Shenzhou Shares Are On Roller Coaster.

Because of the storm caused by Rui Xing's coffee fraud, it has swept Lu Zhengyao, another listed company under 00699.HK.

Beijing time on April 2nd evening, Rui Xing coffee announced that the second, third and four quarter of 2019 business fraud, involving an amount of up to 2 billion 200 million yuan. Second days early in the morning, Lu Zhengyao's Shenzhou car rental opened up rapidly, and its share price fell 54.42% to the suspension.

In the morning of April 7th, Shenzhou car rental issued an emergency Clarification Announcement. The two day after the announcement, the share price appeared the same trend as roller coaster. On the day of the announcement, the intraday price of the shares jumped nearly 50%, up 34.18% at the close, at HK $2.63 / share, but on the 8 day, the stock price dropped again. The intraday drop was more than 20%, closing at 17.1% at the end of the closing period, reporting 2.18 Hong Kong dollars / share.

Although in the announcement of car rental in Shenzhou, it tried to clear up the relationship between Rui Xing coffee and Lu Zhengyao, but the market still had many worries.

"Shenzhou renting is an independent listed company, which is not directly related to Rui Xing coffee, but its connection with the latter makes investors worry about the governance of the company." Chen Fangxuan, an analyst at S & P rating agency, told reporters.

Hidden troubles in the growth of performance

Judging from the performance of Shenzhou car rental, the market's reaction to its stock price is somewhat "excessive".

On the afternoon of March 17th, 00699.HK released its annual report in 2019. According to the announcement, the rental income of the company last year was 5 billion 560 million yuan, up 4.1% over the same period last year, of which the core business car rental income was 4 billion 920 million yuan, an increase of 9.6% over the same period last year.

The annual report shows that the adjusted EBITDA in the company's reporting period increased to 3 billion 464 million yuan over the same period, and the EBITDA rate was 62.3%. In the fourth quarter, the number of used cars was over 12000, and three figures all reached a record high. But in terms of net profit, it recorded 292 million yuan in the whole year, a sharp decrease of 57.1% compared with 681 million yuan in 2018.

In response, the company management explained that in order to cope with the weak demand of key tourist cities, Shenzhou rentals adopted a more competitive pricing strategy. The average annual rent in 2019 dropped by 3.7% to 210 yuan compared with that of the previous year.

At the same time, in order to improve the sales volume of second-hand cars, the estimated surplus value of second-hand cars sharply decreased year by year, resulting in a significant increase in depreciation costs. In 2019, the company handled a total of 29203 second-hand cars, 2 billion 130 million yuan for second-hand car sales, and 102.7% for second-hand cars, although it has increased, but it is still within 5% reasonable float.

In addition, the interest on US dollar debt due to 2020, plus the loss of foreign exchange, eventually resulted in a sharp drop in profits. On the day of the annual report, the company's share price was HK $4.77 / share, or 9.7%, indicating that the market did not mind its sharp decline in net profit. It still affirmed the success of Shenzhou renting in the past year.

However, after Rui Xing coffee exploded, Shenzhou renting is also facing worries.

First, the potential cash inflow of Shenzhou renters to sell used cars provides some support for the company's liquidity. Shenzhou renting will increase the sales target of second-hand cars from 20000-25000 vehicles to 30000-35000 vehicles in 2020, which may bring 1 billion 700 million -20 billion yuan revenue. These revenues help ease the debt pressure that the company will expire in 2020 and 2021. "However, the pricing and sales of used cars depend on market demand and there is uncertainty." Chen Fangxuan told reporters.

Secondly, the stock pledge arrangement of Shenzhou excellent car or the change of control clause of the US dollar bond of Shenzhou renting car. If the Shenzhou superior car was forced to sell the Shenzhou rental car pledge stock valued at 1 billion 400 million yuan (up to 24% of the shares in circulation in June 2019), Shenzhou renting car is also facing the risk of triggering the change of control clause of the remaining US dollar bonds.

"If China's car rental financing channels are limited, leading to increased liquidity and refinancing pressure, we may downgrade its rating. If Shenzhou renters are experiencing difficulties in selling cars in the second-hand car market, we may also downgrade their ratings. Chen Fangxuan said.

Associated with Shenzhou company

There is no doubt that Shenzhou rentals, Shenzhou excellent cars, Po Wo motors and Rui Xing coffee are the four pillars of Lu Zhengyao's business territory, and there are various links in personnel and business.

On the staff side, in the self censorship launched by lucky coffee last week, the responsibility of financial fraud was attributed to chief operating officer Liu Jian. Public information shows that from 2008 to 2015, Liu Jian successively served as the deputy director and income management head of RRC, and served as head of revenue management in 2015 to 2018. After 2018, he joined COO.

The founder of Rui Xing coffee, CEO Qian Zhi, has been renting a car in China since 2004. In 2016, Qian Zhi became the COO of Shenzhou's excellent car, leaving the Shenzhou excellent car in 2017, and founded Rui Xing coffee. It has been the founding elder of the three companies of Shenzhou rentals, Shenzhou excellent cars and Rui Xing coffee.

Lu Zhengyao himself, despite the clarification of Shenzhou renting in the 7 day announcement, said that it had resigned as the CEO of Shenzhou City in 2016 and became a non-executive director. Since then, he has not been involved in the daily management of Shenzhou rentals. But according to the reporter's inspection, Lu Zheng Yao is currently the largest shareholder in Shenzhou car rental company, and is also the chairman of the board of directors of the company.

Besides, the business links between Shenzhou rentals, Shenzhou excellent cars and Po Wo motors are very close.

When the Shenzhou special vehicle of Shenzhou excellent car has just been launched, the latter's license plate and fleet resources almost all come from Shenzhou renting. In the annual report of 2019, the revenue from the excellent car rental fleet in Shenzhou is 400 million yuan, which is 5% of the total revenue of the company.

In 2019, Lu Zheng Yao spent 4 billion yuan to win the controlling power of Bao Wo through the subsidiary company of Shenzhou excellent car. After a long time, a large number of Bao Wo entered the car rental team in Shenzhou City. At the same time, in order to popularize Bao Wo motor, Shenzhou rentals APP launched a free trial drive of Bao Wo car, and has continued to this day.

However, the cooperation between Shenzhou rentai and Rui Xing coffee has been limited to car rental and coffee coupons, because there is no direct correlation between the two businesses.

?