Citigroup: GAC Group (02238) signs major asset restructuring intentions with FAW. Short-term sentiment is expected to be positive

The Zhitong Finance App learned that Citibank released a research report saying that GAC Group (02238) announced on the 14th that it has signed a major asset restructuring agreement with FAW Group and plans to issue new shares to acquire part of FAW's shares in an unnamed automotive manufacturing joint venture. The suspension of A-share trading is expected to take no more than 10 trading days. Citi believes that the target may be related to FAW-Toyota and GAC Toyota. The aim is to resolve the long-term internal competition between the two Toyota joint ventures and deal with the pressure of their respective operations. The target price for GAC H shares is HK$2.3. The bank believes that the catalyst for the incident is expected to bring short-term positive sentiment to GAC Group and Zhongsheng Holdings (00881).

The bank pointed out that after completion, FAW will become GAC's second-largest shareholder and have strategic influence, and the final controller is still the Guangzhou State-owned Assets Administration Commission. This move is seen as China's first concrete action to promote the integration of state-owned car companies. It is in line with the recent “15th Five-Year Plan” automobile industry policy calling for cross-regional integration to curb repeated competition. Potential integration can create a unified Toyota China platform with an annual output of about 1.2 million to 1.3 million vehicles. It is expected that model rationalization can reduce mutual encroachment on the same platform, save sales costs by about 2 to 3 percentage points through joint procurement, and reduce sales and administrative expenses by about 1 to 2 percentage points through integrated distribution networks.