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China -- Bitauto (BITA) IPO has longer term potential

|Includes:Bitauto Holdings Limited (BITA)
bitaNov 15wk IPO calendar

Bitauto Holdings Limited (NYSE:BITA) $113mm IPO
with a market cap of $454mm at the price range mid-point of $11
Scheduled for Thursday, November 18, 2010

BITA Valuation Metrics

. At 155 times annualized, adjusted earnings for the nine months ended September 30, 2010 BIA seems richly priced
. However, BITA appears to be the leader in the  fast growing Internet-based automobile advertising market sector in China
. With a 64% gross margin, BITA’s bottom line could benefit significantly from (potential) rapid increases in top line revenue

. Internet content and marketing services for China’s automotive industry
. Through a “vertical plus portal” model, also distributes dealer customers’ automobile pricing and promotional information through 67 partner websites, including major portals operated by Tencent, Sina, Netease, Yahoo China and Tom Online.
. Largest Internet advertising agency for automakers in China, placing advertisements representing more than 30% of the overall online advertising spending by automakers in China in 2009, according to iResearch

. Total online automobile advertising spending in China has also increased at a CAGR of 54.3% from RMB254 million in 2005 to RMB1,440 million in 2009
. Expected to grow further at a CAGR of 27.5% to reach RMB3,806 million in 2013, according to iResearch

Nationwide dealers customer base
. New automobile dealer subscribers have increased from 981 in 2007 to 2,783 in the first nine months of 2010
. Used automobile listing customers have increased from 265 in the first half of 2009 to 1,094 in the first nine months of 2010.
Of the 80 major automakers in China, consisting of international and Chinese automobile manufacturers and their joint ventures, 55 placed advertisements on the website in the nine months ended September 30, 2010.

With per cent of revenue generated for the nine months ended September 30, 1020
. business 63% -- revenue from website advertising customers, auto dealers & makers
. Digital marketing solutions business 33% -- service fees paid by customers, principally automakers,
. business 4%:  listing services to used automobile dealers

. Limited number of automaker customers for BITA’s digital marketing solutions business.
. In 2009 and the first nine months of 2010, revenues from the top three automaker customers accounted for 28.9% and 24.9%, respectively, of digital marketing solutions revenues
. In particular, the largest automaker customer accounted for 21.4% and 17.4% of digital marketing in 2009 and the first nine months of 2010, respectively.

. Faces competition from many market participants. With respect to our new automobile advertising services, faces competition from China’s automotive vertical websites, such as and, as well as the automotive channels of major portals and traditional forms of media.
. Competition with other websites is primarily centered on website traffic and brand recognition among general Internet users, spending by automakers and automobile dealers, and customer retention and acquisition.
. With respect to new automobile dealer subscription services, we also face competitions from and in terms of automobile inventory, timeliness and accuracy of automobile pricing information and website traffic.
. Faces competition from other used automobile websites, such as and, as well as other websites and media that publish used automobile information in China.
. Parameters of competition are similar to those of the business, except that the competition for the business is more focused on the size of used automobile inventory and market penetration among used automobile dealers.

Digital marketing solutions
Faces competition from other Internet marketing service providers in China, including well-established international advertising agencies such as Dentsu and WPP as well as local agencies that specialize in providing online marketing services, including AllYes Online Media, Hylink Advertising and Beijing Catch Stone Advertising.

9mm ADSs, shareholders intend to sell 1.6mm ADSs
$89mm to BITA
. $25.0 million of the net proceeds for product development
. $25.0 million of the net proceeds for sales and marketing
. Balance for general corporate purposes, including working capital, $3.0 million to pay a RMB20 million loan

BITA Valuation Metrics

Disclosure: none
Stocks: BITA