eHi Car:Initiate on 2018s with Hold

　　Initiate with Hold

　　eHi issued USD200 million of 2018 bonds in December last year priced at7.75% YTM. Seemingly technicals were a bit weak to start with as companyhad to reduce the size and tenor compared to initial attempt and final orderbook was also limited - about USD400 million, as per Bloomberg.Unsurprisingly, bonds traded weaker initially though largely in line with overallmarkets and have recovered well from the lows earlier this year. We note thatbonds do look attractive as a shorter dated paper amidst current marketsentiments but we initiate with Hold noting limited upside on a relative basisas well as potential supply risk given aggressive expansion plan.

　　Looking at comparables, Car Inc is the closest comparable within Asia.However, Car Inc has advantage of scale (~2.5x fleet size; ~3x revenue; ~4.5xEBITDA) which is a key driver of profitability in this business. Car Inc also hasrelatively better track record of access to cheaper/diversified funding sourcesand is likely past its peak capex period while eHi’s capex will relatively be moreaggressive in the near term (eHi plans 50% fleet increase in 2016). Withregards to sponsor support, both companies have key long term strategicshareholder backing, in our view. On the other hand, eHi benefits fromexposure to relatively stable B2B car services business and better utilizationlevels. Overall, we expect eHi to trade about ~100bps wider than comparableCar Inc paper. Car Inc 20 is currently trading at ask spread of G+432 (ask priceof 102.5; ask ytm of 5.4%; Hold). eHi 18 is trading at ask spread of G+577 (askprice of 102; ask ytm of 6.6%). eHi 18 does look attractive relatively but Car.Inc looks tight to us rather than other way around. Elsewhere, perhaps we canlook at MPM. MPM may not be a perfect comp as majority of its revenue andprofitability is driven by lower margin but relatively stable motor cycle masterdistribution business. MPM is also smaller in scale though both bonds arerelatively small deal and are rated similar (by Fitch though MPM 19 is ratedone notch lower by S&P). That said, MPM also benefits from reputed sponsorbacking and is exposed to less regulatory uncertainty in our view. MPM 19 iscurrently trading at ask spread of G+601 (ask price of 99.25; ask ytm of 7%;Hold). Compared to MPM, eHi looks relatively fair to us.