Introduction

Opportunities abound, yet they are not abundant.

On February 10, the first trading day following the announcement of the restructuring and merger between Dongfeng and Changan, shares of Dongfeng and China South Industries Group witnessed a broad-based surge.

Within less than an hour and a half of the market opening, Dongfeng Motor Corporation and Dongfeng Automobile Parts and Components Co., Ltd. swiftly hit their daily limits, while Dongfeng Motor Group Co., Ltd.'s Hong Kong stocks soared by over 50%, reaching a three-year high.

Similarly, the China South Industries Group Index soared, with Dongan Engine, Zhongguangxue, Great Wall Military Industry, Hunan Tianyan, Huaqiang Technology, and others, reaching their daily limits shortly after the morning market closed and maintaining that momentum throughout the day.

However, Changan Automobile, as one of the parties involved, opened higher with an increase of 8.57% but gradually lost steam and retreated. By the close of trading, its share price settled at 14.18 yuan per share, reflecting a mere 4.73% increase.

It is evident that the market responded enthusiastically to Dongfeng's involvement in the integration and restructuring but displayed a more muted reaction to Changan's.

Why is this the case? How many opportunities will this merger and restructuring present for retail investors in the stock market?

Merger and Restructuring: Has Changan Shouldered a Burden?

"The restructuring is a boon for Dongfeng but a burden for Changan. It's akin to being forced to carry a heavy load."

Shortly after the morning market closed on the 10th, some investors posted such a message in the Changan Automobile stock forum. At that time, Changan Automobile's share price stood at 14.29 yuan per share, with gains dipping to 5.54%. Despite positive public sentiment towards the restructuring, market reaction was less optimistic. In the afternoon, although Changan Automobile's stocks continued to fluctuate, they generally exhibited a slight downward trend.

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On the other hand, Dongfeng Motor Corporation's stock comments painted a different picture: "Can I buy it tomorrow? I really want to increase my position," "Just tell me how many daily limits there will be," "Changan's share price is over 14, Dongfeng should rise to 13," "Temporarily targeting 20 yuan."

It is clear that for this cooperative restructuring, the market is more inclined to believe that Dongfeng has hitched a ride on Changan's success.

Judging from the recent performance of Changan and Dongfeng, investors' inclinations are not unfounded.

Dongfeng Group's overall sales data indicates that in 2024, Dongfeng is expected to sell 2.48 million vehicles throughout the year, with 1.37 million self-owned brand vehicles sold, achieving the first positive annual sales growth since 2017.

Dongfeng Group's performance in 2024 is commendable. However, a closer look reveals the numerous challenges lurking behind these impressive figures.

Foremost among these is the issue of profit, which is most sensitive in the capital market. According to Dongfeng Motor Corporation's earlier announcement, the company expects to achieve a net profit of 25 million to 33 million yuan in 2024, representing a year-on-year decrease of 83.5% to 87.5%. It is anticipated that the net profit after deducting non-recurring gains and losses will incur a loss of 700 million to 750 million yuan in 2024.

The rebound in sales has failed to extricate Dongfeng from its loss dilemma, which may be attributed to Dongfeng's inability to shed its reliance on joint ventures. In 2022, Dongfeng Group's net profit attributable to shareholders of the parent company was 10.265 billion yuan, of which only the profits from joint ventures accounted for 11.884 billion yuan.

However, as profit cows like Nissan and Honda struggle, and consumer preferences shift towards self-owned brands, although Dongfeng's self-owned brands have shown courage, their strength remains weak, and they have yet to establish the capability to lead the charge.

In contrast, Changan Automobile's performance is unmistakable. Currently, Changan has repeatedly ranked among the top five Chinese automakers.

Official data shows that in 2024, Changan Automobile sold 2.6838 million vehicles, marking a 5.12% year-on-year increase. Among these, the sales volume of self-owned brands amounted to 2.2265 million vehicles, self-owned passenger vehicle sales totaled 1.6683 million vehicles, and overseas sales reached 536,200 vehicles. In the first three quarters alone, Changan Automobile generated revenue of 110.96 billion yuan and net profit of 3.58 billion yuan.

In comparison, it is no surprise that the market believes Dongfeng has benefited from Changan's success.

Bull Market or Bear Market: Opportunities for Retail Investors

Since the restructuring favors Dongfeng more, does this mean Dongfeng will offer more opportunities and more generous returns than Changan in the stock market? In the long run, will the restructuring of both companies replicate the stock market success of Thalys?

For now, the answers to these questions remain unclear.

However, it is certain that in China's A-share market, short-term and speculative investment behaviors are prevalent. From this perspective, influenced by the positive news of the restructuring, both Dongfeng and Changan will present certain opportunities in the short term.

It should be noted that Dongfeng and Changan have intricate brand systems and involve multiple foreign investments such as Honda and Nissan, so their integration and restructuring process will undoubtedly be gradual. Additionally, Dongfeng Motor Group has stated that the integration and restructuring are still in the planning phase and require subsequent approval from the relevant authorities.

Under such circumstances, if there is no new progress, and as the enthusiasm for their integration and restructuring wanes, their respective stocks will also gradually stabilize.

In the long run, if the restructuring of both companies proceeds smoothly, then as the fifth largest automobile group in the world, it will be able to fully leverage its scale, enhance supply chain control, and distribute research and development costs more effectively.

On this foundation, if internal resources can be harmoniously coordinated, and their management structures can achieve organic coupling, combining Dongfeng Motor's leading technological research and development advantages with Changan Automobile's efficient technology application and transformation efficiency, and leveraging their synergies in the fields of new energy and intelligence, it will undoubtedly give birth to a "Chinese supercar" and propel their share prices upwards.

Conversely, if the details of integration are not managed well, the double-edged sword of restructuring may turn into a sharp blade aimed at Dongfeng and Changan, and the enormous and cumbersome entity resulting from the integration will inevitably hinder their progress.

So, have you seized this wave of restructuring-driven "bull market"?