 2020. It is estimated the audit will be completed by the end of December 2021. Trading remains suspended, but we suspect this will resume once 2020 earnings are released.