TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
Comments
Liquidity problems, lower profits and a policy of industry consolidation are making it tough for smaller car dealers to survive on the mainland
Anita Lam
30 July 2012
October 4, 2011 is a date that Fong Chi-keung will not easily forget. It was the day he relinquished majority control of Loong Wah Motors - a car dealership he built up over 30 years - to his listed rival, Zhongsheng Group.
Zhongsheng, a multinational car retail and services firm headquartered in Beijing, has been steadily acquiring dealerships across the nation in a bid to become the largest dealer in the world’s biggest car market.
Its expansion has been helped by the tumbling profits and tight liquidity facing small- and medium-sized dealerships in China.
Analysts expect consolidation of the sector to continue in line with the policy of the Ministry of Commerce, which has said it wants to see two to three “mega-sized” car dealers with annual turnovers of over 100 billion yuan (HK$122.62 billion), and 20 to 30 regional dealerships with annual sales exceeding 10 billion yuan.
The policy triggered a merger and acquisition race among the country’s major car dealers that began early last year and saw sizeable dealerships such as Loong Wah and Shenzhen’s SCAC become acquisition targets.
The acquirers - including listed dealers such as Zhongsheng and China Zhengtong Auto Services - have meanwhile said there are more deals in the pipeline.
“I really found the market very difficult, which is why I had to leave,” Fong told the South China Morning Post in an interview in his Hong Kong office in San Po Kong.
One of the earliest Hong Kong dealers to tap the mainland market, Loong Wah eventually expanded its network in China to 16 “4S” (or authorised) outlets that sold brands including the luxury marques from the Toyota and Nissan stables, Lexus and Infiniti. Before 2007 it was generating annual earnings of nearly 100 million yuan, but as land prices and wages surged, and sales quotas and allocations were imposed by carmakers, profit more than halved.
“In the ‘80s when I entered the mainland market, it was still dominated by imported vehicles. All we needed to do was set up an office and we could earn up to 70,000 yuan for each car we sold,” Fong said.
“Now it’s so expensive it’s incredible. Land and construction costs for a 4S outlet amount to more than 40 million yuan. On top of this you must also contend with ever-rising wages and ever-increasing inventories - and if a model sells well you can’t get more because there is a quota for every outlet.
“If a certain shop is profitable you can’t open another one in the same district because the manufacturers do not want dealers to monopolise sales in a region.”
Over the past two years conditions had become even more challenging, Fong said.
Monetary tightening policies pushed many car dealers into a liquidity crisis and a cap on vehicle licence numbers introduced by the Guangzhou municipal government this month to ease traffic congestion hit dealerships hard.
Second-hand car dealers last week took to the streets against Guangzhou’s cap on vehicle registrations - which effectively halved the number of car sales last year - saying the policy would put them out of business. JPMorgan estimated in a report that the cap might soon be extended to 11 more cities, which together accounted for 15 per cent of total industry sales in 2010.
Only 63 per cent of the 1,605 car dealers polled by industry consultant JD Power earlier this year said their businesses were profitable last year - down from 81 per cent in 2010. And one-fifth of respondents said they operated at a loss in 2011 - up from 9 per cent in 2010.
Fong, who sold 14 of his 16 outlets to Zhongsheng for 865 million yuan, said the future was bleak for the mainland’s car dealers, especially small operators.
“You either grow - and get listed - or you drop out,” Fong said. “It’s very difficult for dealers with just a few shops to survive.”
“I don’t see the relationship between manufacturers and dealers being so hostile. Toyota, for example, did not just impose whatever units they wanted on us without considering the market situation,” he said.
“And it is not just about blind expansion. You need to make sure you have enough manpower and resources to control the new shops you plan to open or acquire.”
Zhongsheng, like its other listed rivals, has undergone rapid expansion since it listed in 2010 and is growing at an astonishing speed of 40 new outlets per year.
It posted a net profit of 1.42 billion yuan last year - a year-on-year jump of 37.44 per cent, although its vehicle turnover rate remained at a relatively high level of 45 days.
But a car broker who asked not to be named said dealers who went public no longer depended entirely for their earnings on car sales. They were also able to make up their losses from the capital market.
Kam Lung Motors - another veteran Hong Kong-based car dealer with more than two dozen 4S outlets on the mainland and in the Middle East selling Audi, Volkswagen, Land Rover and Lamborghini - said it would survive without getting listed.
“The competition is definitely getting tougher. But I don’t think getting listed is the only way to survive,” the group’s chairman, Mak Hing-lung, said. “While small dealers have their disadvantages, big listed dealers face other kinds of obstacles.”
Mak said car sales were still supported by strong consumption power in China, and he would still opt for expansion despite thinning profit from new car sales.
“We have expanded the scope of our services to areas such as car tuning and accessories, which offer high profit margins of up to 50 per cent. Times have changed and you need to come up with new ways to make your business profitable,” he said.
“Apart from car financing and insurance, we also do second-hand car sales and after-sales service. We even help our customers pay their traffic tickets.”
According to consultancy LMC Automotive, although large dealers with more than 100 shops made up just 15 per cent of the market in 2009, they accounted for 44 per cent of the industry’s revenue that year.
John Zeng, the firm’s director for the Asia-Pacific, forecast that by 2015 the market share of big dealers could rise to between 25 and 30 per cent and contribute up to three-fifths of the industry’s income.
But Zeng believed there would always be room for smaller dealers.
“While room for survival is diminishing for small- and medium-sized dealers who do not have the same cost advantages as big dealers, China’s dealership market is unlikely to be completely dominated by big players because carmakers are likely to take steps to counter such developments as monopolies are bad for business in a market that is so vast,” he said.