Brilliance Auto could pay special dividend if BMW takes control in JV – sources
29 AUG 2018
Brilliance China Automotive Holdings (Brilliance Auto) [HKG:1114], a Chinese auto manufacturer that owns 50% of a joint venture (JV) with BMW [ETR:BMW], could pay a special dividend if BMW takes control of the JV in a few years’ time, according to a source familiar and two sources briefed on the matter.
Brilliance Auto could seek to decrease its holdings in the JV to 25%, and the proceeds from that would fund the potential special dividend, the two sources briefed noted. However the HKD 52.7bn (USD 6.7bn) market-cap company would likely have to wait until 2022 before it can pursue a sell-down, to remain compliant with Chinese regulations, the source familiar said.
In April, China’s state planner the National Development and Reform Commission (NDRC) said it will remove the foreign ownership cap for passenger car JVs by 2022, to echo President Xi Jinping’s vow to cut import tariffs and relax foreign ownership restrictions at the Boao Forum a week earlier.
Brilliance Auto will pay a dividend of HKD 0.11 per share on 26 October 2018, according to the 1H18 interim report released on 24 August. It has declared HKD 0.11 per share dividend each year since 2014.
Two analysts said it’s hard to gauge the size of the potential special dividend but the price-to-earnings (P/E) multiple and price-to-book (P/B) ratio for BMW and Brilliance Auto can be used to get an idea of the JV’s valuation. The valuation will also depend on the production capacity of the JV, at the time of the special dividend payment. Brilliance Auto is trading at 9.18x trailing 12 month P/E while BMW is trading at 6.34x trailing 12 month P/E.
BMW currently owns the remaining 50% in the BMW Brilliance Automotive JV (BMW Brilliance), which engages in the manufacture and sale of BMW vehicles in China. The partnership is expected to expire in 2028.
Brilliance Auto announced on 21 August it is negotiating with BMW on the extension and ownership structure of the JV, following Bloomberg’s report on 12 July stating BMW was set to boost its stake in BMW Brilliance to become the first foreign automaker to control a Chinese JV.
Brilliance Auto also produces and sells automobiles and components in China via its subsidiaries Renault Brilliance Jinbei Automotive Co., Ltd (RBJAC) and Shengyang XingYuanDong Automobile Component, the company’s 2018 interim report shows.
RBJAC is a JV set up in early 2017 that is 51% and 49% held by Brilliance Auto and Groupe Renault [EPA:RNO] respectively. It sold 22,739 minibuses and multi-purpose vehicles (MPVs) during 1H18, down by 32.4% from 1H17.
Brilliance Auto reported CNY 3.6bn profit for the six months ending 30 June 2018. The BMW Brilliance JV contributed CNY 3.7bn profit, a 37.8% increase compared to 1H17, while the manufacturing and sale of non-BMW vehicles and auto parts posted a loss of CNY 238.3m, its interim report shows.
Brilliance Auto is 42.32%, 7.95% and 6.86% owned by Huachen Automotive Group Holdings Company Ltd, J.P. Morgan Chase & Co. and Templeton Asset Management Ltd respectively.
Shares in Brilliance Auto jumped 14.68% on Monday (27 August), following the 1H18 results announcement.