Core Viewpoint - Dongzheng Automotive Finance is set to officially list on the Hong Kong Stock Exchange on March 26, 2023, after pricing on March 19, 2023, potentially becoming the first automotive finance company in China to go public [4]. Industry Overview - The automotive finance market in China has significant growth potential, with a current penetration rate of only 30%, compared to 90% in the U.S. and 79% in the U.K. The market is projected to reach a capacity of 525 billion yuan by 2025 [3]. - As of now, there are 25 licensed automotive finance companies in China, with Dongzheng being the only one with a dealership background [6]. Company Background - Dongzheng Automotive Finance was established in March 2015, with a 95% stake held by Zhengtong Automotive and 5% by Dongfeng Motor [7]. - The company primarily offers retail loans to consumers and dealer loans to facilitate purchases from manufacturers [8]. Financial Performance - From 2015 to 2018, Dongzheng's operating income grew from 77.97 million yuan to 816 million yuan, with a compound annual growth rate (CAGR) of 143.4%. Net profit increased from 24.8 million yuan to 453 million yuan, with a CAGR of 224.4% [10]. - As of the end of 2018, the company reported a net profit of 453 million yuan, a year-on-year increase of 73.53% [10]. Risk and Challenges - Despite strong revenue growth, Dongzheng has faced negative operating cash flow, with figures of -315 million yuan in 2017 and -158 million yuan in the first half of 2018, indicating challenges in loan recovery [11]. - The automotive finance market is characterized by weak risk control capabilities, leading to potential fraud and operational risks [12]. Future Plans - The company plans to use 70% of the IPO proceeds to expand its external dealer network and retail loan offerings, with 65% allocated for loans to external customers [11].

Investment Rating - The report indicates a positive outlook for the ASEAN financial sector, particularly highlighting the growth potential in Indonesia and the Philippines, while noting challenges in Thailand and Malaysia [1][3]. Core Insights - Southeast Asia exhibits significant disparities in bank credit penetration, with Indonesia and the Philippines showing higher growth potential compared to Thailand and Malaysia, where credit growth is under pressure [1][3]. - The banking sector in Asia is capitalized well, with Indonesia and Singapore having the best capital positions, supporting their growth prospects [1][4]. - The shift towards retail lending in the Asian banking sector is enhancing returns, although Thai banks are facing challenges such as asset growth stagnation and cost pressures [1][9]. Summary by Sections Credit Penetration and Growth - Indonesia has the lowest loan-to-GDP ratio in Southeast Asia at approximately 35%, maintaining high single-digit growth in loans [6]. - Thailand is experiencing loan contraction with economic growth at only 0.2%, facing high household debt and aging population issues [6][9]. - Malaysia's loan growth has slowed to about 5-6%, with mortgages being the main driver [6]. Capital Adequacy and ROE - All Asian countries have sufficient capital, with Indonesian and Singaporean banks showing the highest ROE, while Thailand faces ROE challenges [4][5]. - The report emphasizes the importance of profit distribution and long-term growth concerns as ROE increases [4]. Market Structure and Dynamics - The Asian banking market is dominated by a few large banks, particularly in Singapore, where the top three banks hold 15% to 33% market share [11]. - In emerging markets like Indonesia and the Philippines, there are many small and medium-sized banks, providing opportunities for consolidation [11]. Non-Interest Income and Wealth Management - Non-interest income is becoming increasingly important, with Singapore and Thailand performing well in this area, while emerging markets like Indonesia and the Philippines need improvement [15]. - Wealth management is a growing sector, particularly in Singapore, which is well-positioned to capitalize on the increasing demand for retirement planning [17]. Green Finance Opportunities - Green finance is a significant focus in Asia, with an estimated demand for green investments reaching approximately $3 trillion by 2030 [18][19]. - Indonesia has the highest demand for green finance, followed by Thailand and Vietnam, indicating substantial investment opportunities in infrastructure and renewable energy [19].