Xinjiang Guanghui Industry Investment (Group) Co. Ltd.

Guanghui outperformed our expectations in the third quarter of 2018, driven by the energy segment. The energy and real estate segments grew 100% and 39% year-on-year, respectively. This underpinned the 12% increase in aggregate revenue, which reached RMB136.2 billion in the third quarter 2018. On the other hand, revenue growth for the auto segment was slightly lower than our expectations, at 7.4%, due to industry slowdown. Guanghui's larger scale and favorable mix towards auto services led to a higher gross profit margin in the third quarter of 2018. We expect this trend to continue and EBITDA margins to stay high. The stable outlook reflects our expectation that Guanghui will continue to shift its focus to higher-margin after-sales auto services and

...Leverage remains high despite some improvement following capital injection. We expect Xinjiang Guanghui Industry Investment (Group) Co. Ltd. (Guanghui) to control its debt leverage at 5x or below following its debt repayment in late 2018 and early 2019. The ratio was 5.9x as of Dec. 31, 2017. The company used part of the capital injection of Chinese renminbi (RMB) 7.8 billion from Evergrande Group and improved EBITDA from a turnaround in the energy business to repay debt. Guanghui spent over RMB5.5 billion of the injection on debt repayment, with close to half of that going toward clearing short-term debt. Capital structure to heighten refinancing risk. Guanghui's key auto retailing business is asset-light but requires large working capital. The company therefore has high dependence on short-term borrowings. The funds from Evergrande are not significant when compared to Guanghui's short-term debt of RMB62.9 billion as of June 30, 2018. We forecast Guanghui's average debt maturity to be...

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