$一嗨租车(EHIC)$ $神州租车(00699)$ $易车(BITA)$ $赫兹(HTZ)$ $安飞士(CAR)$
Tiger Global Finding Value In China
stockpucker
Jul. 30, 2015
Summary
Tiger Global recently upped its stake in EHIC to over 30%.
 Shares are down close to 30% over the last month.
 But even without Tiger Global, EHIC is interesting.

Tiger Global management has boosted its stake in eHi Car Services (NYSE:EHIC), increasing its total investment in the $800 million market cap Chinese car rental company to over 30%. The stake comes partly from open market buys and partly from a private placement that Tiger Global took part in with SRS Investment Management.

This sizable active position comes at the same time as the firm undergoes a significant reorganization, losing some key executives and consolidating some of its funds.

Tiger Global's HistoryTiger Global Management was founded by Charles Coleman in 2001. The firm has specialized in high growth, early-stage investments. It invested in both Facebook (NASDAQ:FB) and Alibaba (NYSE:BABA) before their respective IPOs.

Two major investment heads, Feroz Dewan and Caleb Watts, both announced in May that they will be leaving the firm, Dewan to start his own fund and Watts to focus on managing his own wealth.

In line with these exits, the firm plans to reorganize its fund structure. In particular, the Internet Opportunities Fund will be merged into the much larger Long Opportunities Fund in order to reduce the challenges and overhead of overseeing several funds.

EHIC StakeTiger Global already has experience in both the car rental and Chinese auto industry, with significant positions in both Avis Budget Group (NASDAQ:CAR) and Chinese taxi-hailing app Didi Kuaidi. The hope is that EHIC can give them the best of both worlds, offering the value of CAR and the significant growth potential of Didi Kuaidi.

EHIC is certainly cheap. Despite 60% year over year revenue growth in the most recent quarter and plans to cash out its own stake in Didi Kuaidi for upwards of $200 million (~25% of market cap), the stock trades at an enterprise value of just about six times projected 2015 EBITDA.

The company's future growth potential looks good as well. The Chinese car rental market is projected to grow by 15% annually over the coming years, and as the second largest rental provider in the country EHIC should benefit handsomely from that growth.

The company is clearly targeting the number one spot, currently held by China Auto Rental. With the extra cash from the Tiger Global/SRS private placement, plus the potential windfall from the sale of its Didi Kuaidi stake, the company plans to double its car fleet to over 40 thousand and expects to grow revenue by 76% this year.

Cause For ConcernThere are three big issues that have weighed on EHIC's shares. The first, lack of profitability, appears to be going away. The company turned a profit in Q1, and continues to see gross margin expansion and decreasing SG&A as a percent of revenue as it scales up.

The second problem will be familiar to anyone with experience investing in Chinese small-caps: fraud allegations. In particular, the company has been accused multiple times in its past of overstating both the value of its vehicles and the total size of its fleet. The company has denied those allegations, and nothing has come of them so far, but they continue to make investors wary.

Finally, there's the concern that Didi Kuaidi and other ride-sharing apps may end up being EHIC's ultimate downfall as people choose to use these services rather than rent a car.

Bottom LineTiger Global's past successes, combined with the size of this stake, should get investors' attention. It's unclear what policies the fund might push for, but given its track record investors can only view its involvement as a positive.

Even without the activist story, EHIC has a great deal going for it. Rarely will you see a company with such a strong balance sheet, 50+% growth, and the beginning of profitability trading at such a cheap price. The risk factors are real, but there's significant potential awaiting aggressive investors.

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