The next two to three days are crucial for Guanghui Auto. Every millimeter of fluctuation in the company's share price could directly threaten its listing status.

As of the close on July 12, Guanghui Auto's share price has been below 1 yuan for 17 consecutive trading days, teetering on the brink of delisting.

Against this backdrop, Sun Guangxin, Xinjiang's richest man, has decided to relinquish control of the listed company through equity transfers. However, the transaction will not take place until five months later.

Drawing water from afar to quench a nearby thirst, it remains to be seen whether the market will buy into this plan.

Transfer of Control

It is surprising that Sun Guangxin, Xinjiang's richest man and known as the godfather of western business, would one day need to seek help from others in his business operations. He is even willing to cede control of Guanghui Auto, a listed company.

Last Friday, Guanghui Auto (600297.SH) announced that its controlling shareholder, Guanghui Group, had signed a framework agreement with Jinzheng Technology to transfer control of the listed company through equity transfers.

The agreement stipulates that after December 19, 2024, Guanghui Group will transfer its 24.5% stake (2.031 billion shares) in Guanghui Auto to Jinzheng Technology. Upon completion of the transaction, the company's control will change hands.

Why sign the agreement now but conduct the transaction at the end of the year? It seems that the company is eager to release the news but faces insurmountable obstacles for the time being.

Currently, Guanghui Auto is fighting for survival. On June 20, the company's share price closed at 0.98 yuan per share, falling below 1 yuan for the first time. Since then, it has remained below the critical threshold, closing below 1 yuan for 17 consecutive trading days as of July 12. With only three trading days left before delisting, the company is in a desperate situation.

In fact, Guanghui Auto's share price has been hovering at low levels since the beginning of this year, and the situation became increasingly严峻 in early June. On June 4, Guanghui Group and several senior executives of Guanghui Auto simultaneously launched shareholding increase plans to stabilize market confidence.

In just over ten days, Guanghui Group invested more than 50 million yuan to increase its stake in Guanghui Auto. However, these funds were like a few pebbles thrown into the ocean, failing to make a ripple. Instead, the company's share price continued to decline, falling below the 1-yuan threshold.

Will Guanghui Group's equity transfer turn the tide? It depends on how the market views the acquirer.

The acquirer, Jinzheng Technology, is no slouch either. Its controlling shareholder, Jinzheng Group, is also a large industrial group in Xinjiang, similar to Guanghui Group. Founded in 1993, the group has businesses in technology, energy and chemicals, engineering and construction, trade, and logistics. In 2021, the group had assets worth 26 billion yuan and annual revenue exceeding 30 billion yuan.

Perhaps stimulated by this news, Guanghui Auto recorded two consecutive trading limits on July 11 and 12, closing at 0.96 yuan per share on Friday, inching closer to the 1-yuan threshold.

Since Guanghui Group increased its stake in Guanghui Auto through centralized bidding on June 20, the equity transfer transaction can only be implemented six months later.

Jinzheng Technology has confirmed that it will pay 100 million yuan before July 20 as the earnest money for this equity transfer.

Struggling 4S Stores

Guanghui Auto is the main operating entity of Guanghui Group's automobile distribution industry.

Twenty years ago, Sun Guangxin saw the development trend of China's automobile industry and led Guanghui Group to enter the automobile distribution industry. With the continuous expansion of China's automobile industry and market size, Guanghui Auto leveraged the group's strong strength to frequently acquire and merge companies across the country, weaving a vast automobile sales network and becoming a leading automobile dealer nationwide.

Thanks to aggressive mergers and acquisitions, Guanghui Auto, which was established just five years ago, overtook Pangda Group in 2011 to become the top player in China's automobile distribution industry after Pangda had held the position for five consecutive years.

In 2015, Guanghui Auto successfully listed on the A-share market through a backdoor listing with Meiluo Pharmaceutical.

After going public, Guanghui Auto's external mergers and acquisitions became more frequent. In 2016 alone, it spent heavily to acquire Baoxin Auto (now Guanghui Baoxin), Pengfeng Group, Zunrong Group, etc. Among them, Baoxin Auto, which mainly operates luxury car brands, is one of BMW's largest dealers in China.

Through the acquisition of Baoxin Auto, Guanghui Auto compensated for its shortcomings in the luxury car segment and rapidly expanded its influence from the central and western regions to North China and the eastern coast, further consolidating its position as the industry leader.

However, in 2021, Zhongsheng Holdings, which specializes in luxury cars, surpassed Guanghui Auto.

Pangda Group, once known as the "King of 4S Stores," sounded the alarm for the automobile distribution industry when it faced a liquidity crisis in 2019. Prior to that, Guanghui Group had acquired five Mercedes-Benz 4S stores from Pangda Group for 1.253 billion yuan.

After several years of restructuring, Pangda Group ultimately failed to escape the fate of delisting. When an entire industry is on its last legs, every player must prepare their own exit speech in advance.

As China's automobile market rapidly transitions from traditional fuel vehicles to new energy vehicles, the 20-year-old 4S store model is facing unprecedented challenges. New energy brands are building their own self-operated stores, beginning to disrupt the traditional dealership model.

Moreover, China's automobile market has become increasingly competitive in recent years, with major automakers cutting prices to compete for market share, further compressing dealers' profit margins.

In 2022, Guanghui Auto suffered a massive loss of 2.669 billion yuan. The following year, the company struggled to turn a profit, achieving a net profit attributable to shareholders of 393 million yuan, with a net profit margin of only 0.46%. Recently disclosed performance forecasts show that the company expects to lose 699 million yuan to 583 million yuan in the first half of this year.

Pursuing Transformation

Over the past 20 years, as the "richest man in Xinjiang," Sun Guangxin has rarely encountered rivals in the vast northwest region.

Under his leadership, Guanghui Group has developed over 30 years into a business conglomerate with four major industrial sectors: energy development, automobile services, modern logistics, and real estate. It owns five listed companies: Guanghui Energy, Guanghui Logistics, Guanghui Auto, Guanghui Baoxin, and Alloy Investment, with businesses spanning the country and extending overseas.

In 2023, the group had total assets of 247.193 billion yuan, generating revenue of 214.603 billion yuan and net profit of 4.409 billion yuan.

Before starting his own business, Sun Guangxin had a nine-year military career, and his dream was to become a general. Through a serendipitous experience, he discovered his talent for business and decided to give up his dream of becoming a general to return home and start his own business.

Since then, Sun Guangxin has been involved in various businesses, including bulldozer agency, opening Xinjiang's first seafood restaurant, first karaoke hall, disco, swimming pool, and bowling alley.

What truly made him a success was his involvement in the energy sector. Today, Guanghui Energy, under Guanghui Group, is one of the few private enterprises in China that spans the "coal, oil, and gas" resources.

When Sun Guangxin chose to enter the automobile distribution industry, he saw its growth potential and good cash flow, which could provide convenience for slow-turning industries such as energy.

Nowadays, the automobile distribution business has become a drag on the group, while both energy and real estate are undergoing cyclical impacts. Sun Guangxin has to make difficult choices.

In recent years, Guanghui Auto has also been making self-adjustments to adapt to the new energy trend. As of the end of 2023, the company has established contact and communication mechanisms with more than 20 new energy vehicle brands, successfully applied for 54 stores, and has 15 more under application.

Last Saturday, Guanghui Auto announced that it had signed a strategic cooperation agreement with Zhongjun Technology to help the company embark on a dual-wheel drive development path of "technology + industry."

Zhongjun Technology is a shareholder of Jinzheng Technology, both belonging to Jinzheng Group.