23 October 2014 Asia Pacific/China Equity Research Travel & Leisure

CAR Inc.

(0699.HK / 0699 HK) Rating OUTPERFORM* [V] Price (21 Oct 14, HK$) 10.60 INITIATION

Target price (HK$) 12.30¹ Upside/downside (%) 16.0 Mkt cap (HK$ mn) 24,990 (US$3,221 mn) Monetising strong growth in China Enterprise value (Rmb mn) 18,554 Number of shares (mn) 2,357.51 ■ Initiate coverage with OUTPERFORM rating. CAR is the largest auto Free float (%) 19.6 rental company in China, with a 31% market share. As of end-2013, CAR's 52-week price range 11.9–10.3 ADTO - 6M (US$ mn) 32.8 fleet size was four times that of eHi (the second-largest player), and greater

*Stock ratings are relative to the coverage universe in each than the aggregate size of the Top 2-10 players. We expect CAR to continue analyst's or each team's respective sector. ¹Target price is for 12 months. monetising China's robust demand (a 27% CAGR over 2013-18E). [V] = Stock considered volatile (see Disclosure Appendix). ■ Asset heavy, capital intensive, and operating leverage. Fixed costs

Research Analysts represent nearly 90% of CAR's total operating costs. We expect operating Kevin Yin leverage to come from: (1) rising utilisation on technology-driven yield 852 2101 7655 management (big data analysis, dynamic pricing and fleet allocation); (2) [email protected] lower unit depreciation (competitive purchasing and disposal prices); and (3) lower unit labour costs (fleet size expansion and HQ relocation to Tianjin). ■ Recent developments. (1) In October, CAR proactively offered a Rmb59 special rate (nearly 50% discount) for select economy cars in more than ten cities. CAR had planned the price cut in 1H14. The purpose was to fight competition with only a marginal impact on profitability (CAR's margin is 20 pp higher than eHi's). We assume a Rmb159 RevPAR (2H14) vs Rmb171 (1H14); (2) On 3 October, eHi filed an F-1 form with the US SEC for an IPO. The proposed maximum aggregate offering is US$100 mn (vs CAR’s gross IPO proceeds of US$538 mn). ■ Our HK$12.30 TP represents 23x 2015E P/E, 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG. This compares with a 13x trading P/E for global mature traditional auto rentals, 18.4x for China budget hotels, 21.6x for China education; 20.4x for China catering; and 31.6x for China auto O2O services. Key risks: (1) end-demand and competition; (2) operating leverage; (3) car plate restriction; (4) operation suspension; and (5) used car disposal.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Price (LHS) Rebased Rel (RHS) Revenue (Rmb mn) 2,702.7 3,835.7 4,940.3 5,936.4 14 120 EBITDA (Rmb mn) 838.5 1,560.3 2,216.2 2,811.0 13 115 EBIT (Rmb mn) 118.7 822.9 1,347.0 1,799.8 12 110 Net profit (Rmb mn) -223.4 445.4 947.0 1,373.6 11 105 EPS (CS adj.) (Rmb) -0.09 0.19 0.40 0.58 10 100 Sep-14 Change from previous EPS (%) n.a. Consensus EPS (Rmb) n.a. — — — The price relative chart measures performance against the EPS growth (%) n.m. n.m. 112.6 45.0 MSCI CHINA F IDX which closed at 6285.33 on 21/10/14 P/E (x) -88.3 44.3 20.8 14.4 On 21/10/14 the spot exchange rate was HK$7.76/US$1 Dividend yield (%) 0 0 0 0 EV/EBITDA (x) 27.1 11.9 8.7 6.8 Performance over 1M 3M 12M P/B (x) 270.3 3.1 2.7 2.3 Absolute (%) -3.3 — — — ROE (%) -505.0 13.8 13.8 17.0 Relative (%) 2.0 — — — Net debt/equity (%) 4,070.6 Net cash Net cash Net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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23 October 2014 Table of contents

Focus charts and tables 4 Monetising strong growth in China 5 China's largest auto rental company 5 Operating leverage is key 5 52% recurrent earnings CAGR over 2014-16E 5 Initiate with OUTPERFORM rating 5 Short-term rentals: The fastest growing segment 14 Key drivers behind the 27% segment CAGR 15 No. 1 position with 31% market share 17 High entry barriers to sustain high margins 19 Operating leverage is key 25 90% operating cost is fixed 25 Where does the operating leverage come from? 25 Expansion along the value chain 30 Recurrent earnings to post a 52% CAGR over 2014-16E 31 Rental revenue to grow 26% CAGR over 2014-16E 32 Depreciation of rental vehicles 35 Direct operating expense 36 Operating expense ratio to decline on economy of scale and leverage 37 Operating profit to grow 48% CAGR over 2014-16E 38 Costs related to suspended fleet 39 Recurrent earnings (ex-suspended fleet) to grow 52% CAGR over 2014-16E 40 Share-based compensation 41 Tax rate 42 Working capital management 42 Capex plan 42 Free cash flow and net gearing 43 ROE, ROIC and ROA 43 Use of IPO proceeds 43 Sensitivity analysis 43 Initiate with OUTPERFORM rating 51 HK$12.3 TP represents 23x 2015 P/E, 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG 51 Our benchmarks 51 Compared to China budget hotels 52 Compared to Hertz 54 DCF valuation 57 Investment risks 58 Direct and indirect competition 58 Capital-intensive business model 59 High operating leverage 59 Restrictions on car purchases in certain cities 60 Customer violations of traffic rules 60 Disposal price of used cars 61 Other industry and business risks 62 Appendix 1: Business model 63 Products and service 63 Extensive network cross China 65 Customer base 68 Customer service 69 Brand 70 Direct marketing 70 Fleet management and operation 70 Staffing 73

CAR Inc. (0699.HK / 0699 HK) 2 23 October 2014

Growth strategies 74 Strengths 74 Appendix 2: China's car rental market overview 76 Low penetration implies large potential upside in China 76 China's car rental market size 76 A highly fragmented market 78 Appendix 3: China's short-term car rental market 79 China's short-term car rental market size growth 79 Driving forces of China’s short-term car rental market 80 Competitive landscape in China's short-term car rental market 82 Appendix 4: China long-term car rental and leasing market 84 Growth drivers: China's long-term car rental market 84 Growth drivers of China's leasing market 85 Competitive landscape in China's long-term car rental market 85 Appendix 5: China's used car market 86 Appendix 6: Company history 88 Key milestones of CAR 88 Appendix 7: Senior management & board members 89 Profile of senior management 89 Profile of board members 90 Appendix 8: Holding structure 91 Relationship with Hertz 92 Relationships with Warburg Pincus 93 Appendix 9: Comparison with eHi 94 Appendix 10: Local peer comparison 98 Appendix 11: Global peer comparison 99

The author of this report wishes to acknowledge the contributions made by Michael Shen, an employee of Evalueserve Research Hong Kong Ltd, a third-party provider to Credit Suisse of research support services.

CAR Inc. (0699.HK / 0699 HK) 3 23 October 2014 Focus charts and tables

Figure 1: CAR had a 31% market share in short-term self- Figure 2: 90% of operating costs is fixed (2013) drive by revenue in 2013 Others CAR Fuel 10% 31.2% 5% Car Repair depreciation 44% CAR 8% - 31% market share - 4x of No.2 player Store Others - Exceeds sum of next expense 55.6% 9 players 8%

eHi 8.2% Insurance Reocar 10% Labour Avis Topone 1.9% 15% 1.2% 1.9%

Source: Roland Berger Source: Company data Figure 3: Depreciation ratio catching up with global peers Figure 4: Breakeven analysis (on one-car basis) Rmb per car per day 40.0% (Dep/rental) (Utilization ratel) 80.0% 180 165 33.3% 34.4% 35 35.0% 31.9% 31.3% 78.0% 75.0% 160 30.0% 26.7% 71.0% 24.7% 70.0% 140 23.8% 52 Breakeven 25.0% 66.8% 22.0% 21.0% RevPac: 120 120 20.0% 65.0% 100 15.0% 13.0% 60.0% 61.7% 61.7% 5 10.0% 60.5% 80 15 59.0% 57.9% 57.9% 55.0% 14 5.0% 56.7% 60 8 0.0% 50.0% 40 37 CAR CAR CAR CAR CAR CAR CAR Avis Hertz Localiza 2011 2012 1Q13 2013 1H14 2013 1H14 2013 2013 2013 20 Adj. Adj. 0 Depreciation as % of rental income Utilization rate RevPac Depreciation DOE Selling G&A Internet Breakeven Tax Net costs expense expense RevPac expense income

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates Figure 5: Peer comparison—ROIC vs EBITDA growth Figure 6: Dynamic pricing on big data analysis system 70.0% 2014 ROIC

60.0% New Oriental Bitauto 50.0% Big Data Analysis Tech - driven In search of • Consumer operation excellence 40.0% TripAdvisor (1) behaviour analysis Autohome • Mobile/O2O interface • Superior O2O (1) • Demand & trend • Yield management experience 30.0% Priceline prediction (dynamic pricing) • Pricing power Cafe de Coral Tsui Wah (c15% rate premium) Expedia Gourmet • Inventory • Efficient fleet 20.0% (1) management deployment • Cost leadership Localiza Future Bright Master Home Inns • CRM & loyalty (c25% discount) Ajisen • c50% rate difference 10.0% CAR Inc. programmes • OP leverage driving Avis China Lodging over a week 2013-2016E margin expansion Hertz Ctrip.com EBITDA CAGR 0.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Note:(1) 2013-2015E EBITDA CAGR; Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 4 23 October 2014 Monetising strong growth in China China's largest auto rental company We initiate coverage on CAR with an OUTPERFORM rating. CAR is the largest auto rental China's largest auto rental company in China, with 31% market share in the short-term self-drive rental segment as of company; 4x the second 2013, according to Roland Berger. As of end-2013, CAR's fleet size was four times that of player, greater than the the second-largest player, eHi, and greater than the aggregate size of the Top 2-10 combined Top 2-10; sector players. Short-term rental booking via website and mobile app increased to 66.4% in 2Q14 demand CAGR of 27% for from 6.4% in 1Q13. As of 1H14, its mobile app had nearly 5.5 mn installations. Due to its 2013-18E leadership position, we expect CAR to continue monetising China's robust demand for auto rental services (a 27% CAGR over 2013-18E). Key features of its business model are asset heavy, capital intensive and high operating leverage. In addition, several significant entry barriers underpin CAR's profitability (adjusted earnings turned positive in 2013 and trending up). Looking forward, CAR should continue product innovation and expansion along the value chain (such as used car sales, car leasing, car sharing, and car maintenance). Operating leverage is key We estimate fixed costs account for nearly 90% of CAR's total operating costs. We expect 90% of opex is fixed; three operating leverage from: (1) rising utilisation due to technology-driven yield management (a major sources of operating big data analysis system to accurately predict demand trends, a dynamic pricing system to leverage balance supply-demand, manage inventory, and improve margins—pricing could vary 40% during a week; vehicle allocation among cities to improve efficiency); (2) lower unit depreciation (negotiating with automakers directly to enjoy nearly 25% discounts for auto purchasing; competitive disposal prices on its extensive network); and (3) lower unit labour costs on an expanding fleet size and the relocation of back office from Beijing to Tianjin. 52% recurrent earnings CAGR over 2014-16E We estimate CAR's recurrent earnings will witness a 52% CAGR over 2014-16E, and its Earnings to see a 52% rental revenue a 26% CAGR. Operating leverage is the driving force behind margin CAGR and rental sales a expansion. We expect CAR's utilisation rate to increase from 57.9% in 2013 to 63.8% in 26% CAGR, benefiting from 2016 (vs global peers' 67-78% in 2013). We estimate depreciation as a percentage of operating leverage rental revenue will decline from 31% in 2013 to 21.3% in 2016 (catching up with global peers' 13-22% in 2013). We model for EBITDA margins to expand from 48% in 2013 to 61% in 2016 (vs global peers' 38-46% in 2013). Initiate with OUTPERFORM rating Based on our P/E, EV/EBITDA and DCF models, we derive our target price of HK$12.3, China budget hotels are our representing 23x 2015E P/E, 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG. China budget major benchmark hotels are our major benchmark. Given the similar nature of their business model (capital intensive, high operating leverage), both have similar net gearing, free cash flow (FCF) and return on equity (ROE) levels. CAR has stronger growth momentum, as budget hotels evolved five years earlier than auto rentals. CAR enjoys higher margins on higher entry barriers and less intense competition. Our target multiple of 23x 2015E P/E compares with: (1) a 13x trading 2015E P/E for Compared to other global mature traditional auto rentals; (2) 18.4x for China budget hotels, (3) 21.6x for local/global peer sectors China education; (4) 20.4x for China catering; and (5) 31.6x for China auto O2O services. Key investment risks include: (1) end-demand and competition; (2) capital requirement and high operating leverage; (3) restriction on car plate and auto purchases; (4) the suspension of operational cars; and (5) the disposal price of used cars.

CAR Inc. (0699.HK / 0699 HK) 5

(0699.HK / 0699 HK) / (0699.HK Inc. CAR Figure 7: Global peer group comparison—valuations Company Ticker Mkt cap Curr- Price Performance (%) Last P/E (x) EV/EBITDA P/B (x) ROE (%) EPS g% PEG Div yld

name Reuters (US$ mn) ency 1M 3M 12M FY 2013 2014E 2015E 2014E 2015E 2013 2014E 2013 2014E 2015E 2013-15E 2014E 12M fwd China budget hotel China Lodging HTHT.OQ 1,573 USD 25.31 -2% 2% 10% Dec/13 34.5 27.1 22.0 9.4 9.4 3.4 3.4 11% 12% 13% 25.4% 1.1 0.0% Home Inns HMIN.OQ 1,317 USD 28.57 -5% -17% -23% Dec/13 19.8 17.2 14.2 5.4 5.4 1.9 1.8 10% 10% 11% 18.0% 1.0 0.0% Weighted avg. 27.8 22.6 18.4 7.6 7.6 2.7 2.7 10% 11% 12% 22.0% 1.0 0.0% China education New Oriental EDU 3,312 USD 21.11 -3% 3% -19% May/14 24.3 15.4 13.9 13.7 13.7 3.9 3.2 18% 21% 21% 32.2% 0.5 0.3% TAL XRS 2,631 USD 33.70 -5% 24% 112% Feb/14 63.6 39.2 31.9 34.7 34.7 12.0 10.2 22% 31% 29% 41.2% 1.0 0.4% Xueda XUE 189 USD 2.89 -4% -29% -35% Dec/13 12.0 48.2 13.1 n.a. n.a. n.a. n.a. -4.3% -11.3 0.0% Weighted avg. 40.8 26.6 21.6 22.3 22.3 7.2 6.1 19% 25% 24% 34.9% 0.8 0.3% China catering Cafe de Coral 0341.HK 1,981 HKD 26.50 -5% -5% 2% Mar/14 28.0 26.5 22.5 16.5 13.9 4.3 4.1 16% 16% 18% 11.6% 2.3 3.3% Ajisen 0538.HK 814 HKD 5.79 -8% -2% -27% Dec/13 23.2 21.3 17.8 11.0 9.4 1.9 1.9 9% 9% 10% 14.2% 1.5 3.1% Tsui Wah 1314.HK 532 HKD 2.94 -6% -11% -47% Mar/14 25.8 27.0 18.6 18.8 12.5 3.9 3.6 20% 14% 18% 17.7% 1.5 3.2% Gourmet Master 2723.TW 956 TWD 205.50 -16% -14% 0% Dec/13 50.5 37.4 22.3 13.8 9.5 4.7 4.4 9% 12% 20% 50.5% 0.7 2.0% Future Bright 0703.HK 268 HKD 2.99 -8% -20% 2% Dec/13 7.2 9.9 9.4 7.6 6.2 2.3 1.7 37% 22% 17% -12.5% -0.8 2.5% Weighted avg. 30.4 26.9 20.4 14.7 11.6 3.8 3.6 15% 14% 17% 19.5% 1.6 2.4% China budget hotel, education and catering Simple avg. 28.9 26.9 18.6 14.6 12.8 4.2 3.8 17% 16% 17% 19.4% (0.3) 1.5% Weighted avg. 34.5 25.9 20.5 16.6 15.6 5.1 4.5 16% 18% 19% 27.0% 0.9 1.1% Traditional car rental companies Hertz HTZ 9,793 USD 21.39 -23% -26% -10% Dec/13 13.1 14.7 11.1 4.9 4.2 3.4 2.9 29% 20% 24% 8.6% 1.7 0.0% Avis CAR 5,401 USD 51.92 -18% -14% 75% Dec/13 23.6 17.8 13.9 6.1 6.1 7.2 6.5 34% 40% 48% 30.3% 0.6 0.0% Localiza RENT3 3,073 BRL 36.50 -2% -3% 1% Dec/13 19 19.0 17.5 7.2 7.2 5.7 4.4 29% 25% 24% 4.9% 3.9 1.9% Weighted avg. 17.3 16.3 13.0 5.7 5.2 4.9 4.2 30% 27% 31% 14.4% 1.1 0.3% China online travel service companies Ctrip.com CTRP.OQ 7,866 USD 55.27 -9% -11% -5% Dec/13 50.0 81.8 44.0 77.6 35.3 n.a. 5.2 13% 9% 14% 6.6% 12.4 0.0% Qunar QUNR 3,063 USD 25.83 -14% -7% Dec/13 (136) (24.1) (42.3) (23.0) (50.0) n.a. 679.7 -56% -177% -59% 79.2% -0.3 0.0% Tuniu TOUR 901 USD 18.11 -2% 1% Dec/13 (11.6) (23.3) (15.1) (28.9) n.a. (5.6) -134% -186% 0.0% Weighted avg. (1.9) 47.2 16.5 44.5 8.3 179.0 -6% -50% -20% 24.9% 8.2 0.0% Global online travel service companies Priceline PCLN 57,853 USD -7% -11% 1% Dec/13 26.4 21.1 17.1 17.0 13.7 8.3 6.8 41% 34% 35% 24.5% 0.9 0.0% 1,103.07 TripAdvisor TRIP 11,928 USD 83.54 -15% -22% 13% Dec/13 49.7 39.4 30.1 24.5 18.9 13.7 10.8 31% 30% 30% 28.6% 1.4 0.0% Expedia EXPE 9,825 USD 77.25 -9% -4% 60% Dec/13 24.0 19.5 16.5 9.5 8.2 4.7 4.1 20% 19% 23% 20.6% 0.9 0.8% Weighted avg. 29.6 23.6 18.9 17.2 13.8 8.7 7.1 37% 31% 33% 24.6% 0.9 0.1%

China auto O2O services 2014 23 October Auto home ATHM 5,124 USD 48.74 8% 43% Dec/13 63.9 46.3 34.1 34.1 25.0 n.a. 10.6 30% 28% 36.6% 1.3 0.0% Bitauto BITA 3,139 USD 72.56 -13% 28% 187% Dec/13 65.7 41.5 27.5 34.8 22.1 n.a. 10.1 23% 31% 61.4% 0.7 0.0% Weighted avg. 64.6 44.5 31.6 34.4 23.9 - 10.4 0% 27% 29% 46.0% 1.0 0.0%

6 Note: Share price as of 21 October 2014. Source: Reuters

23 October 2014

Figure 8: Peer comparison with eHi—operating metrics and financials CAR 2012 2013 1H13 1H14 eHi 2012 2013 1H13 1H14 Operating metrics ADR 212 246 218 277 ADR 145 163 163 171 - YoY 16.0% 27.1% - YoY 12.4% 4.9% Utilisation rate 59.0% 57.9% 61.1% 61.7% Utilisation rate 72.0% 70.5% 68.4% 70.9% (ST rentals) (Car rentals) RevPac (Rmb) 125 142 133 171 RevPac (Rmb) 104 115 111 121 - YoY 13.6% 28.6% - YoY 10.6% 9.0% Revenue and profitability Revenue (Rmb mn) 1,558 2,208 1,008 1,381 Revenue (Rmb mn) 450 566 261 385 - YoY 41.7% 37.0% - YoY 25.8% 47.5% Gross profit (rental 490 656 317 562 Total gross profit (Rmb 40 23 69 business) (Rmb mn) mn) 18 - YoY 33.9% 77.3% - YoY 122.2% 200.0% GP margin 31.5% 29.7% 31.4% 40.7% Total GP margin 3.9% 7.1% 8.7% 17.8% (rental business) Adj. EBITDA 728 918 464 796 Adj. EBITDA 102 46 133 69 - YoY 26.1% 71.6% - YoY 47.8% 189.1% Adj. EBITDA margin 46.7% 41.6% 46.0% 57.6% Adj. EBITDA margin 15.3% 18.0% 17.5% 34.6% Reported net profit (132) (223) 2 218 Reported net profit (176) (152) (85) (21) Reported net margin -8.2% -8.3% 0.2% 15.8% Reported net margin -39% -27% -33% -5% Recurrent profit (103) 143 (14) 318 Recurrent profit na na na na Recurrent margin -6.4% 5.3% -1.2% 17.5% Recurrent margin na na na na Balance sheet items (as of period end) (Rmb mn) Cash & cash equivalents 910 842 1,064 Cash & cash equival 133 631 318 Total assets 5058 6167 6,987 Total assets 1117 2026 2,435 ST borrowings 2496 2248 2,530 ST borrowings 172 220 346 LT borrowings 498 1563 1,701 LT borrowings 6 376 540 Total debt 3624 3811 4,232 Convertible bonds 238 0 - Net debt 2713 2969 3,167 Total debt 416 595 887 Net debt/adj. EBITDA 3.7 3.2 2.5 Net debt 282 Net cash 569 Total debt/total assets 72% 62% 61% Net debt/adj. EBITDA 4.1 Net cash 3 Total debt/total assets 37% 29% 36% Debt profile Total debt (Rmb mn) 4,232 Total debt (Rmb mn) 887 LT: ST borrowings 90:10 LT: ST borrowings 75:25 Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 7 23 October 2014

Figure 9: Peer comparison with eHi—company overview CAR eHi Company overview Company history Commenced car rental business in Sep. 2007 Commenced car services business in 2006 Commenced car rental business in 2008

Positioning Largest car rental company in China Largest services provider Second largest car rental company in China

Business segments Car rentals: Car rentals: Self-drive ST car rentals (<90 days), LT CAR rentals (>90 Self-drive ST car rentals(<1 year), Self-drive LT car days), leasing rentals (>1 year).

Used cars Car service: Chauffeured car services to corporate clients

Market share (based on 2013 revenue) (1) Car rentals (ST and LT self-drive and chauffeured car (1) Car rentals (ST and LT self-drive car rentals rentals and leasing): CAR: 6.6% (No.1), eHi: 1.7% (No.3) only): CAR: 8.1% (No.1), eHi: 1.5% (No.2) (2) Self-drive ST car rentals: (2) Car services (chauffeured car rentals): CAR: 31.2% (No.1), eHi: 8.2% (No.2) eHi: 6.8% (No.1), Yongda: 2.5% (No.2) (3) LT car rentals: CAR: 2.1% (No.1), eHi: 0.2% (No.2) Revenue breakdown -1H14 ST: LT: Leasing: Used cars=58%:13%:3%:26% Car rental: car services= 70%: 30% -2013 ST: LT: Leasing: Used cars=63%:17%:2%:18% Car rental: car services= 67%: 33%

Fleet (as of end-1H14) - Size 52,498 (ST: 37,195; LT: 5,946; leasing: 4,475) 15,409 (car rentals: 14,260; car services: 1,149) - Car models 122 models from 29 makes over 200 - Top brands GM, Kia, Toyota, Honda and Citroën GM/Buick, Honda, Volkswagen, Citroën and Ford

Network (as of end-1H14) - No. of directly operated 717 (233 stores and 484 pick-up points) in 70 cities Car rental: 760 (243 stores and 517 pick-up points) in service location 90 cities

- No. of franchise service 202 in 162 cities Car services: 57 cities locations Customers (as of end-1H14) - No. of customers ~1,962,000 Car rentals: 1.8 mn (individual: ~1,949,000; institutional customers: ~12,600) (550,000 or 31% had used the services)

- No. of registered ~3.9 mn (~1,962,000 or 51% had used the service) Car services: 32,000 corporate clients members - % repeat customers 68% (2013) Reservation (as of end-1H14) - Website 38.8% 52.80% - Mobile app 27.6% (30.1% for 2Q14) 30%

Partners Hertz(strategic partner and investor) Enterprise (global affiliation), Youxinpai (strategic partner) Ctrip (strategic partner and investor) Kuaidi (strategic partner) QQ.com, JD.com. Taobao.com, Expedia and China Eastern Airline (strategic partner) Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 8 23 October 2014

Figure 10: Peer comparison with eHi—strengths and strategies CAR eHi Strengths and strategies Strengths  Clear market leading position provides unique  Leadership in China's fast growing car rentals and competitive advantages car services industry  Established the most recognised and trusted brand by  Innovation and technology driving business providing a superior customer experience excellence  Effective, reliable and scalable technology platform to  Efficient fleet management enhance operational efficiency and customer experience  Diversified business mix to capture growth  Strong brand recognition focusing on customer opportunities while managing market fluctuations experience  An experienced management team and strong  Strategic partnerships with leading global travel shareholder support service providers   Mission  To become China's leading auto mobility provider,  To provide comprehensive car mobility solutions to while further strengthening its leadership position in customers by best utilising existing resources and China's car rental market sharing economy to create optimal value

Strategies  Increase fleet utilisation rate and operational efficiency  Continue to leverage the strengths of the one-stop comprehensive services business model to capture opportunities in the continually evolving markets  Grow rental fleet and expanded network coverage  Further increase network penetration in existing markets and expand geographically in selected markets  Continuously enhance customer experience and  Retain and grow customer base and attract more strengthen brand premium customers through targeted marketing as well as tailored service offerings  Continue product innovation and further expand along  Continue identifying strategic partnership value chain opportunities Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 9 23 October 2014

Figure 11: Peer comparison with eHi—industry CAR eHi Industry Market size - Revenue 2008-13 CAGR: 29% (Rmb9 bn - Rmb34 bn) 2009-13 CAGR: 29% (Rmb11 bn - Rmb30 bn) 2013-18E CAGR: 14% (Rmb34 bn - Rmb65 bn) 2013-17E CAGR: 17% (Rmb30 bn - Rmb56 bn)

- Fleet size 2008-13 CAGR: 30% (~100K - ~369K) 2009-13 CAGR: 29% (~135K - ~375K) 2013-18E CAGR: 16% (~369K - ~779K) 2013-17E CAGR: 17% (~375K - ~696K) Market share of Top 3 CAR: 6.6%; Avis: 2.3%; eHi: 1.7% CAR: 6.6%; Avis: 2.3%; eHi: 1.7% players Growth drivers (ST)  Increased spending on leisure and business travel  Increasing number of driver's licence holders who do not own cars  Growing gap between and numbers of licensed drivers  Increasing demand for leisure travel and private cars  Government car ownership reforms  Shift in lifestyle towards driving as a preferred means of travel  Development of replacement rental market  Surging passenger throughput from high-speed railways and airlines and improved accessibility if metropolitan areas by car  Increasing Internet and mobile penetration  Potential demand from government institutions and officials Growth drivers (LT)  Increased car use by corporations  Increased car use by corporate clients  Project-based business activities and corporate benefit  Maintenance, repairs and fleet management programmes services provide an important value-added service  Financial optimisation for business  Financial flexibilities and tax benefits for businesses  Policy reforms on government car ownership  Potential demand from government institutions and officials China's used car market - Sales volume 2008-13 CAGR: 23% (from 1.6 mn to 3.5 mn units) 2009-13 CAGR: 15% (from 2.0 mn to 3.4 mn units) 2013-18E CAGR: 18% (rom 3.5 mn to 8.0 mn units) 2013-17E CAGR: 8% (rom 3.4 mn to 4.7 mn units) Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 10 23 October 2014

Figure 12: Local peer comparison (2013) CAR eHi Avis Topone Shouqi Dazhong Reocar (神州租车) (一嗨租车) (安飞士) (至尊租车) (首汽租赁) (大众租车) (瑞卡租车) Formation 2007 2006 2002 2006 1992 1993 2009 Headquarter Beijing Shanghai Shanghai Shenzhen Beijing Shanghai Guangzhou Form of ownership Private Private Joint venture Private SOE Dazhong Private Transportation (Group); capital injection subsidiary Short-term self-drive(1) 31.2% 8.2% 1.2% 1.9% 0.8% 0.1% 1.9% rental City coverage(2) (latest 232 81 33 67 17 11 6 period) Effective city coverage(3) 60 23 15 17 2 1 5 Company-owned physical 717 244 45 149 35 15 117 service location No. (4) Fleet size 53,022 11,500 8,000 2,500 3,500 5,000 3,500 - Short-term self-drive fleet 33,986 9,500 1,000 1,700 840 100 3,500 size - Long-term fleet size 6,241 2,000 6,000 400 2,500 4,000 - Utilisation rate 62% (1H14) c70% 70% 65% 80% (mainly 90% (mainly c70% LT rental) LT rental) Fleet structure - Long-term : Short-term 15%:82%:3% 19%:81% 75%:25% 15%:85% 58%:42% 82%:18% 0%:100% (3% for leasing) - Short-term self-drive : 96%:4% 30%:70% 90%:10% Short-term chauffeured - Low-end : mid-range : 20%:45%:35% 10%:40%:50% 0%:80%:20% 80%:20%:0% 2%(mid-and- 90%:10%:0% high-end(5) low-end):98% Used car disposal (1) own online Mainly relies on Sells to Anji Sells to Relies on Relies on Sells to system, (2) auction Used Auto members (credit auction Dazhong intermediary third-party companies and Economic Ltd. points available) companies Transportation used car auction a few sold to or to auction Group's industry companies companies and end users houses/individu resources (3) other offline als sales Revenue breakdown - Short-term : Long-term 78%:20%:2% 80%:20% 20%:80% 80%:20% 33%:67% 20%:80% 100%:0% (2% for leasing) - Short-term self-drive : 100%:0% 86%:14% 45%: 55% 76%: 24% 75%: 25% 0%: 100% 100%: 0% Short-term chauffeured % of revenue from Tier-1 ~43% 70-80% 70% 50-60% 90% from 80% from ~50% from GZ city Beijing Shanghai and SZ Consumer acquisition 100% 100% 100% 100% 100% 100% 100% - Web 36% 50% 20% 20% 50% - Mobile APPs 30% 10% - Offline 40% 50% - Call centre 29% 50% - Service and locations 9% 30% - Sales staff ~80% ~100% Strategy - Segmentation Corporate and Corporate and Corporate Corporate Corporate Corporate Individual individual individual customers customers customers customers customers customers customers - Pricing Relatively high Relatively low High Relatively high High High Low competitive Note: (1) Market share is based on revenue; (2) cities with physical service locations (including franchises); (3) cities with physical service locations equal or more than three (including franchises); (4) service locations with parked operating cars; (5) low-end cars: retail price Rmb150,000. Source: Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 11 23 October 2014

Figure 13: Global peer comparison—CAR, Hertz, Avis and Localiza CAR (Rmb mn) 1H14 Hertz (US$ mn) 2013 Avis (US$ mn) 2013 Localiza (BRL mn) 2013 Fleet size: 53,022 Fleet size: 821,000 Fleet size ~500,000 Fleet size: 109,900 Fair value (US$ bn): 2.8~3.6 Mkt cap(US$ mn): 13,493 Mkt cap(US$ mn): 7,088 Mkt cap(US$ mn): 3,490 EV (US$ mn) 2016E: 3,603 EV (US$ mn) 28,757 EV (US$ mn) 14,345 EV (US$ mn) 3,633 Mkt cap/car (US$, 2016E) 37,921 Mkt cap/car (US$): 16,435 Mkt cap/car (US$): 14,176 Mkt cap/car (US$): 31,756 EV/car (US$, 2016E) 43,045 EV/car (US$) 35,027 EV/car (US$) 28,352 EV/car (US$) 33,057 No. of cities covered 232 No. of countries covered 227 No. of countries covered 175 No. of cities covered 381 No. of service locations 919 No. of service locations 11,555 No. of service locations 8,800 No. of service locations 540 Revenue structure 1H14 2013 2013 2013 Revenue 1,862 Revenue 10,772 Revenue 7,937 Revenue 3,506 - Rental revenue 1,381 - Rental revenue 10,245 - Vehicle rental 5,707 - Rental revenue 1,759 * Short-term rentals 1,081 * Car rental 8,707 - Other 2,230 * Car Rental 1,164 * Long-term rentals 245 * Equipment rental 1,538 * Fleet Rentals 576 * Finance lease 19 - All other operations 527 * Franchising 19 * Franchise related income 9 - Cars sold 1,747 - Sales of used vehicles 481 Revenue mix 100% Revenue mix 100% Revenues mix 100% Revenue mix 100% - Rental revenue 74% - Rental revenue 95% - Vehicle rental 72% - Rental revenue 50% * Short-term rentals 58% * Car rental 81% - Other 28% * Car rental 33% * Long-term rentals 13% * Equipment rental 14% * Fleet rentals 16% * Finance lease 1% - All other operations 5% * Franchising 1% * Franchise related income 0% - Cars sold 50% * Others 1% - Sales of used vehicles 26% Cost structure (rental biz) 1H14 2013 2013 2013 Depreciation as % of rental 25% Depreciation as % of 25% Depreciation as % of 21% Depreciation as % of 13% revenue rental revenue rental revenue rental revenue DOE as % of rental revenue 35% DOE as % of rental 56% DOE as % of rental 51% DOE as % of rental 41% revenue revenue revenue SG&A/ rental revenue 14% SG&A / rental revenue 9% SG&A / rental revenue 13% SG&A / rental revenue 12% Interest / rental revenue 11% Interest / rental revenue 6% Interest / rental revenue 5% Interest / rental revenue 11% Earnings (overall biz) 1H14 2013 2013 2013 Gross profit 579 Gross profit 2,494 Gross profit 2,052 Gross profit 1,062 - Rentals 562 Operating profit 1,473 Operating profit 1,033 Operating profit(2) 652 - Sales of used vehicles 17 EBITDA 3,814 EBITDA 2,191 - Car rental 382 Operating profit 389 Net profit 394 Net profit 16 - Fleet rentals 260 Adj. EBITDA(3) 820 EBITDA 881 Adj. net profit(3) 318 Net profit 384 Growth (2011-13 CAGR) Rental revenue 69% Rental revenue 12% Rental revenue 15% Rental revenue 10% Gross profit 62% Gross profit 17% Gross profit 11% Gross profit 8% Adj. EBITDA 100% EBITDA 14% EBITDA 10% EBITDA 5% Adj. net profit (2012-13) n.m. Net profit 34% Net profit (2012-13) -94% Net profit 15% Margin (overall biz) 1H14 2013 2013 2013 Gross margin 31% Gross margin 23% Gross margin 26% Gross margin 30% Adj. EBITDA margin(1) 59% EBITDA margin(1) 37% EBITDA margin(1) 38% EBITDA margin(1) 50% Adj. net margin 23% Net margin 4% Net margin 0% Net margin 11% Leverage 1H14 2013 2013 2013 Net debt/assets 45% Net debt/assets 65% Net debt/assets 62% Net debt/assets 29% Return ROE (2016E) 19.6% ROE (2013) 28.5% ROE (2013) 33.5% ROE (2013) 28.8% ROIC (2014) 11% ROIC (2014) 5.5% ROIC (2014) 5.7% ROIC (2014) 17.5% Note: (1) EBITDA margins for the rental business, (2) Localiza's operating income includes both rental and used car sales operations; (3) Adj. EBITDA and adj. net profit exclude costs related to suspended fleet. Source: Company data, Hertz, Avis and Localiza annual reports, Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 12 23 October 2014

Figure 14: CAR vs China Lodging—business model and industry dynamics

Business model CAR China Lodging - Core business Consumer service provider; Consumer services provider; auto rental budget hotel - Leading position No 1 in China No 3 in China - O2O strategy 30.1% reservation by mobile Nearly 25% by mobile app; 36.3% by website 15-20% by websites - Asset-light or heavy? Asset-heavy; own vehicles Asset-light; lease property - Capital intensive? Capital intensive, Capital intensive, negative FCF in 2013 negative FCF in 2013 - Depreciation as % of revenue 31.3% in 2013 10.9% - Top-3 cost components Dep of auto (44% of COGS); Property rental (40% of COGS); labour (15%); labour (20%); insurance (10%) dep (14%) - SG&A / sales 24% in 2013 14.6% in 2013 - Franchise December 2013 62% of total hotel count in 1Q14 Industry dynamics CAR China Lodging - Sector demand growth 27% CAGR over 2013-18E 15% CAGR over 2013-18E - M&A and consolidation Not started yet Already started - Competition level High High Growth driver CAR China Lodging - ADR hike potential In line with inflation Slightly below inflation - Utilisation rate trend Gradually increase from 60% to 70% Almost stabilised at 90% - Operating leverage 90% of opex is fixed cost; op leverage is the 75% of opex is fixed cost; op leverage is the major growth driver major growth driver Growth (CAGR) 2014-16E CAR China Lodging - Revenue 26% for rental 12.5% for leased hotel; 26.2% for franchised hotel - Adj EBITDA 29% 20.0% - Adj EBIT 48% 19.2% - Adj net earnings 52% 22.7% Profitability CAR China Lodging - Adj EBITDA margin 59.0% in 2015E 20.2% in 2013 - Adj EBIT margin 35.2% in 2015E 9.9% in 2013 - Adj net margin 25.9% in 2015E 7.4% in 2013 - ROE 16.5% in 2015E 11.8% in 2013 Gearing and cash flow CAR China Lodging - Net gearing 7% in 2015E 14.2% in 2013 - Capex Rmb3,170 mn in 2015E Rmb1,073 mn in 2013 - Free cash flow Negative Rmb500 mn in 2015E Negative Rmb2 mn in 2013 Valuation CAR China Lodging - 2015 EV/EBITDA (fair value) 8.1~10.3x 9.4x - 2015 P/E (fair value) 18~23x 28.2x - 2015 PEG (fair value) 0.3~0.4x 1.24x

- 2015 EV/EBITDA (trading) n.a 7.5x - 2015 P/E (trading) n.a 23.8x - 2015 PEG (trading) n.a 1.05x Source: Company data, Credit Suisse research, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 13 23 October 2014 China's largest auto rental company CAR Inc. (CAR) is the largest auto rental company in China, with 31% market share in the short-term self-drive rental segment as of 2013, according to Roland Berger. As of 31 December 2013, CAR's fleet size was four times that of the second-largest player, eHi, and greater than the aggregate size of the Top 2-10 players. Due to its leadership position, we expect CAR to continue monetising China's robust demand for short-term self-drive car rental services (a 27% CAGR over 2013-18E, according to Roland Berger). Asset heavy, capital intensive and high operating leverage are the three major features of its auto rental business model. In addition, several significant entry barriers underpin CAR's profitability (adjusted earnings turned profitable in 2013 and have been trending up). Looking forward, CAR should continue product innovation and expansion along the value chain (such as used car sales, car leasing, car sharing, and car maintenance). Short-term rentals: The fastest growing segment

China's overall car rental market size will increase from Rmb34 bn in 2013 to Rmb65 bn in Short-term self-drive sector 2018E, representing a CAGR of 14%, according to Roland Berger. to see a 27% CAGR over 2013-18E Within the whole car rentals sector, short-term self-drive car rentals is the fastest growing segment. Its market size saw a 32% CAGR from 2008 to 2013, and should see 27% 28% share in China's overall CAGR over 2013-18E. The segment market size should reach Rmb18 bn in 2018, car rental market in 2018E representing a 28% share in China's overall car rental sector (vs an 18% share in 2013). We attribute the 27% demand growth over 2013-18E to (1) improving affordability and lifestyle changes; (2) the growing gap between driving licences and passenger car count; (3) reforms in government car ownership; and (4) development of the replacement rental market.

Figure 15: China's car rental market size and growth Figure 16: Short-term self-drive rentals—the fastest- growing segment (Rmb bn) 70 35% CAGR 08-13 CAGR 13-18E ST chauffeured car rental 65 32% 32% LT car rental & leasing 29% 30% 28% 60 27% ST self-drive car rental 18 50 25%

20% 40 34 15% 14% 30 6 40 11% 10% 9% 20 24 9 5% 10 1 7 4 7 0% 0 1 ST chauffeured car LT car rental & ST self-drive car Total China car 2008 2013 2018E rental leasing rental rental market Source: Roland Berger Source: Roland Berger

CAR Inc. (0699.HK / 0699 HK) 14 23 October 2014

Key drivers behind the 27% segment CAGR Our 27% CAGR expectations for the segment are based on the following reasons: (1) Rising penetration on improving affordability and lifestyle changes We believe the major fundamental factors driving strong demand growth include China's robust macroeconomic development, improving affordability, and changes in consumer behaviour and lifestyle.

■ China's short-term self-drive car rental market size amounted to US$0.9 bn in 2013, China's population 4.3x that supporting a 1,361 mn population, according to CEIC. This compares with the US' short- of the US; China's short- term rental market size of US$24 bn (27x that of China) with a population of 316 mn term car rental market size (23% of China), according to CEIC. Low penetration implies huge potential for China to 4% of the US grow.

■ In terms of car rental penetration (defined as the number of rental vehicles as a China car rental penetration percentage of the total number of registered passenger vehicles in 2012), China's at 0.4% vs Japan's 2.5% 0.4% is way lower than Japan's 2.5%, US' 1.6%, Korea's 1.4% and Brazil's 1.3%, and Korea's 1.4% suggesting great potential, according to Roland Berger.

Figure 17: Population and market size—China vs the US Figure 18: Car rental penetration—China vs the world 3.0% China US 2.5% US$24 bn 2.5%

2.0% 1.6% 1,361 mn 1.4% 1.5% 1.3%

1.0%

316 mn 0.4% US$0.9 bn 0.5%

0.0% 2013 ST car rental market size (US$ bn) Population (mn) China Brazil Korea US Japan

Source: Roland Berger, CEIC Note: penetration = rental vehicle number as % of total registered passenger vehicles in 2012. Source: Roland Berger, EIU

Figure 19: Car ownership—China vs the world Figure 20: China consumer spending CAGR (Rmb bn) 50.0% 40,000 37,184 45.6% 45.0% 35,000 40.7% 40.0% 30,000

35.0% 25,000 30.0% 21,137 30.0% 20,000

25.0% 15,000 19.5% 20.0% 10,000 6,101 15.0% 5,000 2,723 18.3 5.6 10.0% 6.9% - 5.0% Consumer spending Travel spending ST self-drive car rental spending 0.0% China Brazil Korea US Japan 2013 2018E

Note: Ownership = registered passenger vehicles as % of mid-year Source: Roland Berger population estimate for 2013. Source: Roland Berger, EIU

CAR Inc. (0699.HK / 0699 HK) 15 23 October 2014

(2) Growing gap between driving licences and passenger car count The growing gap between the number of driving licences and private cars is a phenomenon unique to China. In 2013, there were 217 mn driving licence holders but only 84 mn passenger vehicles, according to Roland Berger. The gap should further expand to 167 mn in 2018E from 133 mn in 2013.

Figure 21: Growing gap between driving licences and passenger car count

350 (mn) 328 mn

300

250 Gap: 217 mn 167 mn 200 Gap: 150 133 mn 161 mn

100

84 mn 50

0 2013 2018E

No. of license holders No. of passenger vehicles

Source: Roland Berger

■ Desiring the benefits of car usage, a large and growing number of Chinese consumers 217 mn Chinese (16% of the are becoming licensed drivers. There were 217 mn driving licence holders as of end- total population) holding 2013, representing 16% of the total population. This number should increase to 328 driving licences… mn by 2018 (implying a 9% CAGR), according to Roland Berger.

■ However, there were 84 mn passenger vehicles in 2013 (vs the 217 mn driving licence …but only 84 mn cars in holders). A significant number of driving licence holders were unable to own cars, China mainly due to: (1) car purchase restrictions in many Chinese cities such as Shanghai, Beijing, Guangzhou, Tianjin, Hangzhou and Guiyang), and (2) considerable ownership costs (including the purchase price of the car, licence plate quota, and fuel, parking, repair and maintenance and insurance costs).

■ The gap between driving licences and passenger car count should increase from 133 The gap should expand to mn in 2013 to 167 mn in 2018E, according to Roland Berger. This tremendous and 167 mn in 2018 from 133 widening gap serves as another key driver of China’s car rental market growth. mn in 2013

■ The average daily holding cost of a passenger vehicle in a Tier 1 Chinese city in 2013 Rmb141 of daily holding amounted to Rmb141, according to Roland Berger. This compares with CAR's daily cost vs Rmb119-300 of daily rental charge of Rmb119-159 for a GM Buick Excelle 1.6L in Shanghai and Rmb190- rental expense 300 in Beijing, according to the company's website. We believe the reasonable price difference attracts more consumers to opt for rental services.

CAR Inc. (0699.HK / 0699 HK) 16 23 October 2014

Figure 22: Holding cost analysis Key cost items Key assumptions Tier 1 cities National average (Rmb/year) 2008 2013 2018 2008 2013 2018 Car purchase (1) Assumes that car price was Rmb150,000 18,300 19,900 20,800 18,200 16,800 15,500 (car price, licence plate in 2013 with a decline of 1.6% per year; and tax) (2) purchase cost is depreciated by ten years; (3) licence plate cost is included for Tier 1 cities and is calculated according to prices in Shanghai and Guangzhou

Driving (1) Gas prices for Tier 1 cities are based on 11,000 14,100 18,200 10,700 13,900 18,100 (gas price) Shanghai and Beijing; National gas price is based on the national average; (2) consistent growth in gas prices; and (3) average mileage as 50 km per day

Parking (1) Parking fees for Tier 1 cities include both 7,100 9,100 11,600 1,300 1,700 2,200 (public/ community) public and residential areas; national average includes only public parking fees; (2) parking fees maintain a 5% growth rate

Maintenance (1) Including costs of car maintenance and car 2,200 2,600 3,000 1,300 1,500 1,800 (car maintenance) washes; (2) due to rising labour costs, maintenance costs increase at 3% per year

Repair Annual insurance cost is Rmb5,000 5,000 5,000 5,000 5,000 5,000 5,000 (insurance/repair) Annual cost (Rmb/year) 43,600 50,700 58,600 36,500 38,900 42,600 Monthly cost (Rmb/month) 3,633 4,225 4,883 3,042 3,242 3,550 Daily cost (Rmb/day) 121 141 163 101 108 118 Source: Credit Suisse research (3) Reforms of government car ownership China recently implemented a series of policy reforms to limit the number and models of New policy encourages cars that may be purchased by government agencies. For example, the Chinese government agencies to rent government released an official guidance in July 2014 to significantly limit the use of rather than own a car government-owned cars—a step that encourages government agencies to rent vehicles for their needs for car use. There are more than 4 mn government-owned cars in China, including approximately 3 mn cars for general use. Given these reforms, government bodies and state-owned enterprises are expected to turn to car rental companies to reduce the self-owned fleet size. Short-term rental service is a good option to improve efficiency. (4) Development of the replacement rental market Insurance companies and auto dealers in China recently started providing replacement Rising demand from rental services to customers whose vehicles are under repair or maintenance. insurance and dealership companies (replacement In 2013, insurance replacement rentals accounted for 1.8% of China’s overall car rental rental market) market. This demand should continue growing in the future, given insurance companies and automobile manufacturers compete for customer acquisition by offering additional services such as replacement rentals. No. 1 position with 31% market share In terms of fleet size, revenue, network coverage and brand awareness, CAR was the largest car rental company in China in 2013, according to Roland Berger. In 2013, CAR's fleet size was four times that of the second largest player, eHi, and greater than the aggregate amount of the Top 2-11 players.

CAR Inc. (0699.HK / 0699 HK) 17 23 October 2014

Figure 23: China short-term self-drive car rental market share by revenue (2013)

CAR 31.2%

CAR - 31% market share Others - 4x of No.2 player 55.6% - Exceeds sum of next 10 players

eHi 8.2%

Reocar 1.9% Avis Topone 1.2% 1.9% Source: Roland Berger

■ As of end-2013, CAR's fleet size amounted to 53,022 vehicles, over four times that of Fleet size of 53,022 in 2013 the second-largest player and greater than the aggregate fleet size of the next ten = nearly 4x second largest largest car rental companies. player's 13,000

■ As of end-1H14, CAR had an extensive network of 717 directly operated service Directly operated service locations in 70 major cities in all provinces in China. According to Roland Berger, locations of 717 = nearly 3x CAR's directly operated service location count was nearly three times that of the the second-largest player's second-largest player. In addition to the 717 directly-operated service locations, CAR 240; franchised service had 202 franchised service locations in 162 small cities where it had no directly locations of 202 operated service locations.

■ CAR is the most recognised and trusted car rental brand in China, according to Baidu index (measuring Roland Berger. Its brand had the highest search volume on Baidu Index and Google brand recognition) of 13,721 Trends in 2013, two major keyword search popularity indices, among car rental = nearly 3x the second- companies in China. The total search volume on Baidu and Google each in 2013 was largest player approximately three times that of the second-largest player. The strong brand franchise underpins premium pricing and lowers customer acquisition costs.

Figure 24: Total fleet size of the Top 11 car rental companies in China (2013) 53,000

Aggregate total of Top 2~11: nearly 52,700

13,000 11,500 8,000 5,000 3,500 3,500 2,600 2,500 2,200 900

CAR Yestock eHi Avis Dazhong Shouqi Reocar U-lin Topone Jinjiang Chesudi

Source: Roland Berger

CAR Inc. (0699.HK / 0699 HK) 18 23 October 2014

Figure 25: Short-term self-drive fleet size of the Top 11 car rental companies in China (2013)

34,000

Aggregate total of Top 2~11: nearly 19,000

9,500

3,500 1,700 1,000 900 840 670 250 150 100

CAR eHi Reocar Topone Avis U-lin Shouqi Chesudi Yestock Yinjian Dazhong

Source: Roland Berger High entry barriers to sustain high margins Recurrent net margins of 21% (ex-suspended fleet), at the high end of peer range… Since its formation in September 2007 in Beijing, CAR has been experiencing rapid growth in both revenue and earnings. Excluding non-recurrent items (namely, share-based compensation, exchange gains/losses, loss-related suspended fleet, and others), CAR's recurrent net margin (ex-suspended fleet), turned from a negative 18.7% in 2011 to a positive 6.5% in 2013 and 23% in 1H14. The margin expansion was mainly driven by average daily rental hikes, utilisation improvement and operating leverage, which we discuss in the next sections. CAR stands out from most other China consumer peers, in terms of net margins. We High net margins: 20.8% in estimate CAR will deliver a 20.8% adjusted net margin in 2014, compared with Intime's 2014 25%, Anta's 19%, Want Want and Hengan's 18%, Modern Dairy's 15%, Belle and Tsui Wah's 12%, China Lodging's 7% Tingyi's 4%, Gome's 2%, JD's -0.1% and Dangdang's -2.3% (all are 2013 actual net margins). Compared to global peers, CAR's rental business EBITDA margin (ex-suspended fleet) Compared to global peers amounted to 48.1% in 2013 vs Localiza's 46%, Hertz's 38% and Avis' 35% in 2013. …but ROIC is at the low end of peer range In terms of ROIC, CAR is currently ranked at the low end of the range. We estimate CAR's 2014 ROIC at 11.0%, which is at a similar level to China Lodging's 9.9% and Ajisen's 12.4%. Our DuPont analysis proves a common business model nature for this cluster—asset heavy, capital intensive, low asset turns and high margins.

CAR Inc. (0699.HK / 0699 HK) 19 23 October 2014

Figure 26: Peer comparison—2014E ROIC vs 2013-2016 EBITDA CAGR

70.0% 2014 ROIC

60.0% New Oriental Bitauto 50.0%

40.0% TripAdvisor Autohome (1) (1) 30.0% Priceline Tsui Wah Café de Coral 20.0% Expedia Future Bright(1) Gourmet Master Home Inns Localiza Ajisen CAR Inc. 10.0% China Lodging Avis 2013-2016E Hertz Ctrip.com EBITDA CAGR 0.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

China budget hotel China education China catering Traditional car rental (including fleet debt) China online travel Global online travel China auto O2O

Note: (1) Based on 2013-2015E EBITDA CAGR. Source: Company data, Credit Suisse estimates

Figure 27: CAR DuPont analysis 2011 2012 2013 2014E 2015E 2016E ROE (recurrent) -98.2% -126.1% 324.1% 11.1% 16.5% 19.6% - Tax burden 96.4% 77.8% -66.4% 117.9% 84.5% 82.9% - Interest burden 1514.0% -96.1% -182.0% 62.1% 85.4% 93.1% - EBIT margin -1.2% 8.6% 4.4% 21.5% 27.4% 30.3% - Assets turnover 21.7% 36.5% 48.2% 38.8% 52.9% 61.2% - Financial leverage (x) 25.5 54.0 126.9 1.8 1.6 1.4 Source: Company data, Credit Suisse estimates Significant entry barriers to protect high margins We believe that CAR's high margins are underpinned by significant entry barriers. In particular, the major entry barriers include restriction on vehicle purchase, economies of scale and operating leverage, financing capability, network coverage and brand franchise. (1) Restriction on vehicle purchase Restriction on car plates and vehicle purchases creates a significant constraint on fleet expansion for car rental companies.

■ The restrictions on car plates apply to the issuance of new licence plates, transfer of old licence plates, and entry to downtown areas by cars with non-local licence plates.

■ The regulatory restrictions make it highly difficult to obtain licence plates, which in turn Restriction on car plates is prevent fleet expansion by existing and new participants in China’s car rental market. the major entry barrier

■ The purpose of car plate restriction policy is to demotivate vehicle purchase and hence reduce the level of traffic jams in select cities.

■ Currently, the restriction policy is in force in six cities (Beijing, Shanghai, Guangzhou, Restriction policy applies to Tianjin, Hangzhou, and Guiyang), whose vehicle density (defined as car numbers six cities for now… divided by road length) is far higher than the national average.

CAR Inc. (0699.HK / 0699 HK) 20 23 October 2014

■ According to Roland Berger, the restriction policy will be rolled out to more cities …and will be rolled out to (Shenzhen, Chongqing, Chengdu, Wuhan, Shijiazhuang and Qingdao) in the near another six cities future.

Figure 28: Vehicle density in purchase restricted cities (2013)

400 Vehicle density Shanghai 350 Beijing 300 Guangzhou Shenzhen 250

200 Tianjin Chengdu 150 Chongqing Hangzhou Guiyang Wuhan Qingdao 100 Shijiazhuang 50 National average: 35

0

National average density Restricted city Potential city

Note: Vehicle density = Car units / km of road. Source: National Bureau of Statistics, Roland Berger As an early mover in this industry, CAR has secured a significant number of licence plates to accommodate future growth in big cities.

■ In Beijing (Tier 1 city), as of end-1H14, CAR had approximately 13,000 car plates. Of the total 13,000 licensed cars, we estimate nearly 5,000 cars are operating in Beijing, and the remaining 8,000 outside of Beijing. The 8,000 cars serve as car plate reserve for future development in Beijing, which is also a key competitive advantage for CAR, in our view.

■ In Guangzhou (Tier 1 city), as of end-1H14, CAR had approximately 8,000 car plates. Of the total 8,000 licensed cars, we estimate nearly 4,000 cares are operating in Guangzhou, and the remaining 4,000 outside of Guangzhou.

■ In Shanghai, we estimate CAR has nearly 4,000 cars (nearly 1,600 are licensed with Shanghai plates, and remaining with non-Shanghai plates).

■ In 2013, the four Tier 1 cities (Beijing, Shanghai, Guangzhou, Shenzhen) contributed 43% to CAR's total short-term rental revenue

CAR Inc. (0699.HK / 0699 HK) 21 23 October 2014

Figure 29: Urban penetration—Beijing Figure 30: Urban penetration—Shanghai

Note: Blue markers represent the number of stores. Note: Blue markers represent the number of stores. Source: Company website Source: Company website

Figure 31: Urban penetration—Guangzhou Figure 32: Urban penetration—Shenzhen

Note: Blue markers represent the number of stores. Note: Blue markers represent the number of stores. Source: Company website Source: Company website (2) Economies of scale and operating leverage The car rental business model has a high-level of operating leverage. We estimate 90% of High level of operating total operating cost is fixed. The top three cost components are vehicle depreciation, leverage: 90% cost is fixed labour and insurance fee, accounting for 44%, 15% and 10% of CAR's COGS of rental business in 2013, respectively. Market leaders benefit from sizeable operating scale and leverage. When competition intensifies, market leaders are able to lower rentals to a certain level where they enjoy higher utilisation rate and still make profits, but smaller players might start to book losses. The economy of procurement scale is a typical example. We will discuss operating leverage in the next section.

■ Since 2011, CAR has become one of the largest purchasers of passenger vehicles in One of the largest auto China and established strong partnership with key automakers, according to Roland buyers in China Berger. The huge purchasing scale translates into great bargaining power over auto suppliers.

CAR Inc. (0699.HK / 0699 HK) 22 23 October 2014

■ CAR negotiates with automakers directly on purchasing terms, including price and Negotiate with automaker delivery terms. Automakers then direct CAR to designated auto dealerships for directly purchase and after-sales services.

■ We estimate CAR enjoys nearly 25% discount against the suggested retail price from automakers. This compares with a 5% discount that an individual customer can get in an average case, according to our channel checks.

■ We think the nearly 25% discount is close to the maximum discount that an automaker Nearly 25% discount is big can bear, given that, in general, automakers have around 20% GP margin and auto dealerships have around 6% margin in China.

■ As of end-1H14, CAR's average purchase price was Rmb98,151/car for short-term rental fleet and Rmb160,062/car for long-term rental fleet. The fleet comprised of 122 models from 29 makes, among which the top ten models represented nearly 75% of the total fleet size.

■ GM, Kia, Toyota, Honda and Citroën are the top five brands by vehicle numbers in CAR's fleet, representing 40.1%, 15.2%, 10.9%, 9.4% and 7.1%, respectively, of CAR's fleet portfolio as of end-1H14. In addition, CAR also purchased vehicles from Hyundai, Chevrolet, Peugeot, Volkswagen and Audi.

Figure 33: CAR's fleet portfolio breakdown by brands as of end-1H14

Others, 18%

GM, 40%

Toyota, 11%

Citroen, 7%

Honda, 9%

Kia, 15% Source: Company data

Figure 34: China sedan sales summary and market share (Unit) Total China GM KIA Honda Citroen Toyota Hyundai Peugeot VW Audi BMW Others 2011 12,243,764 1,277,697 432,518 617,315 230,002 803,463 739,800 174,137 1,723,006 257,700 95,451 5,892,675 2012 13,634,212 1,790,077 480,443 588,900 223,801 745,565 859,595 216,227 2,050,193 328,711 147,374 6,203,326 2013 16,301,924 2,173,108 546,766 751,956 280,001 857,749 1,030,708 270,006 2,395,695 411,000 207,427 7,377,508 Mkt share Total China GM KIA Honda Citroen Toyota Hyundai Peugeot VW Audi BMW Others 2011 100% 10% 4% 5% 2% 7% 6% 1% 14% 2% 1% 48% 2012 100% 13% 4% 4% 2% 5% 6% 2% 15% 2% 1% 45% 2013 100% 13% 3% 5% 2% 5% 6% 2% 15% 3% 1% 45% Source: China Auto Market (3) Financing capability Being Capital-intensive is another key requirement of the auto rental business model. Massive capital is required to invest into vehicle procurement and service station build-up. Financing capability is one of the key success factors.

CAR Inc. (0699.HK / 0699 HK) 23 23 October 2014

Based on its market-leading position, CAR has unique access to diversified credit sources, including major commercial banks, capital lease companies and automakers. It has been able to finance its growth with a diversified and balanced capital structure encompassing both equity and debt financing. Proof: Consistently delivered market share gain and margin expansion in 2011-13 The three-year historical operational data serves as evidence of the high entry barrier for the auto rental industry and CAR's strong execution.

■ Over 2011-13, CAR consistently increased its 11% value share in the short-term self- Top line drive rental market, while the top 2-5 players relatively maintained their market share.

■ CAR's rental business recurrent net margin (ex-suspended fleet) expanded from a Bottom line negative 18.7% in 2011 to a positive 6.5% in 2013 and 23.0% in 1H14.

Figure 35: Short-term rental market share change by revenue over 2011-13

35.0% 31.2% 30.0% 2011 2013 25.0%

19.8% 20.0%

15.0%

10.0% 7.7% 8.2%

5.0% 2.7% 1.9% 1.9% 1.5% 1.2% 0.0% #1 CAR #2 eHi #3 Topone #4 Reocar #5 Avis (神州租车) (一嗨租车) (至尊租车) (瑞卡租车) (安飞士)

Source: Roland Berger

Figure 36: CAR rental business—margin as a percentage of rental business revenue consistently expanded over 2011-1H14 GP margin OP margin Recurrent profit margin 50.0% 40.7% 40.0% 32.2% 31.5% 29.7% 30.0% 28.2% 23.0%

20.0%

9.4% 10.0% 6.5% 4.4%

0.0% -1.5% -10.0% -6.6%

-20.0% -18.7% 2011 2012 2013 1H14

Source: Company data , Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 24 23 October 2014 Operating leverage is key Asset-heavy, capital-intensive and high operating leverage are the three major characteristics of the auto rental business model. We estimate nearly 90% of CAR's total operating costs are fixed. Following the rising procurement scale, dynamic pricing and ramping-up utilisation rate, we expect operating leverage to emerge which underpins CAR's 53% CAGR in adjusted earnings on 27% CAGR in rental revenue over 2014-16E. 90% operating cost is fixed Auto rental is a typical business model with a high level of operating leverage. We Top three cost components estimate 90% of operating cost is fixed. The top three cost components are vehicle depreciation, labour and insurance. Vehicle depreciation is the most critical cost component for CAR, representing 44% of Vehicle depreciation (44% total COGS and 35% of total opex in 2013. of COGS)

■ The rental vehicles are depreciated over the estimated holding period (about 2.5-3 years) on a straight-line basis.

■ The annual depreciation amount mainly depends on procurement cost and disposal price.

■ Even if the vehicle is not utilised, the depreciation is booked. Other key cost components include:

■ Labour (store staff, repair and maintenance mechanists, call centre staff, and long- Labour (15% of COGS) term rental drivers; mainly fixed cost; accounting for 15% of COGS and 12% of opex in 2013).

■ Insurance (mainly fixed cost; accounting for 10% of COGS and 8% of opex in 2013). Insurance fee (10% of COGS)

Figure 37: CAR's COGS breakdown (2013) Figure 38: CAR's opex breakdown (2013) Others Admin Selling & Fuel 10% 14% 5% distribution 7% Car Car Repair depreciation depreciation 44% 8% 35% Others Store 8% expense 8% Fuel 4%

Repair Labour Insurance 6% 12% 10% Labour Store Insurance 15% expense 6% 8%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Where does the operating leverage come from? We expect the operating leverage to come from: (1) higher utilisation rate on technology- driven yield management; (2) lower unit depreciation (competitive purchasing cost and disposal price); and (3) lower unit labour cost on enlarged fleet size and call centre relocation.

CAR Inc. (0699.HK / 0699 HK) 25 23 October 2014

(1) Higher utilisation rate on technology-driven yield management Led by CIO Yaxiao Liu (ex-CTO of IBM Greater China), CAR is developing an effective, CIO: Mr Liu, ex-CTO of IBM reliable and scalable technology platform. This differentiates CAR from traditional car Greater China rental companies, and generates operating leverage for the company. CAR's technology platform consists of a web-based operating environment connecting the powerful central data centre, management systems, and customer interface terminals (including Apps, service stations and stores).

■ Short-term rental booking via website and mobile app increased to 30.1% in 2Q14 from 24.4% in 1Q14 and 6.4% in 1Q13.

■ As of 1H14, its mobile app had nearly 5.5 mn installations. Dynamic pricing and yield management are the most critical parts to effectively improve vehicle utilisation rate, in addition to customer management, fleet allocation, transaction management, and financial management.

Figure 39: Dynamic pricing on big data analysis system

Big Data Analysis Tech - driven In search of • Consumer operation excellence behaviour analysis • Mobile/O2O interface • Superior O2O • Demand & trend • Yield management experience prediction (dynamic pricing) • Pricing power • Inventory • Efficient fleet (c15% rate premium) management deployment • Cost leadership • c50% rate difference • CRM & loyalty (c25% discount) over a week programmes • OP leverage driving margin expansion

Source: Company data, Credit Suisse research

■ The big data system tracks the rental information of every single vehicle. Through the Big data to predict demand data analysis, CAR is able to better understand local consumers' behaviour (consumer habits and preferences could be very different in different regions of China), and hence predict future demand in a certain market. This is the foundation for CAR's dynamic pricing strategy.

■ Based on market demand, inventory level, rental term, location, timing of booking, Dynamic pricing to improve competitor rates and target margin, CAR implements a dynamic pricing strategy utilisation and margin (different prices for different days and regions). We estimated the price difference could be 40% for different days in a week in the same city. The dynamic pricing effectively improves fleet utilisation rate and margin.

■ Based on the market demand forecast, CAR reallocates the rental vehicles between Vehicle allocation to support cities or service locations to meet customer needs and optimise vehicle utilisation. supply

CAR Inc. (0699.HK / 0699 HK) 26 23 October 2014

Figure 40: Example of dynamic pricing—same car, different price

(a typical dynamic pricing car) (stiff competition until eHi) (great seasonality)

Note: Prices shown are as of 8 August 2014. Source: Company data, Credit Suisse research (2) Lower unit depreciation (competitive purchasing cost and disposal price) Depreciation of rental vehicle is the largest cost component, representing 44% of total COGS and 35% of total opex in 2013. Rental vehicles are depreciated over the estimated holding period (about 2.5-3 years for different auto models) on a straight-line basis. The purchasing cost of a new car and the disposal price of the retired car are the two determining factors in calculating the annual depreciation amount. ■ Purchasing cost of a new car: nearly 25% discount to suggested retail price Being the largest vehicle buyer in China, CAR is able to continue enjoying substantial discounts, in our view. CAR negotiates with automakers directly on pricing and delivery terms. We estimate CAR enjoys nearly 25% discount against the suggested retail price. We Nearly 25% discount is believe CAR's nearly 25% discount is very competitive and is close to the maximum close to the maximum discount that automakers can offer, given (1) automakers generally have 20% GP automakers can offer margin and (2) auto dealers generally have 6% GP margin but barely breakeven on net margin line for selling a car (dealers making money on selling components and services), according to Credit Suisse research.

Figure 41: Value chain of a sedan (Buick Excelle 1.6L)

120 '000 Rmb

110 0 6.0 100 100

9.7 ) 90 3.0 75.2 6.1

80 expense

70 G&A

60 Dealer profit (0% profitmargin(0%

50 SAIC

Excelle1.6Ltag price SAIC COGS SAIC

40 Dealer

SAIC (10.3%) profitSAIC

selling selling expense Buick

30 SAIC 20 Note: SAIC, Shanghai Automotive Industry Corporation, is one of the biggest Chinese automotive manufacturing companies. Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 27 23 October 2014

■ Disposal price of the retired car: Market price The disposal price of the retired car depends on market price. The efficiency of disposing retired cars plays an important role in managing working capital. Compared with the pure online players, CAR attracts customers by offering an onsite Cooperation with Youxinpai quality check at its service locations. In addition, CAR also has cooperation with for online bidding and Youxinpai for online bidding and auction of its used cars. auction China's second-hand car trading market is in its infancy and has great potential given Huge potential for China's rising auto ownership and affordability. The trading volume of used cars accounted for second hand auto trading only 23% of new car sales volume in China in 2012, compared with 120% in Japan, market to develop 240% in Germany, 330% in the US and 350% in the UK, according to Roland Berger.

■ Unit depreciation of Rmb35/day, by our estimates We estimate unit depreciation of Rmb35/day, assuming: (1) purchasing cost of Daily depreciation of Rmb35 Rmb96K, (2) disposal price of Rmb62.2K (65% of purchase price), and (3) average holding period of 32 months.

Figure 42: Top three auto auction platforms in China Figure 43: Used car sales as a percentage of new car sales Ranking Auction platform 2013 auction Auto source 400% 350% volume 350% 330%

300% 280% 1 You Xin Pai ~25,000 4S stores 240% 240% (www.youxinpai.com) 250% 200%

2 Che Yi Pai ~15,000 4S stores 150% 120% (www.cheyipai.com) 100%

3 CAR 2nd-hand auto ~10,000* CAR's retired 50% 23% (www.4009198888.cn) auto 0% UK USA France Brazil Germany Japan China

Note: *1H14 data for CAR. Source: Credit Suisse estimates Source: Company data, Credit Suisse research Compared with global peers' 67-78% in 2013, CAR's utilisation rate of 57-62% over 2011- 1H14 was relatively low. We attribute this to the fact that CAR purposely reserved more car plates (and had to add vehicles), to diversify the risk of the purchasing limitation in CAR's utilisation of 57-62%, more cities (limitation likely to roll out from current six cities to 12) and for long-term compared with global peers' development, according to Roland Berger. 70% At a utilisation level of 57.9% in 2013 and 61.7% in 1H14, depreciation as a percentage of CAR's depreciation / rental rental income amounted to 31.3% and 24.7%, respectively. Taking out the depreciation of revenue ratio has been suspended cars, the adjusted deprecation/revenue ratio was 26.7% in 2013 and 23.8% in catching up with global 1H14, catching up with global peers' 13-22%, based on our estimates. peers CAR targets raising its average daily rental rate (ADRR) in line with inflation (though we believe it is able to price higher on strong brand franchise), while gradually improving the utilisation rate. Our sensitivity analysis suggests that a 1 pp increase in utilisation rate would lead to a Sensitivity analysis 5.7% increase in 2015 recurrent earnings.

CAR Inc. (0699.HK / 0699 HK) 28 23 October 2014

Figure 44: Depreciation as a percentage of rental income and utilisation rate

40.0% (Dep/rental) (Utilization ratel) 80.0% 78.0% 34.4% 35.0% 33.3% 31.9% 31.3% 75.0%

30.0% 26.7% 71.0% 24.7% 23.8% 70.0% 25.0% 66.8% 22.0% 21.0% 20.0% 65.0%

15.0% 13.0% 61.7% 61.7% 60.0% 10.0% 60.5% 59.0% 57.9% 57.9% 55.0% 5.0% 56.7%

0.0% 50.0% CAR CAR CAR CAR CAR CAR CAR Avis Hertz Localiza 2011 2012 1Q13 2013 1H14 2013 Adj. 1H14 Adj. 2013 2013 2013

Depreciation as % of rental income Utilization rate

Note: Adj. depreciation/rental income excludes the depreciation of suspended fleets. Source: Company data, Avis, Hertz and Localiza annual report, Credit Suisse estimates (3) Lower unit labour cost on enlarged fleet size and call centre relocation Labour is the second-largest cost component, representing 15% of rental business COGS Labour: second largest cost and 12% of total opex in 2013, according to our estimates. With the enlarged fleet size and component relocation of its call centre to Tianjin, we expect unit labour cost to decrease. Our sensitivity analysis suggests a 1% decrease in labour cost would lead to a 0.4% Sensitivity analysis increase in 2015 recurrent earnings.

■ Store/service location staff cost accounts for nearly 60% of total labour cost, based on Store-level staff: nearly 60% our estimates. In general, one service location requires two staff at least. For most of total labour cost; newly opened service locations, there are only 4-5 vehicles, leading to a high labour efficiency to improve cost ratio, according to our research. Following store maturity, we expect the labour ratio to decline.

■ CAR's call centre is in the process of relocating to Tianjin. CAR's user-friendly mobile Call centre: nearly 10% of app and website have attracted more consumers to complete booking procedures on total labour cost; to relocate their own. As of 1H14, mobile app and website accounted for 30.1% and 36.3% of to Tianjin from Beijing total reservations; and they contributed 66.4% of total short-term revenue. This compares with 6.4% reservation by mobile app in 1Q13. We expect the trend to remain, following rapid penetration of smart phones in China and change in consumer behaviour. We estimate reservation through the call centre contributed nearly 20% of short-term revenue, and walk-in customers for the remaining 10%. The call centre now mainly serves customer inquiry and education, instead of reservation like it did years ago. Transactions from repeat customers accounted for 68.0% of the total in 2013, vs 56.6% in 2011. CAR is now in the process of relocating its call centre to Tianjin from Beijing for better cost efficiency.

CAR Inc. (0699.HK / 0699 HK) 29 23 October 2014

Figure 45: Employee breakdown (including dispatched Figure 46: Employee breakdown by cities as of end-1H14 workers) by function as of end-1H14 Vehicle Sales and deployment, marketing repair and 4% Beijing maintenance Other 25% 17% cities 48%

Shanghai Management 15% and administration 10% Stores, call centers and Shenzhen Guangzhou drivers 5% 7% 69% Source: Company data Source: Company data Expansion along the value chain Through continuous product innovation, CAR intends to expand its business scope along the value chain, to address evolving needs for both individual and institutional customers. We believe this type of derivative service is able to leverage CAR's industry expertise and business resources, and eventually translates into operating leverage.

■ CAR has launched and will continue to enhance its “Enterprise Cloud” solution that offers cost-efficient car use for institutional customers.

■ It plans to further develop its leasing and used car disposal business.

■ It also intends to selectively expand into adjacent business areas, such as fleet management and car sharing.

CAR Inc. (0699.HK / 0699 HK) 30 23 October 2014 Recurrent earnings to post a 52% CAGR over 2014-16E We estimate CAR's recurrent earnings to witness a 52% CAGR over 2014-16E, on a rental revenue CAGR of 26%. Operating leverage is the driving force behind margin expansion.

■ We expect CAR's utilisation rate to increase from 57.9% in 2013 to 63.8% in 2016E (vs global peers' 67-78% in 2013).

■ We estimate depreciation as a percentage of rental revenue to decline from 31% in 2013 to 21.3% in 2016E (catching up with global peers' 13-22% in 2013).

■ We estimate DOE as a percentage of rental revenue to decline from 39% in 2013 to 28.3% in 2016E, and SG&A as a percentage of rental revenue to decline from 24% in 2013 to 11.9% in 2016E, benefiting from improvement in economies of scale and operating leverage. We model the EBITDA margin to expand from 48% in 2013 to 61% in 2016 (vs global peers' 38-46% in 2013).

Figure 47: Summary of income statement (2011-16E) Y/e 31 Dec, Rmb mn 2011 2012 2013 1H14 2H14E 2014E 2015E 2016E Rental revenue 776 1,558 2,208 1,381 1,520 2,901 3,769 4,594 Revenue YoY 107.1% 100.8% 41.7% 37.1% 27% 31.4% 29.9% 21.9% - ADRR (Rmb) 197 212 246 277 259 268 276 282 - Utilisation rate 56.7% 59.0% 57.9% 61.7% 61.3% 61.5% 63.0% 63.8% - Year-end total fleet (units) 25,845 41,043 53,022 52,498 60,953 60,953 75,517 84,939 - RevPAC (Rmb) 112 125 142 171 159 165 174 180 Dep/rental sales -33.3% -34.4% -31.2% -24.7% -23.5% -24.1% -22.1% -21.3% DOE/rental sales -34.6% -34.1% -39.0% -34.6% -31.7% -33.1% -30.4% -28.3% GP/rental sales 32.0% 31.0% 30.0% 40.7% 44.8% 42.8% 47.5% 50.4% SG&A/rental sales 32.9% 22.3% 24.0% 13.7% 15.8% 14.8% 12.3% 11.9% Operating profit -12 146 98 389 424 813 1,327 1,770 OP/rental sales -1.5% 9.4% 4.4% 28.2% 27.9% 28.0% 35.2% 38.5% Reported EBITDA 259 699 850 737 813 1,550 2,196 2,781 EBITDA / rental sales 33.4% 44.8% 38.5% 53.4% 53.5% 53.4% 58.3% 60.5% Adj EBITDA (ex-suspended car) 266 728 1,061 820 865 1,685 2,225 2,797 Adj EBITDA / rental sales 34.2% 46.7% 48.1% 59.3% 56.9% 58.1% 59.0% 60.9% Interest expense (141) (270) (335) (154) (158) (312) (192) (125) Interest exp/rental sales 18.1% 17.3% 15.2% 11.1% 10.4% 10.8% 5.1% 2.7% Reported NP (151) (132) (223) 218 227 445 947 1,374 Earnings / rental sales -19.5% -8.5% -10.1% 15.8% 14.9% 15.4% 25.1% 29.9% Recurrent NP (ex-suspended car) (145) (103) 143 318 284 602 976 1,389 Recurrent / rental sales -18.7% -6.6% 6.5% 23.0% 18.7% 20.8% 25.9% 30.2% YoY -29.1% -239.2% -2336.5% -301.5% 320.1% 62.0% 42.4% Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 31 23 October 2014

Figure 48: Summary of balance sheet (2011-16E) Y/e 31 Dec, Rmb mn 2011 2012 2013 2014E 2015E 2016E Current assets 1,069 1,269 1,765 4,742 2,059 2,862 Non-current assets 2,699 3,790 4,402 5,139 6,661 7,830 Total assets 3,768 5,058 6,167 9,881 8,721 10,692 Current liabilities 2,819 4,519 4,491 2,552 1,361 1,438 Non-current liabilities 801 524 1,603 4,909 3,964 4,470 Total liabilities 3,620 5,043 6,094 7,462 5,326 5,908 Total share equity 148 16 73 2,419 3,395 4,784 Total liability & equity 3,768 5,058 6,167 9,881 8,721 10,692 Source: Company data, Credit Suisse estimates, Credit Suisse research

Figure 49: Summary of cash flow statement (2011-16E) Y/e 31 Dec, Rmb mn 2011 2012 2013 2014E 2015E 2016E Profit before tax (151) (132) (216) 511 1,155 1,675 Op cash flow before WC change 261 697 913 1,660 2,262 2,819 Change in WC (13) 84 (453) 341 (94) (115) Net cash flow from operating (1,485) (924) (590) 590 (492) 181 Net cash flow from investing (103) (53) 18 (161) (28) (18) Free cash flow (1,526) (955) (622) 452 (500) 173 Net cash flow from financing 2,145 1,258 513 2,646 (2,392) 375 Net cash flow 556 281 (59) 3,075 (2,912) 538 End. cash account 637 910 842 3,917 1,005 1,543 Source: Company historical data, Credit Suisse estimates Rental revenue to grow 26% CAGR over 2014-16E We estimate CAR's rental revenue to witness a 26% CAGR over 2014-16E, driven by (1) a 29% CAGR in ST auto rental revenue; and (2) sales of used cars remaining stable. (1) Short-term rentals 65% CAGR over 2011-13, and 29% CAGR over 2014-16E We expect the 29% rental revenue growth to be driven by: fleet size increase, rising fleet utilisation and increase in average daily rental rate (ADDR).

■ We expect total fleet size to increase from 53,022 in 2013 to 84,939 in 2016E, representing a 37% CAGR.

■ We estimate fleet utilisation rate to increase from 57.9% in 2013 to 61.5% in 2014, 63.0% in 2015, and 63.8% in 2016.

■ ADRR increased from Rmb197 in 2011 to Rmb246 in 2013 and Rmb277 in 1H14. We expect it to increase to Rmb268 in 2014, Rmb276 in 2015, and Rmb282 in 2016.

CAR Inc. (0699.HK / 0699 HK) 32 23 October 2014

Figure 50: CAR's short-term rental revenue (2011-16E)

4,500 (Rmb mn)

4,000 3,870

3,500 3,116 3,000

2,500 2,319

2,000 1,714

1,500 1,209

1,000 630 500

- 2011 2012 2013 2014E 2015E 2016E

Source: Company data, Credit Suisse estimates

Figure 51: CAR's average daily rental rate (ADRR) Figure 52: CAR's average daily short-term rental fleet 70,000 (Rmb) 300 276 282 58,997 268 60,000 246 250 49,059 50,000 212 197 200 38,523 40,000 33,475

150 30,000 26,556

100 20,000 15,429

50 10,000

- - 2011 2012 2013 2014E 2015E 2016E 2011 2012 2013 2014E 2015E 2016E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 33 23 October 2014

Figure 53: CAR's fleet utilisation rate Figure 54: CAR's RevPAC 66.0% (Rmb) 200 63.8% 180 64.0% 63.0% 180 174 165 61.5% 160 62.0% 142 140 125 60.0% 59.0% 120 112 57.9% 58.0% 100 56.7% 80 56.0% 60

54.0% 40

20 52.0% 2011 2012 2013 2014E 2015E 2016E - 2011 2012 2013 2014E 2015E 2016E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates (2) Long-term rental revenue 77% CAGR over 2011-13 and 9% CAGR over 2014-16E The big jump in long-term rental sales in 2013 was due to the acquisition of Hertz's China operation, which was mainly long-term rental, according to our research. Looking forward, we estimate long-term rental revenue to witness 9% CAGR over 2013- 16E. Compared with short-term rental, long-term rental has slower sector demand growth and lower margin, which is not CAR's business focus.

Figure 55: CAR's long-term rental revenue (2011-2016E)

700 (Rmb mn)

600 574 530 487 500 449

400 328

300

200 144

100

- 2011 2012 2013 2014E 2015E 2016E Source: Company data, Credit Suisse estimates (3) Finance lease and other revenue CAR started finance lease in May 2011, with fleet size increasing in line with market demand. CAR started franchisee leasing in 1Q14 with 3,674 vehicles leased to franchisees as of end-1H14. Other revenue includes (1) advertisement income received for ancillary services and services provided to partners, (2) insurance payments in connection with vehicle repair and maintenance services, and (3) franchise revenues

CAR Inc. (0699.HK / 0699 HK) 34 23 October 2014

Figure 56: Sales revenue breakdown by products Rmb mn 2011 2012 2013 2014E 2015E 2016E Revenues 819 1,609 2,703 3,836 4,940 5,936 - Rental revenue 776 1,558 2,208 2,901 3,769 4,594 * Short-term rentals 630 1,209 1,715 2,319 3,116 3,870 * Long-term rentals 144 328 449 487 530 574 * Finance lease 2 13 22 38 51 62 * Franchise related income 0 0 0 18 25 30 * Others 0 9 22 40 48 58 - Sales of used vehicles 43 51 495 934 1,171 1,342 Source: Company data, Credit Suisse estimates

Figure 57: Revenue YoY breakdown by products 2011 2012 2013 2014E 2015E 2016E Revenue YoY 118.6% 96.4% 68.0% 41.9% 28.8% 20.2% - Rental revenue 107.1% 100.8% 41.7% 31.4% 29.9% 21.9% * Short-term rentals 480.7% 91.9% 41.9% 35.2% 34.4% 24.2% * Long-term rentals 336.9% 128.3% 36.8% 8.4% 8.8% 8.5% * Finance lease -99.0% 482.2% 66.8% 73.8% 34.9% 21.2% * Franchise related income 38.9% 20.0% * Others -84.8% 3922.0% 159.6% 76.1% 20.0% 20.0% - Sales of used vehicles 0.0% 17.2% 877.5% 88.8% 25.3% 14.6% Source: Company data, Credit Suisse estimates

Figure 58: Total revenue mix by products 2011 2012 2013 2014E 2015E 2016E Revenue mix 100% 100% 100% 100% 100% 100% - Rental revenue 95% 97% 82% 76% 76% 77% * Short-term rentals 77% 75% 63% 60% 63% 65% * Long-term rentals 18% 20% 17% 13% 11% 10% * Finance lease 0% 1% 1% 1% 1% 1% * Franchise related income 0% 0% 0% 0% 1% 1% * Others 0% 1% 1% 1% 1% 1% - Sales of used vehicles 5% 3% 18% 24% 24% 23% Source: Company data, Credit Suisse estimates

Figure 59: Rental revenue mix by products 2011 2012 2013 2014E 2015E 2016E - Rental revenue mix 100% 100% 100% 100% 100% 100% * Short-term rentals 81% 78% 78% 80% 83% 84% * Long-term rentals 19% 21% 20% 17% 14% 13% * Finance lease 0% 1% 1% 1% 1% 1% * Franchise related income 0% 0% 0% 1% 1% 1% * Others 0% 1% 1% 1% 1% 1% Source: Company historical data, Credit Suisse estimates Depreciation of rental vehicles Vehicle depreciation is the most critical cost component for CAR, representing 44% of total COGS and 35% of total opex in 2013. We estimate depreciation as a percentage of rental revenue to decline from 31% in 2013 to 21% in 2016E (catching up with global peers' 13-22% % in 2013). Estimated holding period of ■ The rental vehicles are depreciated over the estimated holding period (about 2.5~3 rental vehicles: 2.5 to 3 years) on a straight-line basis. years

CAR Inc. (0699.HK / 0699 HK) 35 23 October 2014

■ The annual depreciation amount mainly depends on procurement cost and disposal price, according to our estimates.

■ Estimated residual value of rental vehicles is based on factors including make, age, mileage and location.

■ Even if the vehicle is not utilised, the depreciation is booked.

Figure 60: Rental vehicles depreciation and depreciation as a percentage of rental revenue (2011-2016E) 2011 2012 2013 2014E 2015E 2016E Depreciation (Rmb mn) 258 536 690 698 833 996 Depreciation as % of rental revenue 33.3% 34.4% 31.3% 24.1% 22.1% 21.3% Source: Company data, Credit Suisse estimates

Figure 61: CAR's depreciation of rental vehicle and as a percentage of rental revenue (2011-16E) 1,200 (Rmb mn) 40.0%

33.3% 34.4% 31.3% 979 35.0% 1,000 833 30.0% 800 690 698 25.0%

24.1% 600 536 22.1% 20.0% 21.3% 15.0% 400 258 10.0% 200 5.0%

- 0.0% 2011 2012 2013 2014E 2015E 2016E

Depreciation of rental vehicle Depreciation as % of rental revenue

Source: Company data, Credit Suisse estimates Direct operating expense We estimate CAR's DOE as a percentage of rental revenue to decline from 39% in 2013 to 28.3% in 2016E. The DOE includes (1) payroll cost, (2) store expenses, (3) insurance fee, (4) repair and maintenance fee, (5) fuel expense, and (6) others (including credit card fees, transportation fees, car wash, depreciation and amortisation of office equipment, vehicle usage tax, and other miscellaneous expenses).

Figure 62: DOE structure Rmb mn 2011 2012 2013 2014E 2015E 2016E DOE 268 532 862 960 1,144 1,300 - Payroll cost 39 135 236 363 432 482 - Store expenses 39 74 116 131 151 161 - Insurance fees 103 118 157 160 207 253 - Repair and maintenance fees 15 70 120 87 106 119 - Fuel expense 27 49 74 81 90 101 - Others 45 87 158 139 158 184 Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 36 23 October 2014

Figure 63: DOE as a percentage of rental revenue 2011 2012 2013 2014E 2015E 2016E DOE/rental revenue 34.6% 34.1% 39.0% 33.1% 30.4% 28.3% - Payroll cost 5.1% 8.7% 10.7% 12.5% 11.5% 10.5% - Store expenses 5.0% 4.7% 5.3% 4.5% 4.0% 3.5% - Insurance fees 13.2% 7.6% 7.1% 5.5% 5.5% 5.5% - Repair and maintenance fees 1.9% 4.5% 5.4% 3.0% 2.8% 2.6% - Fuel expense 3.5% 3.1% 3.3% 2.8% 2.4% 2.2% - Others 5.8% 5.6% 7.2% 4.8% 4.2% 4.0% Source: Company data, Credit Suisse estimates Operating expense ratio to decline on economy of scale and leverage We estimate DOE as a percentage of rental revenue to decline from 39% in 2013 to 28.3% in 2016E, and SG&A as % rental revenue to decline from 24% in 2013 to 11.9% in 2016E, benefitting from improvement in economies of scale and operating leverage. (1) The decrease in selling & marketing expense dollar value and % of rental sales is on the back of:

■ Reservation through mobile app commanding less marketing expense, compared with website, call centre and walk-in (requires more online and offline advertising). Reservation via mobile app increased to 30.1% in 2Q14, from 24.4% in 1Q14 and 6.4% in 1Q13.

■ Lower branding investment, given brand awareness has been well established. According to Roland Berger, CAR is the most recognised and most popular car rental brand in China. According to Baidu Index and Google Trends (the two major keyword search popularity indices), CAR's brand had the highest search volume among car rental companies in China, and its total search volume on Baidu and Google each was approximately three times that of its closest competing brand in 2013. Since the Ministry of Industry and Information Technology launched its China Brand Power Index in 2012, CAR's brand was named the most recognised car rental brand among Chinese customers for two consecutive years. This strong brand awareness leads to premium pricing and lower customer acquisition costs. CAR used to partner with high- profile celebrities (such as David Beckham as spokesperson since July 2013) to boost its brand recognition.

■ Less spending on special events for consumer education.

■ The high sales force expense in 2013 was due to the acquisition of the Hertz China operation (mainly long-term rental service products). (2) The decrease in general & administrative expense dollar value and % of rental sales is mainly due to:

■ CAR is now in the process of relocating its call centres from Beijing to Tianjin where labour and other costs are more affordable.

■ Headcounts of fleet management & deployment staff are gradually reduced, based on the tech-driven operation system (led by CIO Yaxiao Liu, ex-CTO of IBM Greater China).

■ Operation supporting staff (such as manual data mining workers) are gradually replaced, following the development of powerful big data analysis infrastructure.

■ Store staff are now required to work under multi-tasking environments more efficiently.

CAR Inc. (0699.HK / 0699 HK) 37 23 October 2014

Figure 64: SG&A as a percentage of rental revenues 2011 2012 2013 1H14 2H14E 2014E 2015E 2016E SG&A/rental sales 32.9% 22.3% 24.0% 13.7% 15.8% 14.8% 12.3% 11.9% - Selling & mkting /rental sales 13.8% 9.0% 6.9% 2.9% 3.2% 3.1% 3.3% 3.1% - G&A/rental sales 19.2% 13.3% 17.1% 10.8% 12.6% 11.7% 9.1% 8.7% SG&A (256) (347) (531) (190) (240) (430) (465) (545) - Selling & marketing (107) (140) (153) (41) (48) (89) (124) (144) * Marketing & PR expense (88) (106) (113) (24) (30) (54) (99) (119) * Sales force expense - LT & (10) (19) (27) (9) (10) (19) (22) (24) Selling dept * Share option expense - - (4) (1) (1) (2) (1) (1) * Others (9) (15) (9) (7) (7) (14) (1) (1) - G&A (149) (207) (378) (149) (192) (341) (341) (401) * HQ & regional G&A (138) (169) (262) (173) (217) (249) * Branch expenses - - - (58) (79) (107) * Depreciation & amortization (4) (7) (17) (23) (17) (30) * Share option expense - - (94) (50) (28) (15) * Funding cost (expensed) (7) (31) (6) (38) - - Source: Company data, Credit Suisse estimates Operating profit to grow 48% CAGR over 2014-16E We estimate CAR's operating profit to witness 48% CAGR over 2014-16E. Operating We estimate CAR's leverage is the driving force behind margin expansion. operating profit to witness 48% CAGR over 2014-16E ■ We expect CAR's utilisation rate to increase from 57.9% in 2013 to 63.8% in 2016E (vs global peers' 67-78% in 2013).

■ We estimate depreciation as a percentage of rental revenue to decline from 31% in 2013 to 21.3% in 2016E (catching up with global peers' 13-22% in 2013).

■ We estimate DOE as a percentage of rental revenue to decline from 39% in 2013 to 28.3% in 2016E, and SG&A as a percentage of rental revenue to decline from 24% in 2013 to 11.9% in 2016E, benefiting from improvement in economies of scale and operating leverage. We model the EBITDA margin to expand from 48% in 2013 to 61% in 2016E (vs global peers' 38-46% in 2013).

Figure 65: CAR's operating profit (2011-2016E)

2,000 (Rmb mn) 1,770 1,800

1,600

1,400 1,327

1,200

1,000 813 800

600

400 146 200 98 (12) - 2011 2012 2013 2014E 2015E 2016E (200)

Source: Credit Suisse research and estimates

CAR Inc. (0699.HK / 0699 HK) 38 23 October 2014

Figure 66: CAR's operating profit and margin (2011-2016E) 2011 2012 2013 2014E 2015E 2016E Operating profit (12) 146 98 813 1,327 1,770 OP margin (OP/sales) -1.4% 9.1% 3.6% 21.2% 26.9% 29.8% OPM (OP/rental sales) -1.5% 9.4% 4.4% 28.0% 35.2% 38.5% OP YoY -105.6% -1,354.7% -32.8% 729.8% 63.2% 33.4% Source: Company data, Credit Suisse estimates Costs related to suspended fleet Cost related to suspended fleet is the major swing factor that drags down CAR's reported earnings to loss. The suspended vehicles number increased significantly to 11,601 units as of end-3Q13, mainly due to the reasons cited below:

■ Large number of vehicles due for biennial inspections in 2013, following the rapid fleet Background of fleet expansion in 2011. suspension

■ Unable to timely clear point deductions on vehicles arising from customer's traffic violations, resulting in failure to pass inspection.

■ Vehicles that failed to pass inspection were prohibited from road use and sales, leading to suspension The cost related to the suspended fleet includes: (1) aggregate depreciation, (2) Calculation of cost proportionate share of direct operating expense (rental, labour, insurance, etc.); (3) shared G&A, and (4) finance costs. To eliminate fleet suspension, CAR allocated more staff and resources, enhancing the ability to write off point deductions on vehicles. The number of suspended vehicles gradually declined from 11,601 in 3Q13 to 662 in 2Q14. The Chinese government is in the process of amending regulations to apply point deductions directly to drivers and exempt car rental companies' liability. We expect the loss to be significantly eliminated once the new regulations become effective.

Figure 67: Size of suspended fleet Figure 68: 2013 recurrent earnings (ex-suspended fleet) 14,000 Vehicles (Rmb mn) 200 12,000 11,601 299 143 150

100 10,000 50 8,000 0 6,439 -50 6,000 -100 101

4,000 -150 (33) (155) -200 2,000 662 -250 (223) Net profit (loss) Share-based Reorg.&other Adjusted net Costs related to Adjusted net 0 compensation expense profit (non-IFRS) suspended fleet profit 3Q13 2013 1H14

Source: Company historical data, Credit Suisse research Source: Company historical data

CAR Inc. (0699.HK / 0699 HK) 39 23 October 2014

Figure 69: 1H14 recurrent earnings (ex-suspended fleet) Figure 70: 2014E recurrent earnings (ex-suspended fleet)

350 (Rmb mn) 700 (Rmb mn) 41 318 49 602 300 277 32 600 553 56 250 27 52 218 500 445

200 400

150 300 100 200 50 100 - Net profit (loss) Share-based Reorg.&other Adjusted net Costs related to Adjusted net compensation expense profit (non- suspended fleet profit 0 IFRS) Net profit (loss) Share-based Reorg.&other Adjusted net profit Costs related to Adjusted net profit compensation expense (non-IFRS) suspended fleet Source: Company historical data, Credit Suisse research Source: Credit Suisse estimates and research Recurrent earnings (ex-suspended fleet) to grow 52% CAGR over 2014-16E We take out non-recurrent items from reported earnings. The non-recurrent items include: (1) share-based compensation, (2) foreign exchange gain/loss related to corporate reorganisation, (3) costs related to suspended fleet, and (4) fund raising related expense.

Figure 71: CAR's recurrent earnings (ex-suspended fleet) (2011-2016E) 2011 2012 2013 2014E 2015E 2016E Reported earnings (151) (132) (223) 445 947 1,374 Non-recurrent earnings items 6 29 367 108 29 16 - Share-based compensation - - 101 52 29 16 - Foreign exchange (gain) / loss related to corporate - (2) (39) 18 - - reorganization - Fund raising related expense 6 31 6 38 - - - Others ------Non-IFRS adj earnings (145) (103) (155) 553 976 1,389 - Costs related to suspended fleet - - 299 49 - - Recurrent earnings (145) (103) 143 602 976 1,390 Source Company historical data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 40 23 October 2014

Figure 72: CAR's Non-IFRS adj earnings (2011-16E)

1,600 (Rmb mn) 1,389 1,400

1,200

976 1,000

800

600 553

400

200

- 2011 2012 2013 2014E 2015E 2016E (200) (103) (145) (155)

(400)

Source: Company data, Credit Suisse estimates

Figure 73: CAR's recurrent earnings (2011-16E)

1,600 (Rmb mn) 1,389 1,400

1,200

976 1,000

800 602 600

400

200 143

- 2011 2012 2013 2014E 2015E 2016E (103) (200) (145)

(400)

Source: Company historical data, Credit Suisse estimates Share-based compensation Employees of the Group receive remuneration in the form of share-based payments, which are shown as the total share option expense in the operating expense.

■ CAR booked share-based compensation of Rmb101 mn in 2013, representing 4% of total sales.

■ We estimate Rmb52 mn, Rmb29 mn and Rmb16 mn in share-based compensation expense for each of 2014, 2015, and 2016, representing 0.3-1.4% of total sales.

CAR Inc. (0699.HK / 0699 HK) 41 23 October 2014

Tax rate We assume an effective tax rate of 18% for 2014-16E, based on the assumptions below.

■ China: China subsidiaries are subject to an income tax rate of 25% and some of its subsidiaries were entitled to the following preferential income tax treatments and tax refund from the local government:

Figure 74: Preferential tax treatments for subsidiaries in China City # of subsidiaries Preference income tax rate Government tax refund Pingtan County, Fujian Province 1 15% Yes Lhasa, Tibet 1 15% Yes Tianjin 3 - Yes Source: Company data

■ Hong Kong: Its wholly owned Hong Kong subsidiary, CAR Hong Kong, is subject to Hong Kong profit tax on its activities conducted in Hong Kong. Dividends from Hong Kong subsidiary are exempt from withholding tax.

■ Cayman Islands: CAR is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, it is not subject to income or capital gains tax. Working capital management We estimate CAR's cash conversion days to prolong from 10-50 days in 2011-13 to 17-40 days in 2014-16E, based on the assumptions below.

■ A/R turnover of 12-17 days: CAR usually provides trade credit to long-term rental customers. We estimate the trade receivable is in line with the growth of rental business.

■ A/P turnover of 3-5 days: Stronger bargaining power with suppliers based on its leading market position.

■ Inventory turnover of 9-27 days: We expect inventory days to decrease to 8 days in 2016E from 33 days in 2013.

Figure 75: Working capital management Working capital 2011 2012 2013 2014E 2015E 2016E Cash conversion days 10 19 50 40 17 20 - Receivable days 10 14 20 17 12 13 - Payable days 4 3 2 3 4 5 - Inventory days 4 8 33 27 9 11 Source: Company historical data, Credit Suisse estimates Capex plan We estimate CAR to invest Rmb2,128 mn, Rmb3,170 mn and Rmb2,994 mn capex, in 93% of total capex for rental 2014, 2015 and 2016, respectively. We expect nearly 93% of the total capex would be vehicles allocated for the acquisition of rental vehicles in 2014, which is a major source of sales growth and margin expansion for the company.

CAR Inc. (0699.HK / 0699 HK) 42 23 October 2014

Figure 76: Capex breakdown by segments (2011-16E) 2011 2012 2013 2014E 2015E 2016E Capex breakdown 1,832 1,796 1,923 2,128 3,170 2,994 - Rental vehicles 1,775 1,764 1,889 1,990 3,162 2,986 - PPE 57 32 34 138 8 8 Capex mix 100% 100% 100% 100% 100% 100% - Rental vehicles 97% 98% 98% 93% 100% 100% - PPE 3% 2% 2% 7% 0% 0% Source: Company data, Credit Suisse estimates Free cash flow and net gearing We estimate CAR to generate Rmb452 mn free cash flow in 2014, negative Rmb500 mn Free cash flow to turn in 2015, and positive Rmb173 mn in 2016. positive in 2016 CAR was in a net debt position in 2013. Assuming loan repayment of Rmb500 mn in 2014 Net debt/total asset ratio of and Rmb2,200 mn in 2015, we estimate net debt/total asset ratio would decrease from negative 5% in 2015 48% in 2013 to negative 5-11% in 2015-16E. This compares with global peers' 29-65% in 2013. ROE, ROIC and ROA We estimate ROE of 9.4% (2014), 14.2% (2015) and 17.2% (2016). We estimate ROIC of 7.0% (2014), 11.4% (2015) and 14.7% (2016). We estimate ROA of 5.5% (2014), 9.5% (2015) and 13.0% (2016). Use of IPO proceeds

Figure 77: Use of IPO proceeds Purposes Amount As % (HK$ mn) of total (1) Procurement of fleet 2,585 65% - Assuming a financing structure on a per vehicle basis of 30-40% equity and 60- 70% debt, CAR would be able to procure nearly 44,000-59,000 vehicles. - 50% of the total will be procured in 2015, and the remainder in 2016. (2) Repay outstanding bank loans 755 19% - Loan facility of Rmb200 mn at SDIC Trust (due in March 2015, interest rate of 9%) - Rmb200 mn at Post Savings Bank of China (used for vehicle purchase; due in April 2015, interest rate of 6.1%) - Rmb100 mn at China Credit Trust (due in March 2015, interest rate of 6.8%) (3) Developing new products and services 398 10% (4) Working capital and other general corporate purposes 239 6% Total net IPO proceeds 3,976 100% Source: Company data, Credit Suisse estimates Sensitivity analysis We summarise our base-case assumptions in the table below.

Figure 78: Sensitivity analysis Base Scenario Change Result Utilisation 63.0% +1% to 64% 2015 recurrent earnings increases to 5.7% Labour cost (Rmb mn) 432 -1% to 359 2015 recurrent earnings increases to 0.4% Dep/rental sales 22.1% -1% to 21.1% 2015 recurrent earnings increases to 3.5% DOE/rental sales 30.4% -1% to 29.4% 2015 recurrent earnings increases to 3.5% SG&A/rental sales 12.2% -1% to 11.2% 2015 recurrent earnings increases to 3.5% Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 43 23 October 2014

Figure 79: Breakeven analysis (on one-car basis) 180 Rmb per car per day 165 35 160

140 52 120 Breakeven RevPac: 120 100 5 80 15 14 60 8 37 40 20 0 RevPac Depreciation DOE Selling G&A Internet Breakeven Tax Net costs expense expense RevPac expense income

Source: Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 44 23 October 2014

Figure 80: Income statement (2011-16E) Year-end 31 Dec (Rmb mn) 2011 2012 2013 1H14 2H14E 2014E 2015E 2016E Revenues 819 1,609 2,703 1,862 1,974 3,836 4,940 5,936 - Rental revenue 776 1,558 2,208 1,381 1,520 2,901 3,769 4,594 * Short-term rentals 630 1,209 1,715 1,081 1,238 2,319 3,116 3,870 * Long-term rentals 144 328 449 245 241 487 530 574 * Finance lease 2 13 22 19 18 38 51 62 * Franchise related income 0 0 0 9 9 18 25 30 * Others 0 9 22 26 14 40 48 58 - Sales of used vehicles 43 51 495 481 454 934 1,171 1,342 Revenue YoY 119% 96% 68% 62% 27% 41.9% 28.8% 20.2% - Rental revenue 107% 101% 42% 37% 27% 31.4% 29.9% 21.9% * Short-term rentals 481% 92% 42% 36% 34% 35.2% 34.4% 24.2% * Long-term rentals 337% 128% 37% 22% -2% 8.4% 8.8% 8.5% * Finance lease -99% 482% 67% 113% 45% 73.8% 34.9% 21.2% * Franchise related income 38.9% 20.0% * Others -85% 3922% 160% 645% -29% 76.1% 20.0% 20.0% - Sales of used vehicles 17% 877% 238% 29% 88.8% 25.3% 14.6% Revenue mix 100% 100% 100% 100% 100% 100% 100% 100% - Rental revenue 95% 97% 82% 74% 77% 76% 76% 77% * Short-term rentals 77% 75% 63% 58% 63% 60% 63% 65% * Long-term rentals 18% 20% 17% 13% 12% 13% 11% 10% * Finance lease 0% 1% 1% 1% 1% 1% 1% 1% * Franchise related income 0% 0% 0% 0% 0% 0% 1% 1% * Others 0% 1% 1% 1% 1% 1% 1% 1% - Sales of used vehicles 5% 3% 18% 26% 23% 24% 24% 23% Rental revenue mix 100% 100% 100% 100% 100% 100% 100% 100% * Short-term rentals 81% 78% 78% 78% 81% 80% 83% 84% * Long-term rentals 19% 21% 20% 18% 16% 17% 14% 13% * Finance lease 0% 1% 1% 1% 1% 1% 1% 1% * Franchise related income 0% 0% 0% 1% 1% 1% 1% 1% * Others 0% 1% 1% 2% 1% 1% 1% 1%

COGS (575) (1,116) (2,074) (1,283) (1,310) (2,593) (3,148) (3,622) - Depreciation of rental (258) (536) (690) (341) (357) (698) (833) (979) vehicles * As % of rental sales -33.3% -34.4% -31.3% -24.7% -23.5% -24.1% -22.1% -21.3% - Direct Opex of rental (268) (532) (862) (478) (482) (960) (1,144) (1,300) services * As % of rental sales -34.6% -34.1% -39.0% -34.6% -31.7% -33.1% -30.4% -28.3% - Cost of sales of used (49) (48) (522) (464) (471) (934) (1,171) (1,342) vehicles * As % of used car sales -113.1% -94.9% -105.5% -96.5% -103.7% -100% -100% -100%

Gross profit 244 493 629 579 664 1,242 1,792 2,314 - Rentals 250 490 656 562 681 1,242 1,792 2,314 - Sales of used vehicles (6) 3 (27) 17 (17) - - - GP margin 30% 31% 23% 31.1% 33.6% 32% 36% 39% - Rentals 32% 31% 30% 40.7% 44.8% 42.8% 47.5% 50.4% - Sales of used vehicles -13% 5% -6% 3.5% -3.7% 0.0% 0.0% 0.0% Gross profit YoY -8% 102% 28% 84% 111% 98% 44% 29% - Rentals -6% 96% 34% 77% 100% 89% 44% 29% - Sales of used vehicles Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 45 23 October 2014

Income statement (2011-16E) (cont'd) Year-end 31 Dec (Rmb mn) 2011 2012 2013 1H14 2H14E 2014E 2015E 2016E SG&A (256) (347) (531) (190) (240) (430) (465) (545) - Selling & marketing (107) (140) (153) (41) (48) (89) (124) (144) * Marketing & PR expense (88) (106) (113) (24) (30) (54) (99) (119) * Sales force expense - LT (10) (19) (27) (9) (10) (19) (22) (24) & Selling dept * Share option expense - - (4) (1) (1) (2) (1) (1) * Others (9) (15) (9) (7) (7) (14) (1) (1) - G&A (149) (207) (378) (149) (192) (341) (341) (401) * HQ & regional G&A (138) (169) (262) (173) (217) (249) * Branch expenses - - - (58) (79) (107) * Depreciation & (4) (7) (17) (23) (17) (30) amortisation * Share option expense - - (94) (50) (28) (15) * Other cost (expensed) (7) (31) (6) (38) - - SG&A/rental sales 32.9% 22.3% 24.0% 13.7% 15.8% 14.8% 12.3% 11.9% - Selling & mkting /rental 13.8% 9.0% 6.9% 2.9% 3.2% 3.1% 3.3% 3.1% sales - G&A/rental sales 19.2% 13.3% 17.1% 10.8% 12.6% 11.7% 9.1% 8.7%

Operating profit (12) 146 98 389 424 813 1,327 1,770 OP margin (OP/sales) -1.4% 9.1% 3.6% 20.9% 21.5% 21.2% 26.9% 29.8% OP margin (OP/rental -1.5% 9.4% 4.4% 28.2% 27.9% 28.0% 35.2% 38.5% sales) OP YoY -105.6% -1354.7% -32.8% 174.2% -1063.9% 729.8% 63.2% 33.4%

Interest expense (141) (270) (335) (154) (158) (312) (192) (125)

Other income 2 (8) 21 (7) 17 10 20 30 - Interest income from bank 1 2 3 5 5 10 20 30 deposit - Loan interest income from 1 0 - - - - - a related party - Exchange gain (7) 23 (16) 16 - - - - Government grants 0 2 2 2 (2) - - - - Gain on disposals of PPE 0 (0) 1 1 (1) - - - - Others (0) (5) (8) 1 (1) - - - Subtotal 2 (8) 21 (7) 17 10 20 30 - Other income and gains 2 4 29 9 1 10 20 30 - Other expense (1) (13) (8) (16) 16 - - -

Profit before tax (151) (132) (216) 228 283 511 1,155 1,675 Income tax expense (1) 0 (7) (10) (56) (65) (208) (302) Reported earnings (151) (132) (223) 218 227 445 947 1,374 NP YoY -180.3% -12.5% 68.8% 13132.2% -200.9% -299.4% 112.6% 45.0% Net margin -18.5% -8.2% -8.3% 11.7% 11.5% 11.6% 19.2% 23.1% Earnings / rental sales -19.5% -8.5% -10.1% 15.8% 14.9% 15.4% 25.1% 29.9% Non-recurrent earnings 6 29 68 59 49 108 29 16 items - Share-based - - 101 27 25 52 29 16 compensation - Foreign exchange (gain) / - (2) (39) 18 - 18 - - loss related to corp. reorg. Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 46 23 October 2014

Income statement (2011-16E) (cont'd) Year-end 31 Dec (Rmb mn) 2011 2012 2013 1H14 2H14E 2014E 2015E 2016E - Funding expense 6 31 6 14 24 38 - - - Others - - - Non-IFRS adj. earnings (145) (103) (155) 277 276 553 976 1,389 Adj. net profit YoY -29.1% 50.7% -2048.3% -295.9% -456.5% 76.4% 42.4% Adj. net margin -17.7% -6.4% -5.7% 14.9% 14.0% 14.4% 19.8% 23.4% Adj earnings / rental sales -18.7% -6.6% -7.0% 20.1% 18.2% 19.1% 25.9% 30.2% Cost of suspended cars - - (299) (41) (8) (49) - - Recurrent earnings (ex- (145) (103) 143 318 284 602 976 1,389 suspended cars) Adj. earnings YoY -29.1% -239.2% -2336.5% -301.5% 320.1% 62.0% 42.4% Adj. net margin -17.7% -6.4% 5.3% 17.1% 14.4% 15.7% 19.8% 23.4% Adj NP / rental sales -18.7% -6.6% 6.5% 23.0% 18.7% 20.8% 25.9% 30.2%

Finance expense 141 270 335 154 158 312 192 125 Interest income from bank (1) (2) (3) (5) (5) (10) (20) (30) deposit Loan interest income from (1) (0) ------related party Depreciation of rental 258 536 690 341 357 698 833 979 vehicles Depreciation of other PPE 10 19 23 14 15 29 26 21 Amortisation of other 2 3 7 4 6 10 10 10 intangible assets Amortisation of prepaid land - 0 0 0 (0) 0 - - lease payment Impairment on trade 1 5 15 1 (1) - - - receivables Reported EBITDA 259 699 850 737 813 1,550 2,196 2,781 Reported EBITDA YoY 169.3% 21.6% 53.7% 119.6% 82.4% 41.7% 26.6% Reported EBITDA Margin 31.7% 43.4% 31.4% 39.6% 41.2% 40.4% 44.5% 46.8% EBITDA / rental sales 33.4% 44.8% 38.5% 53.4% 53.5% 53.4% 58.3% 60.5%

Share-based compensation - - 101 27 25 52 29 16 Foreign exchange (gain) / - (2) (39) 18 - 18 - - loss related to corp. reorg. Funding expense 6 31 6 14 24 38 - - Adjusted EBITDA 266 728 918 796 862 1,658 2,225 2,797 Adjusted EBITDA YoY 174.2% 26.1% 71.7% 89.7% 80.6% 34.2% 25.7% Adjusted EBITDA margin 32.4% 45.3% 34.0% 42.8% 43.7% 43.2% 45.0% 47.1% Adj. EBITDA / rental sales 34.2% 46.7% 41.6% 57.6% 56.7% 57.2% 59.0% 60.9% Cost related to suspended (143) (23) (3) (26) - - fleet Adj. EBITDA (ex- 266 728 1,061 820 865 1,685 2,225 2,797 suspended car) Adj. EBITDA YoY 174.2% 45.8% 76.7% 90.4% 58.7% 32.1% 25.7% Adjusted EBITDA margin 32.4% 45.3% 39.3% 44.0% 43.8% 43.9% 45.0% 47.1% Adj. EBITDA / rental sales 34.2% 46.7% 48.1% 59.3% 56.9% 58.1% 59.0% 60.9% Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 47 23 October 2014

Figure 81: Balance sheet (2011-16E) Year-end 31 Dec (Rmb mn) 2011 2012 2013 2014E 2015E 2016E Inventories 11 39 330 53 108 120 Trade receivable 34 88 208 146 190 247 Prepayments, deposits and other 132 187 342 486 506 610 receivables Due from related parties 12 0 0 0 0 0 Due from shareholders 228 - - - - - Financial lease receivable - current 13 36 42 139 250 342 Available for sales investment 0 - - - - - Restricted cash - 7 - - - - Held-to-maturity investment ------Cash and cash equivalents 637 910 842 4,893 1,981 2,519 Current assets 1,069 1,269 1,765 5,718 3,036 3,838

Rental vehicles 2,414 3,541 4,024 4,421 5,627 6,783 Other property, plant and 60 72 89 196 178 165 equipment Financing leases receivable - non- 16 29 69 200 489 491 current Prepayments for vehicle purchases 126 42 55 80 95 90 Prepaid land lease payments 7 7 7 7 7 7 Goodwill 0 2 6 6 6 6 Other intangible assets 33 57 145 170 200 229 Rental deposit 4 7 2 2 2 2 Deposits for finance leases 28 28 - - - - Restricted cash 9 2 2 54 54 54 Deferred tax asset 1 2 3 3 3 3 Non-current assets 2,699 3,790 4,402 5,139 6,661 7,830 Total assets 3,768 5,058 6,167 10,857 9,697 11,668

Trade payables 6 14 14 35 42 49 Other payables and accruals 174 249 318 432 435 481 Advances from customers 86 105 175 174 188 193 Interest-bearing current loans 1,542 2,496 2,248 1,866 613 609 Finance lease payable 3 - - - - - Due to related parties 239 843 134 - - - Due to shareholders 768 812 1,598 - - - Income tax payable 1 - 6 46 83 106 Current liabilities 2,819 4,519 4,491 2,552 1,361 1,438

Interest-bearing LT loans 784 498 1,563 1,866 919 1,422 Deposits received for vehicle rental 9 16 19 23 25 27 Deferred tax liabilities 7 10 21 21 21 21 Non-current liabilities 801 524 1,603 1,909 964 1,470 Total liabilities 3,620 5,043 6,094 4,462 2,326 2,908

Share capital - - - 3,976 3,976 3,976 Reserves 387 388 668 2,517 2,517 2,517 Accumulated gains (loss) (239) (372) (596) (98) 878 2,267 Total share equity 148 16 73 6,395 7,371 8,760

Total liability & equity 3,768 5,058 6,167 10,857 9,697 11,668 Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 48 23 October 2014

Figure 82: Cash flow statement (2011-16E) Year-end 31 Dec (Rmb mn) 2011 2012 2013 2014E 2015E 2016E Profit before tax (151) (132) (216) 511 1,155 1,675 Impairment on trade receivable 1 5 15 - - - Impairment of inventories - - 1 - - - Depreciation of rental vehicles 258 536 690 698 833 979 Depreciation of other property, plant and equipment 10 19 23 29 26 21 Gain)/loss on other disposal of other property, plant and (0) 0 (1) - - - equipment Amortisation of other intangible assets 2 3 7 10 10 10 Amortisation of prepaid land lease payment - 0 0 0 - - Other non-cash items 1 (0) - 40 37 22 Exchange (gain)/loss arising from an amount due to a - (2) (39) 18 - - shareholder Equity-settled share option expenses - - 101 52 29 16 Finance costs 141 270 335 312 192 125 Interest income (2) (2) (3) (10) (20) (30)

Operating cash flow before WC change 261 697 913 1,660 2,262 2,819 Change in WC (13) 84 (453) 341 (94) (115) Restricted cash (1) (1) - - - - - (Increase)/decrease of trade receivables (21) (59) (114) 63 (44) (57) - (Increase)/decrease of inventories (9) (7) (314) 277 (55) (12) - (Increase)/decrease of prepayments and other (170) 31 (89) (144) (20) (104) receivables - Increase/(decrease) of trade payables 5 8 (3) 21 8 7 - Increase of due to a shareholder for operating activities - 22 7 11 - - - Increase/(decrease) of advances from customers 64 18 70 (1) 14 4 - Increase/(decrease) of other payables and accruals 121 71 (10) 115 3 46 Addition of rental vehicles (1,775) (1,764) (1,889) (1,990) (3,162) (2,986) Disposal of rental vehicles 49 70 806 589 1,123 851 Other change of rental vehicle 25 31 80 284 (13) 7 (Increase)/decrease of finance lease receivable (23) (35) (44) (229) (399) (94) Finance lease payable as lessee (8) (3) - - - - Income tax paid (1) (3) (3) (65) (208) (302) Net cash flow from operating (1,485) (924) (590) 590 (492) 181

Purchases of other property, plant and equipment (41) (31) (32) (138) (8) (8) Proceeds from disposal of other PPE 0 1 1 3 - - Purchases of other intangible assets (12) (21) (28) (35) (40) (40) Acquisition of subsidiaries, net of cash acquired (52) (4) 74 (0) - - Disposal of available-for-sale investments - 0 - - - - Purchase of investment in finance product ------Interest received 1 2 3 10 20 30 Net cash flow from investing (103) (53) 18 (161) (28) (18)

Free cash flow (1,526) (955) (622) 452 (500) 173

Restricted cash (7) - 7 (52) - - Capital injection from shareholders 208 - - - - - Proceeds from bank and other borrowings 2,147 1,592 3,331 (79) (2,200) 500 Net IPO proceeds 3,976 - - Repayments of bank and other borrowings (471) (927) (2,663) - - - Proceeds from loans due to a shareholder 760 - - 222 - - Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 49 23 October 2014

Cash flow statements (2011-16E) (cont'd) Year-end 31 Dec (Rmb mn) 2011 2012 2013 2014E 2015E 2016E Repayments of loan due to a shareholder (400) - - - - Proceeds from a shareholder - 1,014 823 - - - Repayments to a shareholder - - (6) - - - Proceeds from related parties 8 150 - - - - Repayments to related parties (7) (313) (650) (134) - - Interest paid (92) (258) (330) (312) (192) (125) Net cash flow from financing 2,145 1,258 513 3,622 (2,392) 375

Net cash flow 556 281 (59) 4,051 (2,912) 538 Effect of foreign exchange rate changes (8) (9) - - - Beg. cash account 81 637 910 842 4,893 1,981 End. cash account 637 910 842 4,893 1,981 2,519 Source: Company data, Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 50 23 October 2014 Initiate with OUTPERFORM rating HK$12.3 TP represents 23x 2015 P/E, 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG We use P/E and EV/EBITDA multiples as our primary matrix to derive our fair value range. Methodology We also use DCF methodology to crosscheck our valuation range. Our target price of HK$12.3 is based on 23x 2015 P/E (the average of our target P/E multiples for China Lodging and Home Inns. Our target price implies 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG. Given their similar business models (capital-intensive, high-operating leverage), both CAR and China budget hotels have similar levels of net gearing, FCF and ROE. CAR is a leader in a rapidly growing industry, while the budget hotel sector developed five years earlier and has started to see a slowdown in growth. In addition, CAR enjoys higher margins, due to higher entry barriers and less intense competition. Our benchmarks The nature of CAR's business model is common to other consumer service providers in Benchmark China, such as budget hotels, education and catering companies. We benchmark CAR's valuation to these peer sectors. In addition, global traditional auto rental companies also serve as comparables.

■ China budget hotel sector (strong sector demand on lifestyle changes; repeating consumption; a high level of operating leverage; cost structure; dynamic pricing; O2O; in the early stage of the industry's cycle). China's budget hotel sector trades at 18.4x 2015 P/E.

■ China education sector (strong sector demand; repeating consumption; a high level of operating leverage; in the early stage of the industry's cycle). China's education sector trades at 21.6x 2015 P/E.

■ China catering sector (strong sector demand on lifestyle change; repeating consumption; table turn drives margin improvement). China's catering sector trades at 20.4x 2015 P/E.

■ China auto O2O service sector trades at 31.6x 2015 P/E, compared with Ctrip's 44x 2015 trading P/E (most other China online travel service companies are loss-making) and global peers' 18.9x.

CAR Inc. (0699.HK / 0699 HK) 51 23 October 2014

Compared to China budget hotels CAR and China budget hotels share some common features in their business models: they are capital intensive with high-operating leverage. This results in similar levels of net gearing, FCF and ROE. The major difference is the industry development cycle. After nearly ten years of rapid sales growth (an 87% CAGR for 2000-05, a 60% CAGR for 2005-10, and a 25% CAGR for 2010-13), China's budget hotel sector growth has slowed to a 15% CAGR by our estimation. This compares with the China auto rental sector growth of 32% CAGR for 2008-13 and a 27% CAGR for 2013-18E, according to Roland Berger. In addition, auto rental enjoys higher margins, due to higher entry barriers and less intense competition. Benchmarked with 23x 2015 P/E (our average target multiple for China Lodging and Home Inns, or 20% above their trading P/E), we arrive at our target price of HK$12.3, implying 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG (2015 P/E over the earnings CAGR for 2014- 16E).

■ Strong sector demand on lifestyle change: China's short-term auto rental CAGR is forecast at 27% for 2013-18E, versus budget hotel's 15% CAGR.

■ Cost structure: The depreciation of vehicles accounted for 44% of CAR's rental revenue (vs property rental's 40% as a percentage of revenue for China Lodging); labour 15% for CAR (vs 20% for China Lodging); insurance fees 10% for CAR (vs 14% for China Lodging).

■ High-level of operating leverage: A significant 90% of total opex is fixed for CAR, vs 75% for China Lodging. Operating leverage is the major margin expansion driver for both of them. The key difference is that China Lodging's hotel room occupancy rate has stabilised at 90% (with limited upside to further expand), while CAR's vehicle utilisation rate is nearly 60% for the time being and should gradually catch up with mature global peers' 70%.

■ O2O strategy: Nearly 60% of CAR's reservations is through websites and mobile apps, vs 40-45% for China Lodging, according to company data.

■ Strong growth: We expect CAR's adjusted net earnings to see a 53% CAGR over 2013-16E, vs China Lodging's 22% by our estimation.

■ High margin: We expect CAR's adjusted net margin to increase from 6.5% in 2013 to 20.8% in 2014E, vs China Lodging's 7.4% in 2014E by our estimation. CAR's 2014 ROE of 11.1% compares with China Lodging's 11.8% in 2013.

■ Net gearing and free cash flow: Both run capital-intensive business models. Both had negative FCF in 2013. CAR's net gearing was -4% (post money), vs China Lodging's 14% in 2013, according to company data.

CAR Inc. (0699.HK / 0699 HK) 52 23 October 2014

Figure 83: China Lodging—EV/EBITDA Figure 84: China Lodging—12-month forward P/E

3500 US$ mn 50 US$

45 40X 3000 15X 40 35X

2500 12X 35 30X 30 2000 10X 25X 25 22X 1500 20 8X 1000 15 18X 5X 10 500 3X 5

0 -

1/1/2011 4/1/2011 7/1/2011 1/1/2012 4/1/2012 7/1/2012 7/1/2010 1/1/2013 4/1/2013 7/1/2013 1/1/2014 4/1/2014 7/1/2014

10/1/2010 10/1/2011 10/1/2012 10/1/2013 10/1/2014

3/25/2010 3/25/2011 9/25/2010 6/25/2011 9/25/2011 3/25/2012 6/25/2012 9/25/2012 3/25/2013 6/25/2013 9/25/2013 3/25/2014 6/25/2014 9/25/2014

6/25/2010

12/25/2012 12/25/2011 12/25/2013 12/25/2010 Source: Bloomberg Source: Bloomberg

Figure 85: Peer comparison—business model and industry dynamics Business model CAR China Lodging - Core business Consumer service provider; Consumer service provider; auto rental budget hotel - Leading position No 1 in China No 3 in China - O2O strategy Nearly 30% of reservations by mobile Nearly 25% by mobile app; 30% by website 15-20% by websites - Asset-light or heavy? Asset-heavy; own vehicles Asset-light; lease property - Capital intensive? Capital intensive, Capital intensive, negative FCF in 2013 negative FCF in 2013 - Depreciation as % of revenue 31.2% 10.9% - Top-3 cost components Dep of auto (44% of COGS); Property rental (40% of COGS); labour (15%); labour (20%); insurance (10%) Dep (14%) - SG&A / sales 24% in 2013 14.6% in 2013 - Franchise Just started in late 2013 62% of total hotel count in 1Q14 Industry dynamics CAR China Lodging - Sector demand growth 27% CAGR for 2013-18E 15% CAGR for 2013-18E - M&A and consolidation Not started yet Already started - Competition level High High Source: Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 53 23 October 2014

Figure 86: Peer comparison—growth drivers and financials Growth driver CAR China Lodging - ADR hike potential In line with inflation Slightly below inflation - Utilisation rate trend Gradually rising from 60% to 70% Almost stabilised at 90% - Operating leverage 90% opex is fixed cost; op leverage 75% opex is fixed cost; op is the major growth driver leverage is the major growth driver Growth CAGR 2014-16E CAR China Lodging - Revenue 26% for rental 12.5% for leased hotel; 26.2% for franchised hotel - Adj. EBITDA 29% 20.0% - Adj .EBIT 48% 19.2% - Adj. net earnings 52% 22.7% Profitability CAR China Lodging - Adj. EBITDA margin 59.0% in 2015E 20.2% in 2013 - Adj. EBIT margin 35.2% in 2015E 9.9% in 2013 - Adj. net margin 25.9% in 2015E 7.4% in 2013 - ROE 16.5% in 2015E 11.8% in 2013 Gearing and cash flow CAR China Lodging - Net gearing 7% in 2015E 14.2% in 2013 - Capex Rmb3,170 mn in 2015E Rmb1,073 mn in 2013 - Free cash flow Negative Rmb500 mn in 2015E Negative Rmb2 mn in 2013 Source: Credit Suisse estimates

Figure 87: Peer comparison—valuations Valuation CAR China Lodging - 2015 EV/EBITDA (target) 12.8x 9.4x - 2015 P/E (target) 23x 28.2x - 2015 PEG (target) 0.4x 1.24x

- 2015 EV/EBITDA (trading) n.a 7.5x - 2015 P/E (trading) n.a 23.8x - 2015 PEG (trading) n.a 1.05x Source: Bloomberg; Credit Suisse estimates Compared to Hertz Since 2011, Hertz has traded at an average multiple of about 7.4x NTM EBITDA and about 9.1x LTM EBITDA, based on the Credit Suisse US analyst's estimation. Benchmarked with 8.1x 2015 EV/EBITDA, we arrive at our fair equity value of US$2,829 mn, implying 18x 2015 P/E and 0.3x PEG (2015 P/E over earnings CAGR for 2014-16E). Compared with global traditional auto rental companies,

■ CAR enjoys stronger demand growth (a 27% CAGR in China, vs single-digit growth for developed markets).

■ It has a utilisation rate of around 60% (vs global peers' 67-73%), suggesting great operating leverage potential.

■ CAR has a higher EBITDA margin of 48-59% (vs global peers' 38-46%).

CAR Inc. (0699.HK / 0699 HK) 54 23 October 2014

Figure 88: Global peer comparison—CAR, Hertz, Avis and Localiza CAR (Rmb mn) 1H14 Hertz (US$ mn) 2013 Avis (US$ mn) 2013 Localiza (BRL mn) 2013 Fleet size: 53,022 Fleet size: 821,000 Fleet size ~500,000 Fleet size: 109,900 Fair value (US$ bn): 2.8~3.6 Mkt cap (US$ mn): 13,493 Mkt cap (US$ mn): 7,088 Mkt cap (US$ mn): 3,490 EV (US$ mn) 2016E: 3,603 EV (US$ mn) 28,757 EV (US$ mn) 14,345 EV (US$ mn) 3,633 Mkt cap/car (US$, 2016E) 37,921 Mkt cap/car (US$): 16,435 Mkt cap/car (US$): 14,176 Mkt cap/car (US$): 31,756 EV/car (US$, 2016E) 43,045 EV/car (US$) 35,027 EV/car (US$) 28,352 EV/car (US$) 33,057 No. of cities covered 232 No. of countries covered 227 No. of countries covered 175 No. of cities covered 381 No. of service locations 919 No. of service locations 11,555 No. of service locations 8,800 No. of service locations 540 Revenue structure 1H14 2013 2013 2013 Revenue 1,862 Revenue 10,772 Revenue 7,937 Revenue 3,506 - Rental revenue 1,381 - Rental revenue 10,245 - Vehicle rental 5,707 - Rental revenue 1,759 * Short-term rentals 1,081 * Car rental 8,707 - Other 2,230 * Car Rental 1,164 * Long-term rentals 245 * Equipment rental 1,538 * Fleet Rentals 576 * Finance lease 19 - All other operations 527 * Franchising 19 * Franchise-related income 9 - Cars sold 1,747 - Sales of used vehicles 481 Revenue mix 100% Revenue mix 100% Revenues mix 100% Revenue mix 100% - Rental revenue 74% - Rental revenue 95% - Vehicle rental 72% - Rental revenue 50% * Short-term rentals 58% * Car rental 81% - Other 28% * Car rental 33% * Long-term rentals 13% * Equipment rental 14% * Fleet rentals 16% * Finance lease 1% - All other operations 5% * Franchising 1% * Franchise-related income 0% - Cars sold 50% * Others 1% - Sales of used vehicles 26% Cost structure (rental biz) 1H14 2013 2013 2013 Depreciation as % of rental 25% Depreciation as % of 25% Depreciation as % of 21% Depreciation as % of 13% revenue rental revenue rental revenue rental revenue DOE as % of rental revenue 35% DOE as % of rental 56% DOE as % of rental 51% DOE as % of rental 41% revenue revenue revenue SG&A / rental revenue 14% SG&A / rental revenue 9% SG&A / rental revenue 13% SG&A / rental revenue 12% Interest / rental revenue 11% Interest / rental revenue 6% Interest / rental revenue 5% Interest / rental revenue 11% Earnings (overall biz) 1H14 2013 2013 2013 Gross profit 579 Gross profit 2,494 Gross profit 2,052 Gross profit 1,062 - Rentals 562 Operating profit 1,473 Operating profit 1,033 Operating profit(2) 652 - Sales of used vehicles 17 EBITDA 3,814 EBITDA 2,191 - Car rental 382 Operating profit 389 Net profit 394 Net profit 16 - Fleet rentals 260 Adj. EBITDA(3) 820 EBITDA 881 Adj. net profit(3) 318 Net profit 384 Growth (2011-13 CAGR) Rental revenue 69% Rental revenue 12% Rental revenue 15% Rental revenue 10% Gross profit 62% Gross profit 17% Gross profit 11% Gross profit 8% Adj. EBITDA 100% EBITDA 14% EBITDA 10% EBITDA 5% Adj. net profit (2012-13) n.m. Net profit 34% Net profit (2012-13) -94% Net profit 15% Margin (overall biz) 1H14 2013 2013 2013 Gross margin 31% Gross margin 23% Gross margin 26% Gross margin 30% Adj. EBITDA margin(1) 59% EBITDA margin(1) 37% EBITDA margin(1) 38% EBITDA margin(1) 50% Adj. net margin 23% Net margin 4% Net margin 0% Net margin 11% Leverage 1H14 2013 2013 2013 Net debt/assets 45% Net debt/assets 65% Net debt/assets 62% Net debt/assets 29% Return ROE (2016E) 19.6% ROE (2013) 28.5% ROE (2013) 33.5% ROE (2013) 28.8% ROIC (2014) 11% ROIC (2014) 5.5% ROIC (2014) 5.7% ROIC (2014) 17.5% Note: (1) EBITDA margins for the rental business; (2) Localiza's operating income includes both rental and used car sales operations; (3) Adj. EBITDA and adj. net profit exclude costs related to suspended fleet. Source: Company data, Hertz, Avis and Localiza annual reports, Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 55

(0699.HK / 0699 HK) / (0699.HK Inc. CAR Figure 89: Global peer group comparison—valuations Company Ticker Mkt cap Curr- Price Performance (%) Last P/E (x) EV/EBITDA P/B (x) ROE (%) EPS g% PEG Div yld

name Reuters (US$ mn) ency 1M 3M 12M FY 2013 2014E 2015E 2014E 2015E 2013 2014E 2013 2014E 2015E 2013-15E 2014E 12M fwd China budget hotel China Lodging HTHT.OQ 1,573 USD 25.31 -2% 2% 10% Dec/13 34.5 27.1 22.0 9.4 9.4 3.4 3.4 11% 12% 13% 25.4% 1.1 0.0% Home Inns HMIN.OQ 1,317 USD 28.57 -5% -17% -23% Dec/13 19.8 17.2 14.2 5.4 5.4 1.9 1.8 10% 10% 11% 18.0% 1.0 0.0% Weighted avg. 27.8 22.6 18.4 7.6 7.6 2.7 2.7 10% 11% 12% 22.0% 1.0 0.0% China education New Oriental EDU 3,312 USD 21.11 -3% 3% -19% May/14 24.3 15.4 13.9 13.7 13.7 3.9 3.2 18% 21% 21% 32.2% 0.5 0.3% TAL XRS 2,631 USD 33.70 -5% 24% 112% Feb/14 63.6 39.2 31.9 34.7 34.7 12.0 10.2 22% 31% 29% 41.2% 1.0 0.4% Xueda XUE 189 USD 2.89 -4% -29% -35% Dec/13 12.0 48.2 13.1 n.a. n.a. n.a. n.a. -4.3% -11.3 0.0% Weighted avg. 40.8 26.6 21.6 22.3 22.3 7.2 6.1 19% 25% 24% 34.9% 0.8 0.3% China catering Cafe de Coral 0341.HK 1,981 HKD 26.50 -5% -5% 2% Mar/14 28.0 26.5 22.5 16.5 13.9 4.3 4.1 16% 16% 18% 11.6% 2.3 3.3% Ajisen 0538.HK 814 HKD 5.79 -8% -2% -27% Dec/13 23.2 21.3 17.8 11.0 9.4 1.9 1.9 9% 9% 10% 14.2% 1.5 3.1% Tsui Wah 1314.HK 532 HKD 2.94 -6% -11% -47% Mar/14 25.8 27.0 18.6 18.8 12.5 3.9 3.6 20% 14% 18% 17.7% 1.5 3.2% Gourmet Master 2723.TW 956 TWD 205.50 -16% -14% 0% Dec/13 50.5 37.4 22.3 13.8 9.5 4.7 4.4 9% 12% 20% 50.5% 0.7 2.0% Future Bright 0703.HK 268 HKD 2.99 -8% -20% 2% Dec/13 7.2 9.9 9.4 7.6 6.2 2.3 1.7 37% 22% 17% -12.5% -0.8 2.5% Weighted avg. 30.4 26.9 20.4 14.7 11.6 3.8 3.6 15% 14% 17% 19.5% 1.6 2.4% China budget hotel, education and catering Simple avg. 28.9 26.9 18.6 14.6 12.8 4.2 3.8 17% 16% 17% 19.4% (0.3) 1.5% Weighted avg. 34.5 25.9 20.5 16.6 15.6 5.1 4.5 16% 18% 19% 27.0% 0.9 1.1% Traditional car rental companies Hertz HTZ 9,793 USD 21.39 -23% -26% -10% Dec/13 13.1 14.7 11.1 4.9 4.2 3.4 2.9 29% 20% 24% 8.6% 1.7 0.0% Avis CAR 5,401 USD 51.92 -18% -14% 75% Dec/13 23.6 17.8 13.9 6.1 6.1 7.2 6.5 34% 40% 48% 30.3% 0.6 0.0% Localiza RENT3 3,073 BRL 36.50 -2% -3% 1% Dec/13 19 19.0 17.5 7.2 7.2 5.7 4.4 29% 25% 24% 4.9% 3.9 1.9% Weighted avg. 17.3 16.3 13.0 5.7 5.2 4.9 4.2 30% 27% 31% 14.4% 1.1 0.3% China online travel service companies Ctrip.com CTRP.OQ 7,866 USD 55.27 -9% -11% -5% Dec/13 50.0 81.8 44.0 77.6 35.3 n.a. 5.2 13% 9% 14% 6.6% 12.4 0.0% Qunar QUNR 3,063 USD 25.83 -14% -7% Dec/13 (136) (24.1) (42.3) (23.0) (50.0) n.a. 679.7 -56% -177% -59% 79.2% -0.3 0.0% Tuniu TOUR 901 USD 18.11 -2% 1% Dec/13 (11.6) (23.3) (15.1) (28.9) n.a. (5.6) -134% -186% 0.0% Weighted avg. (1.9) 47.2 16.5 44.5 8.3 179.0 -6% -50% -20% 24.9% 8.2 0.0% Global online travel service companies Priceline PCLN 57,853 USD -7% -11% 1% Dec/13 26.4 21.1 17.1 17.0 13.7 8.3 6.8 41% 34% 35% 24.5% 0.9 0.0% 1,103.07 TripAdvisor TRIP 11,928 USD 83.54 -15% -22% 13% Dec/13 49.7 39.4 30.1 24.5 18.9 13.7 10.8 31% 30% 30% 28.6% 1.4 0.0% Expedia EXPE 9,825 USD 77.25 -9% -4% 60% Dec/13 24.0 19.5 16.5 9.5 8.2 4.7 4.1 20% 19% 23% 20.6% 0.9 0.8% Weighted avg. 29.6 23.6 18.9 17.2 13.8 8.7 7.1 37% 31% 33% 24.6% 0.9 0.1%

China auto O2O services 2014 23 October Auto home ATHM 5,124 USD 48.74 8% 43% Dec/13 63.9 46.3 34.1 34.1 25.0 n.a. 10.6 30% 28% 36.6% 1.3 0.0% Bitauto BITA 3,139 USD 72.56 -13% 28% 187% Dec/13 65.7 41.5 27.5 34.8 22.1 n.a. 10.1 23% 31% 61.4% 0.7 0.0% Weighted avg. 64.6 44.5 31.6 34.4 23.9 - 10.4 0% 27% 29% 46.0% 1.0 0.0% 56 Note: Share price as of 21 October 2014. Source: Reuters

23 October 2014

DCF valuation We employ a discounted cash flow (DCF) valuation methodology to cross-check our fair equity value range derived from P/E multiple methodology. Our DCF valuation suggests an equity value of HK$12.5/share implying 23.4x 2015E Equity value of earnings. This implies 0.43x PEG (2015 P/E divided by the 2014-16E recurrent earnings HK$12.5/share implies CAGR). We derive our WACC of 10.5% from below assumptions. Our 10.5% WACC for 23.4x 2015E earnings. CAR compares with: (1) 10-11% WACC for China budget hotels (who have similar business model and industry dynamics with CAR); and (2) 6.5-14.5% WACC for peer car rental companies. Our assumptions are as follows:

■ 6.5% cost of debt,

■ 6.5% risk premium,

■ Beta of 1.35,

■ 12.3% cost of equity, and

■ Optimal debt/equity of 35%/65%. We conduct a sensitivity analysis to test the sensitivity of fair equity value to the two key model parameters: weighted average cost of capital (WACC) and terminal growth rate. The following two sensitivity studies illustrate the company’s fair equity value and implied 2014 and 2015 P/E under various discount rates and terminal growth rate assumptions.

Figure 90: Sensitivity of fair equity value to WACC and terminal growth rate assumption HK$/share Terminal growth WACC assumptions 1.0% 1.5% 2.0% 2.5% 3.0% 9.5% 13.5 13.8 14.2 14.6 15.1 10.0% 12.6 12.9 13.2 13.6 13.9 10.5% 11.9 12.1 12.3 12.6 13.0 11.0% 11.2 11.4 11.6 11.8 12.1 11.5% 10.5 10.7 10.9 11.1 11.3 Source: Credit Suisse estimates

Figure 91: Implied 2014E P/E of sensitivity analysis results Terminal growth WACC assumptions 1.0% 1.5% 2.0% 2.5% 3.0% 9.5% 40.1 41.0 42.1 43.4 44.8 10.0% 37.5 38.3 39.2 40.3 41.4 10.5% 35.3 35.9 36.7 37.5 38.5 11.0% 33.2 33.8 34.4 35.1 35.9 11.5% 31.3 31.8 32.3 32.9 33.6 Source: Credit Suisse estimates

Figure 92: Implied 2015E P/E of sensitivity analysis results Terminal growth WACC assumptions 1.0% 1.5% 2.0% 2.5% 3.0% 9.5% 24.7 25.3 26.0 26.8 27.6 10.0% 23.2 23.7 24.2 24.8 25.6 10.5% 21.8 22.2 22.6 23.2 23.8 11.0% 20.5 20.8 21.2 21.7 22.2 11.5% 19.3 19.6 20.0 20.3 20.7 Source: Credit Suisse estimates

CAR Inc. (0699.HK / 0699 HK) 57 23 October 2014 Investment risks The key investment risks include: (1) direct and indirect competition; (2) capital requirements and high operating leverage; (3) restriction on car plates and auto purchases; (4) the suspension of operational cars; and (5) the disposal price of used cars. Direct and indirect competition Competition among car rental companies is primarily based on fleet size, brand Direct competition recognition, network coverage, price, variety and condition of the vehicles, variety of service offerings and quality of customer service. In addition, other car transportation services also divert consumers and compete Indirect competition marginally with auto rental companies. The indirect competitors offer car transportation solutions, such as car sharing services, chauffeured services or taxi-related services provided by Uber, Yongche, Didi Dache and Kuaidi Dache. Such services address different consumer needs and are unlikely to become a substitute for car rental services, in our view. Taxi apps focus on locating taxis. They don’t compete with car rental companies. Booking APPs apps offer short-term chauffeur services. They compete with chauffeured auto rental companies.

Figure 93: Business models of taxi and car booking app Business model Target customer Example app Taxi app Customer => app => Taxi Short-distance travel Didi 滴滴打车 Provide car service using taxi resources Kuaidi 快的打车 App acts as an agency to enhance efficiency Customers receive taxi service Car booking app Customer => App => Contracted fleet Business travel (short and long distance) Dahuangfeng 大黄蜂 Provides car service using contracted fleet generally Airport transit Yidao 易到用车 composed of cars from travel companies and conference service companies App serves as the business window and makes it more convenient to book cars than traditional models Customers are offered shuttle car service, which is more comfortable than taxi Source: Credit Suisse research

Figure 94: Background information of indirect competitors (2013) City coverage Fleet size Current business Business partner Didi 33 cities 1 mn drivers Taxi call service WeChat (Tencent), 滴滴打车 500,000 taxis Map app (Baidu map, AutoNavi), Travel app (Qunar, Ctrip) Kuaidi More than 40 cities 1 mn drivers Taxi call service Map app (Baidu map, AutoNavi), Travel 快的打车 500,000 taxi app (Qunar, eLong) Dahuangfeng Shanghai, Guangzhou Nearly 1,000 vehicles Car booking service Contracts with travel and conference 大黄蜂 and Beijing service companies for cars Yidao 48 cities 50,000 registered cars Car booking service; Short- Contracts with mid-sized and small car 易到用车 distance intra-city travel leasing companies for cars; Ctrip Uber Shanghai, Shenzhen Nearly 100 vehicles Car booking service Car leasing company 优步 and Guangzhou Source: Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 58 23 October 2014

Capital-intensive business model CAR's business requires a large amount of capital to finance the expansion and replenishment of its fleet. Failure to manage liquidity and cash flows in the future may materially and adversely affect its business. Negative operating cash flow forces the company to refinance to serve current obligations, which might adversely affect the operating result.

■ Vehicle acquisition costs were Rmb1.8 bn in 2011, Rmb1.8 bn in 2012, Rmb1.9 bn in Vehicle acquisition costs 2013 and Rmb887 mn in 1H14.

■ Total borrowings were Rmb2.3 bn, Rmb3.0 bn, Rmb3.8 bn and Rmb4.2 bn as of end- Bank borrowing 2011, 2012, 2013 and 1H14, respectively.

■ Net operating cash flow amounted to negative Rmb1.5 bn, Rmb924 mn and Negative OpCF Rmb590 mn as of 2011, 2012 and 2013, respectively, mainly due to fleet expansion (vehicle acquisition cost is booked in OpCF for the auto rental business model, according to IFRS accounting). High operating leverage We estimate that 90% of CAR's operating costs is fixed. The top-three cost components are vehicle depreciation, labour and insurance. Utilisation improvement and ADR hikes are critical drivers to generate operating leverage. Vehicle depreciation took up 33.3%, 34.4%, 31.3% and 24.7% of total rental revenue in 2011, 2012, 2013 and 1H14, respectively. The percentage decline was on the back of operating leverage.

Figure 95: CAR's COGS breakdown (2013) Figure 96: CAR's opex breakdown (2013) Others Admin Selling & Fuel 10% 14% 5% distribution 7% Car Car Repair depreciation depreciation 44% 8% 35% Others Store 8% expense 8% Fuel 4%

Repair Labour Insurance 6% 12% 10% Store Labour expense Insurance 15% 6% 8%

Source: Company data Source: Company data

CAR Inc. (0699.HK / 0699 HK) 59 23 October 2014

Figure 97: Depreciation as a % of rental revenue

40.0%

34.4% 35.0% 33.3% 31.3% 30.5% 30.0% 24.7% 25.0%

20.0%

15.0%

10.0%

5.0%

0.0% 2011 2012 2013 1H13 1H14

Source: Company data Restrictions on car purchases in certain cities Restrictions on car purchases in certain Chinese cities may limit CAR's fleet growth. Several of China’s largest cities, such as Beijing, Shanghai, Guangzhou, Tianjin, Hangzhou and Guiyang, have implemented quotas or other restrictions on new vehicle registrations in order to ease traffic congestion and air pollution. If CAR's business expansion outpaces its licence reserves and the ability to secure vehicle licences, and if such restriction continues to be implemented in other cities, the company's fleet utilisation rate and operating result would be adversely affected. To ensure revenue growth and secure car licence resources, CAR expanded its fleet size quickly, especially in cities with licence plate restrictions as well as those expected to implement similar restrictions, and became the market leader since 2011. For example, in Beijing and Guangzhou, it had about 13,000 and 8,000 licence plates, respectively, as of end-1H14.

Figure 98: Fleet size comparison (approximate units) Year CAR Yestock eHi Avis Dazhong 2013 53,000 13,000 11,500 8,000 5,000 2011 25,845 7,000 7,800 5,000 3,500 Source: Company data, Credit Suisse research Customer violations of traffic rules Customer violations of traffic rules could result in the suspension of vehicles in operation. Based on current rules, for traffic violations caught by automated traffic enforcement systems, the point deduction is imposed on the vehicle, rather than the driver. Depending on the volume of vehicles due for inspection and the time required to coordinate with its customers, CAR sometimes has been unable to clear in a timely manner all the point deductions on its vehicles before their inspection dates, which has resulted or will result in them being prohibited from road use or being sold, as suspended vehicles. As a result, the company's financial performance and operating result would be adversely affected. The suspended vehicles number increased significantly to 11,601 units as of end-3Q13, Reasons for suspended mainly due to the following reasons: vehicles

CAR Inc. (0699.HK / 0699 HK) 60 23 October 2014

■ A large number of vehicles was due for biennial inspections in 2013 because of the rapid fleet expansion in 2011.

■ The company was unable to offset point deductions on vehicles in a timely manner arising from customers' traffic violations, resulting in vehicles failing to pass inspection.

■ Vehicles that fail to pass inspection are prohibited from road use and sales, leading to suspension. Given that the aggregate depreciation, proportionate share of DOE, G&A and finance Financial impact costs remained for the suspended vehicles, the company's overall earnings were dragged down. The loss related to suspended vehicles amounted to Rmb299 mn in 2013, vs CAR's reported net loss of Rmb223 mn. To eliminate this non-recurrent loss, CAR allocated more staff and resources, enhancing Solutions its ability to offset point deductions on vehicles. If the Chinese government amends regulations to apply point deductions directly to drivers and exempts car rental companies' liability, we expect the loss to be significantly eliminated.

Figure 99: CAR's suspended vehicle numbers (period-end) 14,000 Vehicles

12,000 11,601

10,000

8,000 6,439 6,000

4,000

2,000 662

0 3Q13 2013 1H14

Source: Company data, Credit Suisse research Disposal price of used cars Depreciation (the key cost component) depends on the purchase cost and disposal price of vehicles. The company disposes of used cars through three channels: (1) bidding and auctions (strategic cooperative relationship with Youxinpai for disposal since April 2014); (2) third- party auction companies and (3) other offline sales. China's used car market is far from well-developed, which is an impediment for the sale of used vehicles. A decline in new car sales prices may drive down used car sales prices or discourage consumers from buying used cars. In addition, a large amount of used cars for sale from competitors may impose additional pricing pressure on the company, which would adversely affect its financial performance.

CAR Inc. (0699.HK / 0699 HK) 61 23 October 2014

Figure 100: Cost of sales of used car as a % of used car sales revenue

120% 113.1% 105.5% 100% 94.9% 96.5% 80%

60%

40%

20%

0% 2011 2012 2013 1H14

Source: Company data Other industry and business risks

■ The company has operated at a loss in 2011, 2012 and 2013 and only recently became profitable in 1H14 and it may not remain profitable in the future.

■ Any disruption to CAR's information technology systems could adversely impact its business.

■ CAR's ability to monitor the performance and quality of service provided by its franchisees is limited. It may be subject to penalties if franchisees violate any PRC laws and regulation.

■ The insurance premiums it has to pay may increase, which may adversely affect its business and operational results.

■ If CAR is unable to obtain and maintain adequate space at locations convenient to its customers at reasonable costs, its growth opportunities may be adversely affected.

CAR Inc. (0699.HK / 0699 HK) 62 23 October 2014 Appendix 1: Business model

Figure 101: Superior consumption experience

Mobile reservation up to 30% in 1H14 from 6% in 1Q13

Reserve Pick-up Drive •Find the nearest location •App locates the pick-up •Built-in GPS navigation store •Mobile check-in

Repeat Return & pay •Customer feedback and experience •Locate nearest drop-off sharing •Various payment option (WeChat and •Loyalty programmes credit/debit cards)

Source: Company data, Credit Suisse estimates Products and service CAR provides three types of products and services: short-term rentals, long-term rentals Key product: short-term and leasing. In addition, various value-added services are offered including accident rental coverage packages, GPS navigation systems, 24/7 roadside assistance, vehicle delivery and one-way rentals. The company also offers an "Enterprise Cloud" car rental solution, covering all of its products and services, to help institutional customers optimise their car use management.

CAR primarily focuses on the short-term rental market in China. According to Roland Key drivers: increasing Berger, China's short-term rental market is fragmented and is expected to experience a travel and gap between CAGR of 27% from about Rmb6 bn at the end of 2013 to about Rmb18 bn by the end of licence holders and car 2018, mainly driven by increasing leisure and business travel by individual and institutional owners customers and the gap between licence holders and car owners.

Figure 102: Overview of key business segments Short-term rental Long-term rental Leasing Customers Primarily individuals Primarily institutions Institutions and franchisees Term <90 days ≥ 90 days 2-3 years Pricing Dynamic pricing Individually negotiated Risk-based % of rental revenue (end-1H14) 78% 18% 1% Fleet size (end-1H14) 37,195 5,946 4,475(1) Note: (1) Significant increase due to transfer from short-term rental to franchise leasing after start of franchise business in December 2013 Source: Company data

CAR Inc. (0699.HK / 0699 HK) 63 23 October 2014

Figure 103: CAR's operating fleet breakdown (end-2011) Figure 104: CAR's operating fleet breakdown as of 1H14

Leasing Leasing Long-term 1% fleet size 9% 14% Long-term fleet size 13%

Short-term fleet size Short-term 85% fleet size 78%

Source: Company data Source: Company data

■ Short-term rentals The company categorises rentals of less than 90 days as short-term rentals. As it is Less than 90 days as short- illegal for car rental companies in China to offer chauffeured car rentals for less term rental than 90 days, CAR offers only self-drive short-term rentals. As of end-1H14, it offered short-term rentals in 717 directly operated service locations in 70 major cities and through 202 franchise service locations in 162 small cities in China. Its short-term rental fleet grew from 21,920 vehicles as of end- 2011 to 33,986 vehicles as of end-2013, and 37,195 as of end-1H14, constituting the largest short-term rental fleet in China in 2013, according to Roland Berger.

Figure 105: CAR's short-term fleet size 2011 2012 2013 1H14 Short-term fleet size (numbers) 21,920 31,453 33,986 37,195 % of operating fleet size 85% 85% 82% 78% Source: Company data

CAR charges short-term rental customers basic rental rates, the cost of basic insurance Pricing coverage, handling fees and fees for value-added services. It implements dynamic pricing on its short-term rental rates, which varies based on market demand, inventory levels, rental terms, location, timing of booking, competitor rates and its target margin. The customers are responsible for the cost of fuel consumed during the rental period. In 1H14, 38.8% and 27.6% of reservations were made through its website and mobile app. In 1H14, reservations made through the website and mobile app accounted for 66.4% of its total short-term rental revenue.

■ Long-term rentals Long-term rental comprises 90 days or longer. Long-term rental customers are primarily Long-term rentals are 90 institutional customers, such as multinational corporations, state-owned enterprises, small days or longer and medium-sized enterprises and government agencies. Its long-term rental fleet increased from 3,621 vehicles as of end-2011 to 6,241 vehicles as of end-2013, and 5,946 vehicles as of end-1H14, making it the second-largest long- term car rental fleet in China, according to Roland Berger.

CAR Inc. (0699.HK / 0699 HK) 64 23 October 2014

Figure 106: CAR's long-term fleet size 2011 2012 2013 1H14 Long-term fleet size (numbers) 3,621 5,201 6,241 5,946 % of operating fleet size 14% 14% 15% 13% Source: Company data For government agencies, the demand for long-term rentals should continue to be driven LT driver from government by policy reforms to reduce car ownership by government agencies. policy

■ Leasing CAR began to offer leasing to institutional customers in May 2011. Leasing differs from Difference between leasing long-term rentals in that at the end of the leasing period, customers purchase the leased and LT rental car with a payment agreed upon at the beginning of the leasing arrangement. Its leasing terms usually range from two to three years. The leasing market in China is at an early stage of development when compared with the Potential opportunities for United States and has significant growth potential, driven primarily by various benefits in the leasing market tax, capital efficiency and financial reporting. The company's leasing fleet increased from 304 vehicles as of end-2011 to 4,475 vehicles 4,475 vehicles for leasing as as of end-1H14 and the leasing fleet constituted about 9% of its total rental fleet. of end-1H14 It also started to offer leasing to its franchisees in December 2013 when it commenced its franchise arrangements.

Figure 107: CAR's leasing fleet size 2011 2012 2013 1H14 Leasing (no. of vehicles) 304 470 1,097 4,475 % of operating fleet size 1% 1% 3% 9% Source: Company data

■ Value-added services

Figure 108: Value-added services overview Accident coverage package  Provides full accident coverage packages for a surcharge 24/7 roadside assistance  Provides nationwide 24/7 roadside assistance to its customers Vehicle delivery & one-way rentals  Delivers vehicles directly to customers  Picks up and returns vehicles at different locations for added convenience "Enterprise cloud"  Car rental solutions across short-term, long-term and leasing  Optimises car-use management for institutions GPS navigation systems  Functions embedded into the company's mobile app Source: Company data Extensive network cross China CAR has developed a very extensive network in all provinces in China.

■ Its network of 717 directly operated service locations in 70 major cities was supplemented by 202 franchise stores in 162 small cities across China as of end-1H14

■ Since 2011, it is increasing the number of pick-up points to expand geographical coverage while reducing its capital investment requirement.

■ CAR covers 57 major Chinese airports, including 47 of the 50-largest airports in China as of end-1H14.

■ It has deep penetration and extensive coverage in major cities including Guangzhou, Shenzhen, Shanghai and Beijing.

■ CAR's strategic deployment covers major transportation hubs, business districts, residential communities and tourist destinations.

CAR Inc. (0699.HK / 0699 HK) 65 23 October 2014

Figure 109: Number of cities with presence (end-1H14) Figure 110: Number of locations (2011/ end-1H14)

250 Directly-operated stores Directly-operated pick-up points 162 232 Franchise stores 1000 200 919 900 800 202 150 700 600 520 100 500 70 484 717 400 286 directly - operated 50 300 200 0 100 234 233 Direct presence Franchise Total 0 presence 2011 1H14

Source: Company data Source: Company data, Credit Suisse research

Figure 111: Geographical coverage of CAR's entire service network as of end-1H14

Cities where CAR directly opened as of June 30, 2014 Cities where CAR's franchisees operated as of June 30, 2014 Source: Company data

CAR Inc. (0699.HK / 0699 HK) 66 23 October 2014

Figure 112: Urban penetration—Beijing Figure 113: Urban penetration—Shanghai

Note: Blue markers represent the number of stores. Note: Blue markers represent the number of stores Source: Company website Source: Company website

Figure 114: Urban penetration—Guangzhou Figure 115: Urban penetration—Shenzhen

Note: Blue markers represent the number of stores. Note: Blue markers represent the number of stores. Source: Company website Source: Company website (1) Directly operated service locations Stores

■ Stores are physical storefronts with parking facilities on leased properties, with a large variety of car models.

■ CAR had 233 directly operated stores as of end-1H14

■ These are generally located at transportation hubs, business districts, residential communities and tourist destinations. Pick-up points

■ Pick-up points are parking facilities with a simple service stand as opposed to a full store front, with 3-4 major car models at each location.

■ CAR had 484 directly operated pick-up points as of end-1H14.

CAR Inc. (0699.HK / 0699 HK) 67 23 October 2014

■ These are strategically located, and easy to identify and access by customers. (2) Franchised service locations

■ CAR has 159 franchisees that operated 202 franchised service locations in 162 small cities as of end-1H14.

■ Franchisees operate only in small cities where CAR does not have directly operated service locations.

■ All franchising arrangements are based on a term of four years.

■ A franchisee's car rental products can be booked though CAR's website, mobile apps and call centre, but are clearly presented to distinguish from CAR's directly operated products

Figure 116: Franchise model—key benefits for the two parties Benefits for CAR Benefits for franchisees  Supplement to satisfy customer needs  Leverage the CAR brand  Enhances brand recognition  Shared reservation system  Future growth  Vehicle procurement discount and financing  Additional disposal channel Source: Company data

Figure 117: Franchise model—CAR's focus High-quality service Financial results  Regular training  Upfront franchisee fee, commission and other fees  Periodic/unscheduled onsite reviews  Capital leasing payments  Monitors customer feedback 24/7 through call centres, website or mobile app Source: Company data Customer base CAR has a large, rapidly growing and loyal customer base, consisting of individuals and institutional customers.

■ The individual customers are primarily Chinese urban consumers who have developed new consumption habits and are more receptive to car rental. The aggregate number of individual customers grew about four times from 447,000 at end- 2011 to 1,949,000 as of end-1H14.

■ The institutional customer base grew from 3,500 at end-2011 to 12,600 as of end- 1H14. Institutional customers are from a wide variety of industries, including telecommunications, IT and consumer goods, and include many Fortune 500 companies, such as Siemens and Hyundai.

CAR Inc. (0699.HK / 0699 HK) 68 23 October 2014

Figure 118: Number of individual customers (period-end) Figure 119: Number of institutional customers (period- end)

12,600

1,949,000

3,500 447,000

2011 1H14 2011 1H14

Source: Company data Source: Company data The transactions by repeat customers as a percentage of the total number of rental transactions increased from 56.6% in 2011 to 59.8% in 2012 and 68.0% in 2013, indicating growing customer loyalty and increasing customer engagement. In addition, around 56% of short-term rental transactions was for business travel with the remaining 44% for leisure purposes in 2013.

Figure 120: Repeat customers transactions as a % of total Figure 121: No. of ST rental transactions by purpose short-term rental transactions (2013) 80.0% 68.0% 70.0% Leisure 59.8% 60.0% 56.6% purpose 44% 50.0%

40.0%

30.0%

20.0% Business purpose 10.0% 56% 0.0% 2011 2012 2013

Source: Company data Source: Company data Customer service

■ “4 Any” service philosophy comprising “anyone, anytime, any car and anywhere”.

■ At least one 24/7 service location in every city where CAR operates.

■ 24/7 call centre and roadside assistance.

■ Social media communication via highly popular social media platforms, such as Weibo and WeChat.

CAR Inc. (0699.HK / 0699 HK) 69 23 October 2014

■ Mobile app offers location-based services and built-in GPS navigation to list nearest locations for customers. Brand The brand “CAR,” according to Baidu Index and Google Trends, two major keyword search popularity indices, had the highest search volume among car rental companies in China and the total search volume was around three times that of its closest competing brand in 2013.

Figure 122: CAR's Internet penetration from Baidu Index(1) Figure 123: CAR's Internet penetration from Google Trend in 2013 Index(1) in 2013 16,000 120 13,721 14,000 100 100 12,000 80 10,000

8,000 60

6,000 4,880 40 30 4,000 20 1,259 2,000 6 - 0 CAR #2 #3 CAR #2 #3

Note: (1) Average daily hits of search keywords from Baidu users for Note:(1) Comparison of Google Trend index for 2013; Google Trend 2013. index reflects the relative search volume of a keyword rather than an Source: Roland Berger absolute value. Source: Roland Berger Direct marketing

■ Internet advertising. The company places Internet advertising primarily on leading search engines, such as Google and Baidu, to achieve high exposure and click- through rates.

■ Traditional advertising. This consists of television, billboard and digital media advertisements in homes, airports, subway stations and office buildings, and directly targets potential customers, such as business and leisure travellers, office workers and licensed drivers, who rely on public transportation.

■ Customer loyalty programme. This offers more rewards with a higher tier Registered members membership, including vehicle upgrade and priority treatment during the rental increased from 921,000 in process. The number of registered members increased from 921,000 as of end-2011 2011 to 3,853,000 as of to 3,853,000 as of end-1H14. end-1H14

■ High-profile celebrity, David Beckham has served as the company's spokesperson since July 2013. Fleet management and operation CAR had the largest fleet among all car rental companies in China and its total fleet is Largest fleet size larger than the aggregate fleet size of the next nine market players and more than four times that of the second-largest car rental company in 2013 according to Roland Berger. The company had 52,498 vehicles as of end-1H14.

CAR Inc. (0699.HK / 0699 HK) 70 23 October 2014

Figure 124: Efficient vehicle lifecycle management

Deploy New fleet acquisition Rental fleet maintenance •Negotiate directly with OEMs •76% maintenance done in-house •Cost saving turned to competitive •Own maintenance facilities located rental price in 18 cities

Holding period: Reinvest 30 -36 months Dispose

Used vehicles disposal •Proprietary bidding and auction system •Third party auction companies •Offline sales

Source: Company data (1) Fleet size and composition As of the end of 2011, 2012 and 2013, CAR respectively had: 21,920, 31,453 and 33,986 vehicles for short-term rentals; 3,621, 5,201 and 6,241 vehicles for long-term rentals; and 304, 470 and 1,097 vehicles for leasing.

Figure 125: CAR's fleet size by segments (Number of vehicles) 2011 2012 2013 1H14 Short-term fleet size 21,920 31,453 33,986 37,195 Long-term fleet size 3,621 5,201 6,241 5,946 Leasing 304 470 1,097 4,475 Total operating fleet size 25,845 37,124 41,324 47,616 Mix 100% 100% 100% 100% Short-term fleet size 85% 85% 82% 78% Long-term fleet size 14% 14% 15% 13% Leasing 1% 1% 3% 9% Source: Company data CAR's vehicles are of various classes, such as economy, standard and luxury, and body types, such as sedans, SUVs and MPVs. As of end-1H14, the average per-vehicle purchase price was about Rmb98,151 for the Average purchase price short-term rental fleet and about Rmb160,062 for the long-term rental fleet. General Motors, Kia, Toyota, Honda and Citroën, are the top five brands by vehicle Vehicle brand breakdown number in its fleet, accounting for 40.1%, 15.2%, 10.9%, 9.4% and 7.1% of total fleet vehicles. As of end-1H14, CAR had total 122 models from 29 makes, among which the number of top ten models accounted for 75% of the total fleet.

CAR Inc. (0699.HK / 0699 HK) 71 23 October 2014

Figure 126: Fleet breakdown by brand as of end-1H14 Figure 127: Fleet breakdown by models as of end-1H14 Others, 18% Others 25% GM, 40%

Toyota, 11%

Citroen, 7%

Honda, 9% Top10 car models Kia, 15% 75%

Note: Others include Hyundai, Peugeot, Volkswagen and Audi Source: Company data Source: Company data (2) Vehicle disposal The company disposes of its used cars through three channels: (1) its own bidding and auction system; (2) third-party auction companies; and (3) other offline sales. It disposed of 742 used cars in 2011, 899 in 2012, 9,986 in 2013 and 11,722 (including 3,674 through leasing to franchisees) in 1H14.

■ The usual holding period is about 30 months for the primary vehicle models and about 36 months for other vehicle models.

■ It operates a proprietary web-based bidding and auction system for used car disposals, which helps to maximise proceeds.

Figure 128: Number of vehicles disposed 14000

11,722 12000

9,986 10000

8000

6000

4000

2000 742 899

0 2011 2012 2013 1H14

Note: For 1H14, the company disposed of 3,674 used vehicles to franchisees through leasing Source: Company data

CAR Inc. (0699.HK / 0699 HK) 72 23 October 2014

Staffing As of end-1H14, CAR had a total of 6,555 employees.

■ Some 75% of these are full-time employees and entered into labour contracts with the company.

■ The remaining 25% are workers dispatched through third-party labour agencies.

■ The bulk of the 1,652 dispatched workers work as drivers, in vehicle repair and as maintenance technicians and call centre staff.

■ A significant 52% of total staff worked in the four Tier 1 cities (Beijing, Shanghai, Guangzhou and Shenzhen), which contributed nearly 48% of total revenue, according to our research.

Figure 129: Headcount breakdown by function (As of end-1H14) Staff count Mix Full-time From 3rd-party Total Full-time From 3rd-party Total employed labour agencies employed labour agencies Stores, call centres and drivers 3,395 1,131 4,526 75% 25% 100% Management & administration 631 – 631 100% 0% 100% Vehicle deployment, repair and 587 521 1,108 53% 47% 100% maintenance Sales and marketing 290 – 290 100% 0% 100% Total 4,903 1,652 6,555 75% 25% 100% Source: Company data

Figure 130: Head count breakdown by city (As of end-1H14) Staff count Mix - Beijing 1,617 25% - Shanghai 955 15% - Guangzhou 490 7% - Shenzhen 323 5% The four Tier 1 cities 3,385 52% Other cities 3,170 48% Total 6,555 100% Source: Company data

Figure 131: Employee breakdown by function (end-1H14) Figure 132: Employee breakdown by city (end-1H14) Vehicle Sales and deployment, marketing repair and 4% Beijing maintenance Other 25% 17% cities 48%

Shanghai Management 15% and administration 10% Stores, call centers and Shenzhen Guangzhou drivers 5% 7% 69% Source: Company data Source: Company data

CAR Inc. (0699.HK / 0699 HK) 73 23 October 2014

Growth strategies The company's goals are to further strengthen its leadership position in China’s car rental market and to become China's leading auto mobility provider while improving its operational efficiency.

■ Increase profitability Increase the fleet utilisation rate and operational efficiency.

■ Higher market share Grow the rental fleet and expand network coverage.

■ Grow customer base and enhance loyalty Continuously enhance the customer experience and strengthen the brand.

■ Capture growth opportunities Continue product innovation and further expand along value chain. Strengths (1) Clear market leading position The company's scale and market leadership position provide it with the following unique competitive advantages:

■ Cost advantages The company is able to leverage its purchasing power to obtain Improving operational significant discounts from vehicle suppliers. Furthermore, economies of scale allow it efficiency to improve operational efficiency by lowering average fixed costs and expenses.

■ Licence plate advantage Regulatory restrictions on licence plates prevent fleet High barriers for competitors expansion by existing and new participants in China's car rental market. The company has secured a sufficient amount of licence plates to offset this adverse impact.

■ Funding advantages. The car rental business requires a significant amount of capital. Diversified credit sources The company's scale and market leading position provide it with unique access to diversified credit sources, including major commercial banks, capital lease companies and automobile manufacturers. (2) The most recognised and trusted brand

■ Extensive network coverage As of end-1H14, it had an extensive network of 717 717 directly operated directly operated service locations in 70 major cities, supplemented by 202 service locations + 202 franchised locations in 162 small cities operated by franchisees. locations

■ Excellent vehicle condition The company has the youngest rental fleet among 60% of fleet is less than 18 major car rental companies in China. As of end-1H14, over 64% of fleet was less than months old 18 months old.

■ Hassle-free rental process Customers can easily make reservations through the Various booking channels mobile app, website, call centres and walk-in stores.

■ 24/7 customer service. The company offers 24/7 services at all of its airport service locations and in every city where it operates. (3) Effective, reliable and scalable technology platform CAR's technology platform consists of a web-based operating environment connecting the central data centre, management systems and customer interface terminals. This platform enables it to effectively manage its operations and enhance its customer experience in yield management.

■ CAR tracks and analyses each vehicle's rental information to anticipate future demand in a certain market.

CAR Inc. (0699.HK / 0699 HK) 74 23 October 2014

■ It implements dynamic pricing based on market demand, inventory level, the rental term, location, time of booking, competitor rates and target margin. ■ It reallocates its rental vehicles between cities or service locations to meet customer needs and optimise its vehicle utilisation based on forecasts. Leveraging the location-based service feature, its mobile app contributes to a superior Mobile reservations up from customer experience throughout the rental process. The number of reservations through 6.4% in 1Q13 to 30.1% in the mobile app as a percentage of the total number of reservations increased from 6.4% in 2Q14 1Q13 to 30.1% in 2Q14.

Figure 133: Process of mobile reservation Mobile reservation up to 30% in 1H14 from 6% in 1Q13

Reserve Pick-up Drive •Find the nearest location •App locates the pick-up •Built-in GPS navigation store •Mobile check-in

Repeat Return & pay •Customer feedback and experience •Locate nearest drop-off sharing •Various payment option (WeChat and •Loyalty programmes credit/debit cards)

Source: Company data (4) Diversified business mix CAR had the largest rental fleet in China as of end-2013, according to Roland Berger. The diversified business enables CAR to:

■ capture various growth opportunities rather than focusing on a particular product; and

■ compete aggressively with other market players. (5) Experienced management team and strong shareholder support The company’s experienced management team has accumulated in-depth knowledge of China's consumer, automobile and technology sectors.

■ Mr Charles Zhengyao Lu, the founder, chairman and CEO of the company, has more than ten years' experience in the IT industry and about ten years in the auto- and consumer-related business.

■ Mr Wilson Li, the CFO of the company, has more than 14 years' experience in the financial management, auditing, treasury and risk control fields. He served as GE corporate audit staff based in the US from 2004-07 and CFO for Global Supply Chain Asia group in GE Healthcare during 2007-10.

■ Mr Yaxiao Liu, the CIO of the company, has 15 years' experience in information technology. He was the CTO of Global Technology Service for IBM Greater China Group. Hertz, the global car rental leader, became the company's strategic partner and Shareholder support shareholder in May 2013. The company integrates well with Hertz's China operations and receives valuable support in terms of industry knowledge, technological skills and business development opportunities.

CAR Inc. (0699.HK / 0699 HK) 75 23 October 2014 Appendix 2: China's car rental market overview Low penetration implies large potential upside in China As the car rental market is still in an early stage of development in China, the car rental China's car rental penetration rate, which is the number of rental vehicles as a percentage of the total penetration is 0.4%, vs 2.5% number of vehicles, is still fairly low in China compared to more developed markets, such (Japan), 1.6% (US), 1.4% as the United States and Japan. In 2012, the car rental penetration rate in China was 0.4%, (Korea) and 1.3% (Brazil) compared to 2.5% in Japan, 1.6% in the United States, 1.4% in Korea and 1.3% in Brazil, according to Roland Berger.

Figure 134: Vehicle ownership penetration (2013) Figure 135: Car rental penetration rate (2012)

45.6% 40.7% 2.5%

30.0% 1.6% 1.4% 1.3% 19.5%

6.9% 0.4%

China Brazil Korea US Japan China Brazil Korea US Japan

Source: EIU, Credit Suisse research Source: EIU, Credit Suisse research China's car rental market size China’s car rental industry is at an early stage of development and has experienced China’s car rental market substantial growth in recent years. ST self-drive is expected to show higher growth experienced a 29% CAGR potential. According to Roland Berger, the total size of China’s car rental market, as to Rmb34 bn in 2013 from measured by revenue, grew from about Rmb9 bn in 2008 to about Rmb34 bn in 2013, Rmb9 bn in 2008 representing a CAGR of 29%. Roland Berger projects that the total market size will expand further, with a CAGR of 14% to about Rmb65 bn by 2018. Total fleet size in China’s car rental market saw a CAGR of 30% from about 100,000 vehicles in 2008 to about 369,000 in 2013, and is expected to grow to c. 779,000 vehicles in 2018, representing a 16% CAGR from 2013-18E.

CAR Inc. (0699.HK / 0699 HK) 76 23 October 2014

Figure 136: China's car rental fleet size by segment

900 ('000 vehicles) 779 800 48 700

600 266

500 420 369 400 298 29 28 128 300 215 22 95 180 75 466 200 140 16 14 53 100 11 42 246 263 100 8 32 201 21 124 145 71 98 0 2008 2009 2010 2011 2012 2013 2014E 2018E LT ST self-drive ST chauffeur

Notes:(1) LT: long-term car rentals defined as rentals of 90 days or more, with leasing being considered a third and supplemental form of service offering. (2) ST self-drive: self-drive car rentals of fewer than 90 days.(3) ST chauffeur: chauffeured rental services of fewer than 90 days. Source: Roland Berger

Figure 137: China's car rental market size by segment

70 (Rmb bn) 65

60 7

50 18 37 40 34 4 27 4 30 8 3 6 20 4 20 17 40 2 13 2 3 9 3 21 24 25 10 1 20 1 12 14 7 10 0 2008 2009 2010 2011 2012 2013 2014E 2018E

LT ST self-drive ST chauffeur

Notes:(1) LT: long-term car rentals defined as rentals of 90 days or more, with leasing being considered a third and supplemental form of service offering. (2) ST self-drive: self-drive car rentals of fewer than 90 days. (3) ST chauffeur: chauffeured rental services of fewer than 90 days. Source: Roland Berger

Figure 138: China car rental market size and fleet size CAGR by segment Fleet size Market size 2008-13 2013-18E 2008-13 2013-18E LT 28% 14% 28% 11% ST self-drive 35% 23% 32% 27% ST chauffeur 30% 12% 32% 9% Source: Roland Berger

CAR Inc. (0699.HK / 0699 HK) 77 23 October 2014

A highly fragmented market

China’s car rental market is highly fragmented compared to more developed markets. The top-five car rental There were over 10,000 car rental companies in China as of 31 December 2013 with an companies' market share in average fleet size of fewer than 50 vehicles, according to Roland Berger. The top-five car 2013 rental companies in aggregate accounted for about 13% of China’s car rental market in 2013, compared to 95%, 91% and 58% for the US, Germany and Brazil, respectively. As the market matures, Roland Berger expects the concentration to further increase towards levels seen in more developed markets. Car rental companies in China include privately owned domestic car rental companies, such as CAR and eHi, and affiliates of state-owned automobile manufacturers in China, such as Shouqi and Dazhong. International car rental companies primarily compete though partnerships with domestic car rental companies. The top-ten car rental companies in China have an aggregate fleet size of around 104,800 vehicles as of 31 December 2013, according to Roland Berger. The following chart shows the top-ten car rental companies’ individual fleet sizes as of 31 December 2013.

Figure 139: Aggregate market share of top five car rental Figure 140: Total fleet size of top-11 rental companies in companies (2013) China (2013)

100% 95% 91% 53,000 90%

80%

70% 58% 60% Aggregate total of Top 2~11: nearly 52,700 50%

40%

30% 13,000 11,500 20% 8,000 13% 5,000 3,500 3,500 2,600 2,500 2,200 10% 900

0% CAR Yestock eHi Avis Dazhong Shouqi Reocar U-lin Topone Jinjiang Chesudi China US Germany Brazil

Source: Roland Berger Source: Roland Berger

CAR Inc. (0699.HK / 0699 HK) 78 23 October 2014 Appendix 3: China's short-term car rental market Short-term rental needs primarily come from increasing leisure and business travel by individual and institutional customers, and the general car usage needs of licensed drivers who do not own cars.

China's short-term car rental market size growth China ST self-drive car According to Roland Berger, China’s short-term car rental market has significant growth rental market saw a 32% potential. The size of China’s short-term self-drive car rental market, as measured by CAGR, from Rmb1.4 bn in rental revenues, saw a 32% CAGR of 32% from Rmb1.4 bn in 2008 to Rmb5.6 bn in 2013, 2008 to Rmb5.6 bn in 2013 which far exceeds the growth rate of more developed markets such as the US, Brazil, Japan and Germany. It is expected see a CAGR of about 27% from Rmb5.6 bn in 2013 to Rmb18.3 bn in 2018, outpacing growth in more developed markets.

Figure 141: China's short-term market size by revenue 20 (Rmb bn) 18.3 18 15.5 16

14 12.9

12 10.5 10 8.3 8 5.6 6 4.5 4 2.8 3.2 2.1 2 1.4

0 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Source: Euro Monitor 2013, EIU, Credit Suisse research

Figure 142: Short-term market size growth YoY by country

60.0%

50.0% 50.0% 48.2%

40.0% 40.6%

33.3% 30.0% 26.5% 24.4% 22.9% 20.0% 20.2% 18.1% 14.3% 10.0%

0.0% 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E -10.0%

China US Japan Germany Brazil

Source: Roland Berger, Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 79 23 October 2014

Figure 143: Short-term market size CAGR, by country CAGR 2008-13 CAGR 2013-18 China 32% 27% US 3% 6% Japan 1% 2% Germany 1% 2% Brazil 11% 13% Source: Roland Berger, Credit Suisse research Driving forces of China’s short-term car rental market (1) Increased spending on leisure and business travel With increasing per-capita disposable income, Chinese consumers have been and are The number of self-drive expected to engage in more leisure travel. According to Roland Berger, the number of self- leisure trips increased saw a drive trips for leisure purposes, which include road travel with rented and privately owned 31% CAGR, from 38 mn in cars, has increased from about 38 mn in 2008 to about 146 mn in 2013, representing a 2008 to 146 mn in 2013, CAGR of 31%, and is expected to growth further to about 477 mn in 2018, representing a with a 27% CAGR to 27% CAGR. 477 mn seen by 2018 In addition, as China’s economy continues to grow, business activities have been increasing and should continue to, resulting in increased business travel. The number of self-drive trips for business has increased from about 128 mn in 2008 to about 467 mn in 2013, representing a 29% CAGR, and is expected to further grow to about 970 mn in 2018, or a 16% CAGR, according to Roland Berger.

Figure 144: Number of self-drive travel for business in Figure 145: Number of self-drive travel for leisure in China China

1200 (mn trips) 600 (mn trips) 970 1000 500 477 800 400 600 467 300 400

200 200 128 146

100 0 38 2008 2013 2018E

0 2008 2013 2018E

Source: Roland Berger Source: Roland Berger (2) Growing gap between the numbers of licensed drivers and private cars

The widening gap between the number of licensed drivers and private cars is another The gap between the powerful driver of China's rental market. number of licensed drivers According to Roland Berger, due to car purchase restrictions in many Chinese cities, a and private cars is expected significant number of these licensed drivers are unable to buy their own cars. In addition, to continue to grow the considerable cost of car ownership, including the purchase price of the car, licence plate quota, fuel, parking, repairs and maintenance and insurance, also prevent many

CAR Inc. (0699.HK / 0699 HK) 80

23 October 2014 licensed drivers from owning a car. As a result, the gap between the number of licensed drivers and private cars is expected to continue to grow.

Figure 146: Gap between the number of licensed drivers and private cars in China (mn) Gap: 167 350 328

300 Gap: 133 250 Gap: 130 217 Gap: 116 200 Gap: 105 200 174 Gap: 95 Gap: 102 161 151 137 150 123

100 84 70 58 46 50 28 35

0 2008 2009 2010 2011 2012 2013 2018E

License holder Passenger car parc

Source: Roland Berger

Figure 147: Number of licence holders, private cars and gap CAGR in China CAGR 2008-13 CAGR 2013-18E Licence holder 12.0% 8.6% Passenger car parks 24.6% 13.9% Gap 7.0% 4.7% Source: Roland Berger, Credit Suisse research (3) Reforms to government car ownership The Chinese government has recently implemented a series of policy reforms to limit the Policy reforms to limit the number and models of cars that may be purchased by government agencies and number and models of cars encourage government agencies to meet their needs for car use by renting vehicles. owned by government There are more than 4 mn government-owned cars in China, including about 3 mn for agencies general use. Due to these reforms, government bodies and state-owned enterprises are expected to turn to car rental companies to reduce the size of their fleet. (4) Development of the replacement rental market Insurance companies and car dealers in China have recently started offering replacement Insurance replacement rental services to customers whose vehicles are under repair or maintenance. Insurance rental services have just replacement rental services have just started in China and accounted for 1.8% of China's started in China and overall car rental market in 2013, according to Roland Berger. As customers also demand accounted for 1.8% of cars during the maintenance period, replacement rental services are expected to become China's overall car rental a growth driver for the short-term rental market. market in 2013

CAR Inc. (0699.HK / 0699 HK) 81 23 October 2014

Figure 148: China insurance replacement car rental Figure 149: Percentage of China insurance replacement market size car rental and other car rental market size 2.0% 1.8% 40 (Rmb bn) 100% 34 35 90% 30 80% 70% 25 60% 20 17 50% 98.0% 98.2% 15 40% 10 30% 20% 5 0.34 0.61 10% 0 0% 2010 2013 2010 2013 Total car rental Insurance replacement car rental Others Insurance replacement car rental

Source: Credit Suisse research Source: Credit Suisse research

Figure 150: Market size CAGR CAGR 2010-13 Total car rental market size 26.0% Insurance replacement car rental 21.5% Source: Credit Suisse research Competitive landscape in China's short-term car rental market

■ CAR holds an absolute leading position in terms of short-term self-drive fleet size, CAR's fleet size exceeds significantly exceeding the sum of that of the next ten players. the aggregate of the next ten players ■ According to Roland Berger, the top-five car rental companies collectively accounted for 44.4% of China's short-term self-drive market in terms of revenue in 2013. ■ The top-two companies, CAR and eHi, had a market share of 31.2% and 8.2% in 2013, while the other three accounted for an aggregate market share of 5% in 2013, as stated by Roland Berger.

CAR Inc. (0699.HK / 0699 HK) 82 23 October 2014

Figure 151: Short-term fleet size of top-11 car rental Figure 152: China short-term self-drive car rental market companies in China (2013) share by revenue (2013)

35,000 34,000 CAR 30,000 31.2%

25,000 CAR Aggregate total of Top 2~11: nearly 19,000 - 31% market share 20,000 - 4x of No.2 player Others - Exceeds sum of next 15,000 55.6% 9 players

9,500 10,000 eHi 5,000 3,500 8.2% 1,700 Reocar 1,000 900 840 Avis 670 250 150 100 Topone 1.9% - 1.2% 1.9% CAR eHi Reocar Topone Avis U-lin Shouqi Chesudi Yestock Yinjian Dazhong

Source: Roland Berger Source: Roland Berger

CAR Inc. (0699.HK / 0699 HK) 83 23 October 2014 Appendix 4: China long-term car rental and leasing market

■ Long-term rental needs primarily come from institutional customers who prefer not to incur the large capital expenditures or administrative expenses of a self-owned fleet.

■ The leasing market mainly consists of institutional customers who would like to purchase the vehicles at the end of the leasing period to enjoy the associated tax and accounting benefits.

■ According to Roland Berger, China's long-term rental market size in terms of revenue grew from about Rmb7 bn in 2008 to Rmb24 bn in 2013, implying a 28% CAGR.

■ China's long-term rental market size in terms of revenue is expected to see a CAGR of 11% from Rmb24 bn in 2013 to about Rmb40 bn in 2018, as projected by Roland Berger.

Figure 153: China's long-term car rental fleet size Figure 154: China's long-term car rental market size by revenue (Rmb bn) 500 ('000 vehicles) 466 45 40 450 40

400 35 350 30 300 25 263 24 246 25 250 20 201 20 200 14 145 15 150 124 12 10 98 10 100 71 7

50 5

0 0 2008 2009 2010 2011 2012 2013 2014E 2018E 2008 2009 2010 2011 2012 2013 2014E 2018E

Source: Roland Berger Source: Roland Berger

Figure 155: China's car rental market size and fleet size CAGR comparison by segment Fleet size Market size 2008-13 2013-18E 2008-13 2013-18E Long-term 28% 14% 28% 11% Short-term self-drive 35% 23% 32% 27% Source: Roland Berger Growth drivers: China's long-term car rental market

■ Cars used by corporations, which are the key driver for long-term car rentals, is a segment expected to continue growing based on China's steady GDP growth.

■ Project-based business activities, such as auditing, consulting and real estate development, continue to resort to long-term rental services of less than 12 months to meet project transportation needs.

■ Corporations that benefit from lower tax expenditure and cash outflows will be encouraged to use long-term rentals.

CAR Inc. (0699.HK / 0699 HK) 84 23 October 2014

■ Policy reforms to government car ownership should drive the government to create strong demand for long-term rentals as the primary means of meeting car needs. The Chinese government announced official guidance to significantly limit the use of government-owned cars in July 2014. Growth drivers of China's leasing market

■ Increasing credit offers from financial institutions encourage Chinese customers to use loans to satisfy their car use needs.

■ Individual customers are offered more financial leverage, as loans may also cover expenses for sales tax, licence plates, insurance and vehicle modification. Institutional customers enjoy tax benefits which offset the higher interest rates from leasing.

■ Policy reforms to government car ownership encourage the government to use more leasing services. Competitive landscape in China's long-term car rental market

■ The long-term rental services of CAR have started relatively late compared with the The top-five car rental short-term rental business but have developed rapidly in recent years and already companies collectively become China's second-leading position in the long-term rental market in terms of accounted for 9.8% of fleet size in 2013. China's long-term car rental in terms of revenue in 2013 ■ According to Roland Berger, the top-five car rental companies collectively accounted for 9.8% of China's long-term car rental market in terms of revenue in 2013.

■ The top-three companies, CAR, Yestock and Avis, had market shares of 2.1%, 2.1% and 2.5% in 2013, while the next two accounted for an aggregate market share of 3.1% in 2013, according to Roland Berger.

Figure 156: Long-term fleet size of top-eight car rental Figure 157: China's long-term car rental market share by companies in China (2013) revenue (2013) 14,000 Dazhong Shouqi 12,750 Yestock 1.8% 1.3%Jinjiang eHi CAR 2.1% 1.0% 0.2% 12,000 2.1% U-lin 0.8% 10,000 Avis 2.5% 8,000 7,400

6,000 6,000

4,000 4,000 2,500 2,050 2,000 1,700 2,000 Others - 88.2% Yestock CAR Avis Dazhong Shouqi Jinjiang eHi U-lin

Source: Credit Suisse research Source: Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 85 23 October 2014 Appendix 5: China's used car market Used car sales volumes in China are increasing significantly, as car ownership continues Used car sales volumes in to rise, from about 1.6 mn units in 2008 to about 3.5 mn in 2013, implying a CAGR of 18% China are increasing and 23% of total new car units traded in 2013 in China. According to Roland Berger, the significantly, as car sales volume of used cars is expected to see an 18% CAGR to about 8 mn units in 2018 ownership continues to rise, from 3.5 mn in 2013, and account for 35% of total new car sales volumes in China. from ~1.6 mn units in 2008 to ~3.5 mn in 2013 As China's automobile market continues to develop and mature, an increasing number of OEMs and automobile dealerships are entering and promoting the development of the used car market. The Chinese government is expected to introduce a series of policies, such as standard and more favourable tax treatment, which would also contribute to the development of China's used car market.

Figure 158: China's used car market trading volumes Figure 159: China's used car volume/new car volume

9 (mn units) 40% 8.0 8 35% 35% 7

6 30% 27% 5 4.3 25% 22% 23% 23% 4 3.5 25% 3.1 21% 3 2.6 2.3 20% 1.9 20% 2 1.6

1 15% 2008 2009 2010 2011 2012 2013 2014E 2018E

0 2008 2009 2010 2011 2012 2013 2014E 2018E

Source: Credit Suisse research Source: Credit Suisse research According to Roland Berger, the value of used car transactions in China saw a CAGR of The value of used car 22% to Rmb224 bn in 2013 from about Rmb83 bn in 2008, and is expected to experience transactions in China saw a a CAGR of 19% from 2013-18E, reaching Rmb538 mn in 2018. The unit price of used cars 22% CAGR to Rmb224 bn grew from around Rmb53,000 in 2008 to Rmb57,000 in 2013, a 1% CAGR, and is in 2013 and should expected to reach Rmb60,000 in 2018, implying a 1% CAGR from 2013-18, as projected experience a 19% CAGR, to by Roland Berger. Rmb538 mn, by 2018

CAR Inc. (0699.HK / 0699 HK) 86 23 October 2014

Figure 160: China's used car size value Figure 161: China's average used car unit price

600 (Rmb bn) 538 62 (Rmb '000) 500 60 60 400

58 57 57 278 300 56 224 56 55 200 176 138 54 124 54 101 53 53 100 83 52 0 2008 2009 2010 2011 2012 2013 2014E 2018E 50

48 2008 2009 2010 2011 2012 2013 2014E 2018E

Source: Credit Suisse research Source: Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 87 23 October 2014 Appendix 6: Company history Key milestones of CAR

Figure 162: Key milestones Year Milestone September 2007 CAR Beijing was founded. August 2010 LC Fund III, L.P., through its indirect subsidiary Lianhui Langfang, invested about Rmb14.5 mn in CAR Beijing.

January and June 2011 Legend Holdings, through its indirect wholly owned subsidiary Huaxia Auto Network, made a strategic investment of about Rmb207.8 mn in CAR Beijing. January 2012 Grand Union became the largest shareholder of CARH upon acquiring 2,538 and 5,548 shares of CARH from LC Fund III, LP and Right Lane Limited, respectively. July and September 2012 Warburg Pincus XI, through Amber Gem, made an aggregate investment of US$200 mn in CARH in exchange for 86,094,268 Series A Preferred Shares. May 2013 Hertz invested US$100 mn in CARH and contributed all of the equity interests in the Hertz Transferred Subsidiaries to CARH, in exchange for a US$100 mn convertible note and US$36 mn convertible note, respectively. 19 Sept 2014 Listing on Hong Kong Stock Exchange; IPO priced at HK$8.50 (16.8x 2015E P/E), at the top end of the IPO price range (HK$7.50-8.50) Raised US$538 mn post green shoe

Note: (1) Legend Holdings holds interests in certain limited partners of Grand Union. Grand Union is controlled by a general partner, Grand Union Management Ltd. Legend Holdings holds a 20% non-controlling interest in Grand Union Management Limited; (2) Hertz is a global car rental company; (3) Warburg Pincus is a global private equity firm; and (4) CARH: China Auto Rental Holdings Inc., an exempted company incorporated in the Cayman Islands on 13 July 2011 with limited liability, holds 100% of the interest of CAR as of the Latest Practicable Date. Source: Company data

CAR Inc. (0699.HK / 0699 HK) 88 23 October 2014 Appendix 7: Senior management & board members Profile of senior management

Figure 163: Senior management profile Name Age Position Date of joining Background CAR Charles Zhengyao LU 45 Chairman, ED, 27 September Founder of the company; 1991: Graduated from the University of Science (陸正耀) CEO 2007 & Technology of Beijing; 1994-05: President of Beijing Shenzhou Deke Technology Development Co. Ltd; 2003-05: President of Beijing Huaxia United Science & Technology; 2005-07: Founded Huaxia United Automobile Association Co. Ltd and served as CEO; 2007: established CARH(1) and served as CEO, chairman and director; 2010: received an EMBA degree from Peking University. Wilson Wei LI 36 Executive VP, 1 May 2014 2000: Graduated from Fudan University with a bachelor's in finance; 2002: (李維) CFO Graduate of Financial Management Programme organised by GE; 2002-04: Head of risk and credit management at GE Healthcare; 2004-07: GE corporate audit staff based in US; 2007-10: CFO for Global Supply Chain Asia group in GE Healthcare; 2010-14: CFO of UniTrust Finance & Leasing Corporation Jenny Zhiya QIAN 37 Executive VP, 27 September 1998: Graduated from Wuhan Institute of Textile Science with a Bachelor of (錢治亞) COO 2007 Business degree; 1998-99: Assistant manager at the Wuhan branch of SembCorp (Tianjin) Construction Engineering Co. Ltd 1999-04: Personnel manager of Cheung Kong (Wuhan) Development Co. Ltd; 2004-05: Assistant to the president of Beijing Huaxia United Science & Technology Co., Ltd.; 2005-07: VP operations for Beijing Huaxia United Automobile Association Co. Ltd.; 2012: Received Executive MBA from Peking University Yaxiao LIU 40 Executive VP, 17 June 2014 1997: Graduated from Tsinghua University with a bachelor's in computer (劉亞霄) CIO science; 1999: Graduated from Tsinghua University with a master's degree in computer science; 1999-2014: Information technology specialist trainee and then promoted to CTO of Global Technology Service for IBM Greater China Group Yifan SONG 38 Executive VP, 27 September 1998: Graduated from Beijing Union University with a bachelor's degree in (宋一凡) 2007 communication engineering; 1998-99: Employee of Beijing Ruide Hengchang Computer System; 1999-2000: Technical support manager of Beijing Youheng Technology Co. Ltd; 2000-02: Customer services head of Shouchuang Internet Co. Ltd; 2003-05: Customer services head of Beijing Yingtong Information System Co. Ltd; 2005-07: Customer services head of Beijing Huaxia United Automobile Association Co. Ltd; 2009: Obtained MBA degree from the Central University of Finance and Economics of China Note: (1) CARH: China Auto Rental Holdings Inc., an exempted company incorporated in the Cayman Islands on 13 July 2011 with limited liability, holds 100% of the interest of CAR as of the Latest Practicable Date. Source: Company data

CAR Inc. (0699.HK / 0699 HK) 89 23 October 2014

Profile of board members

Figure 164: Profile of board directors Name Age Position Date of joining Background CAR Charles Zhengyao Lu 45 Chairman, 27 September Founder of the company; 1991: Graduated from the University of Science (陸正耀) ED 2007 & Technology of Beijing; 1994-05: President of Beijing Shenzhou Deke CEO Technology Development Co. Ltd; 2003-05: President of Beijing Huaxia United Science & Technology Co. Ltd; 2005-07: Founded Huaxia United Automobile Association Co. Ltd and served as CEO; 2007: established CARH and served as CEO, chairman and director; 2010: received an EMBA degree from Peking University. Linan ZHU 51 Non-executive 18 November 1987: Graduated from Shanghai Jiao Tong University; 1997-2001: Head of (朱立南) Director 2010 corporate strategic planning department and senior VP in Lenovo Group; Since 2001: director of Legend Holdings; Since 2003: President of Legend Capital Limited; 2005-09: Directors of Lenovo Group; 2009-11: Grand Union Management ; Since 2010: Appointed as director for CAR. Erhai LIU 45 Non-executive 16 December 1994: Received master's degree from Xidian University; 2003: MBA from (劉二海) Director 2009 Fordham University; Since 2003: Joined Legend Capital and currently a MD; Since 2006: Director of Bitauto Holding; Since 2007: Director of Universal Education Holdings; Since 2008 : Director of Coremax Group; Since 2011: Director of Grand Union Management. Hui LI 45 Non-executive 18 July 2012 1990: Graduated from Renmin University; 1994: Master's degree in public (黎輝) Director and private management from Yale School; 1994-2001: MS IBD; promoted to VP in 1998.; 2001-02: ED in the corporate finance department of GS HK; 2002: ED of Warburg Pincus Asia and promoted to MD in 2003; 2006-08: Non-ED of Kasen; 2008-11: Non-ED of Intime Department; Since 2010: Independent director of Synutra; Since 2013: Independent director of China Biologic Products. Narasimhan B. 41 Non-executive 01 May 2013 1994: Graduated from University of Pennsylvania; 1994-97: Dillon Read & SRINIVASAN Director Co. Inc, a M&A advisory firm; 1997-99: Evercore Partners. Inc, an IB advisory firm; In 2001: MBA from Columbia; 2001-03: Continuation Investments Group; 2004-11: VP of the Corporate Development & Strategy Group of MeadWestvaco Corporation; Since 2011: SVP of an affiliate of Hertz Holdings. Sam Hanhui SUN 42 Independent Non- CAR's Chairman of Audit and Compliance Committee; 1993: Graduated (孫含暉) executive Director from the Beijing Institute of Technology; 1998: CPA; 1995-04: KPMG’s auditing practice group; 2004-07: FC of SouFun.com, Maersk China; Microsoft China R&D Group; 2007-09: CFO of KongZhong; Since 2010: CFO of Qunar and chairman of the audit committee of SouFun.com. Wei DING 54 Independent Non- CAR's Chairman of Remuneration Committee; 1982: graduated from (丁瑋) executive Director Renmin Uni; 1998: executive development programme at HBS; 1987-99: Economist, project manager and divisional manager of World Bank and IMF; 1999-02: COO of DB in China; 2002-11: MD and promoted to head of CICC IBD; 2011-13: senior MD & head of Temasek Greater China; Since 2012: Member of the board for Hwa Pao Investment. Li ZHANG 47 Independent Non- CAR's Chairman of Nomination Committee; 1989: graduated from Tianjin (張黎) executive Director Institute of Textile Science & Technology; 1995: Master's degree from Renmin Uni; 1999: PhD from the Ohio State Uni; 2002-03: Participated in project management & and teaching in PKU; 2003-13: Assoc professor & assi. dean and promoted to prof. and deputy dean of Int'l MBA at PKU; Since 2013: Deputy dean of the National School of Development at PKU. Lei LIN 47 Independent Non- 1990: Graduated from Renmin Uni; 1995-02: Supervisor of Beijing Sinotrust (林雷) executive Director Business Risk Management Co. Ltd; 2002-03: Supervisor of Beijing Sinotrust Marketing Information Consulting Co. Ltd; 2003-07: President of Beijing Sinotrust Marketing Research and Consulting Co. Ltd; Since 2007: Independent director of Synutra; Since 2013: Independent director of New Focus Auto Tech Holdings Limited. Note: CARH: China Auto Rental Holdings Inc., an exempted company incorporated in the Cayman Islands on 13 July 2011 with limited liability, holds 100% of the interest of CAR as of the Latest Practicable Date. Source: Company data

CAR Inc. (0699.HK / 0699 HK) 90 23 October 2014 Appendix 8: Holding structure

Figure 165: Company holding structure-pre-IPO Hertz Legend Holiding Warburg Pincus Chairman Others

20.0% Including 2.9% by Sky Sleek (wholly- Amber Gem (100% Invested US$236 mn Grand Union owned by Chairman's spouse) and owned by Warburg and formed a global 15.8% by Haode Group (wholly- An exempted liability partnership Pincus) invested strategic partnership owned by Lucky Milestone Ltd, which is controlled by a general US$200 mn in July in May 2013 which is in turn ultimately wholly partner; Legend invested in 2010 and 2012 owns 20% in Grand Union owned by Cititrust Singapore)

19.0% 36.8% 23.1% 18.7% 2.4% CAR Inc. (Cayman)

(1) China's largest auto rental, with 31% market share in short-term self-drive auto rental market; (2) CAR's fleet size of 55,403 (1H14) = 4x top-2, greater than the aggregate size of top-2~11 players; (3) 717 directly operated service locations in 70 major cities in all provinces in China, in addition to 202 franchised service locations in 162 small cities (1H14)

Note: The US$236 mn from Hertz includes: (1) acquiring ordinary shares from existing shareholders for US$100 mn, (2) US$100 mn cash for Convertible Note, and (3) US$ 36 mn from the equity interests in the Hertz Transferred Subsidiaries. Source: Company data

Figure 166: Company holding structure-post-IPO Hertz Legend Holiding Warburg Pincus Chairman Others Public Including 2.3% by Sky Sleek (wholly- 20.0% Amber Gem (100% shareholders Invested US$236 mn owned by Chairman's spouse) and Grand Union owned by Warburg and formed a global 12.5% by Haode Group (wholly- An exempted liability partnership Pincus) invested strategic partnership owned by Lucky Milestone Ltd, which is controlled by a general US$200 mn in July in May 2013 which is in turn ultimately wholly partner; Legend invested in 2010 and 2012 owns 20% in Grand Union owned by Cititrust Singapore) 16.2% 29.2% 18.3% 14.8% 1.9% 19.6% CAR Inc. (Cayman)

(1) China's largest auto rental, with 31% market share in short-term self-drive auto rental market; (2) CAR's fleet size of 55,403 (1H14) = 4x top-2, greater than the aggregate size of top-2~11 players; (3) 717 directly operated service locations in 70 major cities in all provinces in China, in addition to 202 franchised service locations in 162 small cities (1H14) Note: The US$236 mn from Hertz includes: (1) acquiring ordinary shares from existing shareholders for US$100 mn; (2) US$100 mn cash for the Convertible Note; and (3) US$ 36 mn from the equity interests in the Hertz Transferred Subsidiaries. Source: Company data

■ Hertz holding (19.0% stake) is wholly owned by Stuurgroep Holding C.V.

■ Grand Union (36.8% stake) is an exempted liability partnership which is controlled by a general partner, Grand Union Management Limited. Legend Holdings holds a 20% non-controlling interest in Grand Union Management Limited and an interest in certain limited partners of Grand Union. Legend's investment was done in 2010.

■ Amber Gem (23.1% stake) is owned by Warburg Pincus. Warburg Pincus Private Equity XI, L.P., Warburg Pincus Private Equity XI-B, L.P., Warburg Pincus XI Partners, L.P., WP XI Partners, L.P. and Warburg Pincus Private Equity XI-C, L.P. own 77.6%, 14.4%, 5%, 2.7% and 0.3% of the equity interest in Amber Gem, respectively.

■ Chairman and family (18.7% stake) includes 2.9% by Sky Sleek, which is wholly owned by the Chairman's spouse, and 15.8% by Haode Group V., which is wholly owned by Lucky Milestone Limited V., which is in turn ultimately wholly owned by Cititrust (Singapore). V.

■ Others (2.4% stake) includes 0.4%, 1.3% and 0.7% held by Grand Joy V., which is wholly owned by Mr Yim Mang Po, and independent third party, Amplewood, V. which is wholly owned by Mr Marc Chan, an independent third party, and Grandsun V., which is wholly owned by Ms. Yip Chi Yu, an independent third party.

CAR Inc. (0699.HK / 0699 HK) 91 23 October 2014

Figure 167: Two strategic investors Name of Investor Amber Gem Holdings (Warburg Pincus) Hertz Holdings % Shareholding 23.1% 19.0%

Date of closing of the Tranche 1 Series A Preferred Shares: 18 July 2012 Ordinary shares: 1 May 2013, investment All Convertible Note converted to ordinary shares: 24 Tranche 2 Series A Preferred Shares: 26 September 2012 April 2014

Number of shares Tranche 1 Series A Preferred Shares: 43,047,134 Number of ordinary shares: 34,437,707 purchased Tranche 2 Series A Preferred Shares: 43,047,134 Shares converted from Convertible Note : 36,589,746

Consideration paid Tranche 1 Series A Preferred Shares: US$100 mn Ordinary shares: US$100 mn,

Tranche 2 Series A Preferred Shares: US$100 mn Convertible Note: US$136 mn (including US$100 mn cash and US$36 mn from the equity interests in the Hertz Transferred Subsidiaries) Source: Company data Relationship with Hertz Hertz invested in CAR in May 2013 and owns a 19% stake with one board seat. Through the investment and co-branding agreement, CAR became Hertz's exclusive business partner in China. The global strategic partnership also included CAR's successful consolidation of Hertz's China operation in May 2013, inbound and outbound mutual customer referrals, and integrated booking channels. (1) Brand cooperation agreement On 1 May 2013, Hertz and CAR entered into a brand cooperation agreement. Hertz agreed to grant CAR an exclusive and non-transferrable licence to use certain Hertz marks and logos for five years.

■ For such time as Hertz and its affiliates collectively hold 7.5% or more of the outstanding equity securities of CAR on a diluted basis, CAR is not obliged to pay a licence fee.

■ Otherwise, CAR will then be required to pay Hertz a licence fee of US$1.5 mn p.a. (2) Referral agreement On 1 May 2013, Hertz and CARH entered into a referral agreement. CARH will refer its customers seeking vehicle rental services outside the PRC to Hertz, and Hertz will refer its customers seeking vehicle rental services in the PRC to CAR during the term of the Brand Cooperation Agreement.

■ Hertz shall pay CARH a commission of 5% of the adjusted net revenue received by Hertz affiliates on all CAR referrals.

■ CARH shall pay Hertz a commission of 5-15% on adjusted net revenue received by CARH or any CARH licensee or subcontractor on all Hertz referrals. (3) Acquisition of Hertz China operation (mainly LT rentals) On 15 April 2013, CARH entered into an equity transfer agreement with certain subsidiaries of Hertz Corp, to acquire a 100% equity interest and voting rights in RAC SH, RAC BJ, RAC GZ, Shanghai Hertz, Premium and Rent A Car (the “Hertz Subsidiaries”) by issuing a mandatory convertible note with a par value of US$36 mn to Hertz. The Hertz subsidiaries are engaged in the vehicle rental business (mainly long-term rentals, according to our own research) in mainland China. The acquisition was made as part of CAR's business expansion strategy to develop its vehicle rental business in mainland China.

CAR Inc. (0699.HK / 0699 HK) 92 23 October 2014

Relationships with Warburg Pincus Warburg Pincus invested in CAR in July 2012, through Amber Gem. Warburg Pincus owns a 23.1% stake in CAR with one board seat.

CAR Inc. (0699.HK / 0699 HK) 93 23 October 2014 Appendix 9: Comparison with eHi

Figure 168: Peer comparison with eHi—operating metrics and financials CAR 2012 2013 1H13 1H14 eHi 2012 2013 1H13 1H14 Operating metrics ADR 212 246 218 277 ADR 145 163 163 171 - YoY 16.0% 27.1% - YoY 12.4% 4.9% Utilisation rate 59.0% 57.9% 61.1% 61.7% Utilisation rate 72.0% 70.5% 68.4% 70.9% (ST rentals) (Car rentals) RevPac (Rmb) 125 142 133 171 RevPac (Rmb) 104 115 111 121 - YoY 13.6% 28.6% - YoY 10.6% 9.0% Revenue and profitability Revenue (Rmb mn) 1,558 2,208 1,008 1,381 Revenue (Rmb mn) 450 566 261 385 - YoY 41.7% 37.0% - YoY 25.8% 47.5% Gross profit (rental 490 656 317 562 Total gross profit 18 40 23 69 business) (Rmb mn) (Rmb mn) - YoY 33.9% 77.3% - YoY 122.2% 200.0% GP margin 31.5% 29.7% 31.4% 40.7% Total GP margin 3.9% 7.1% 8.7% 17.8% (rental business) Adj. EBITDA 728 918 464 796 Adj. EBITDA 69 102 46 133 - YoY 26.1% 71.6% - YoY 47.8% 189.1% Adj. EBITDA margin 46.7% 41.6% 46.0% 57.6% Adj. EBITDA margin 15.3% 18.0% 17.5% 34.6% Reported net profit (132) (223) 2 218 Reported net profit (176) (152) (85) (21) Reported net margin -8.2% -8.3% 0.2% 15.8% Reported net margin -39% -27% -33% -5% Recurrent profit (103) 143 (14) 318 Recurrent profit na na na na Recurrent margin -6.4% 5.3% -1.2% 17.5% Recurrent margin na na na na Balance sheet items (as of period end) (Rmb mn) Cash and cash 910 842 1,064 Cash and cash 133 631 318 equivalents equivalents Total assets 5058 6167 6,987 Total assets 1117 2026 2,435 ST borrowings 2496 2248 2,530 ST borrowings 172 220 346 LT borrowings 498 1563 1,701 LT borrowings 6 376 540 Total debt 3624 3811 4,232 Convertible bonds 238 0 - Net debt 2713 2969 3,167 Total debt 416 595 887 Net debt/adj. EBITDA 3.7 3.2 2.5 Net debt 282 Net cash 569 Total debt/total assets 72% 62% 61% Net debt/adj. EBITDA 4.1 Net cash 3 Total debt/total assets 37% 29% 36% Debt profile Total debt (Rmb mn) 4,232 Total debt (Rmb mn) 887 LT: ST borrowings 90:10 LT: ST borrowings 75:25 Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 94 23 October 2014

Figure 169: Peer comparison with eHi—company overview CAR eHi Company overview Company history Commenced car rental business in Sep. 2007 Commenced car services business in 2006 Commenced car rental business in 2008 Positioning Largest car rental company in China Largest services provider Second largest car rental company in China Business segments Car rentals: Car rentals: Self-drive ST car rentals (<90 days), LT CAR rentals (>90 Self-drive ST car rentals(<1 year), Self-drive LT car days), leasing rentals (>1 year). Used cars Car service: Chauffeured car services to corporate clients Market share (based on 2013 revenue) (1) Car rentals (ST and LT self-drive and chauffeured car (1) Car rentals (ST and LT self-drive car rentals rentals and leasing): CAR: 6.6% (No.1), eHi: 1.7% (No.3) only): CAR: 8.1% (No.1), eHi: 1.5% (No.2) (2) Self-drive ST car rentals: (2) Car services (chauffeured car rentals): CAR: 31.2% (No.1), eHi: 8.2% (No.2) eHi: 6.8% (No.1), Yongda: 2.5% (No.2) (3) LT car rentals: CAR: 2.1% (No.1), eHi: 0.2% (No.2) Revenue breakdown -1H14 ST: LT: Leasing: Used cars=58%:13%:3%:26% Car rental: car services= 70%: 30% -2013 ST: LT: Leasing: Used cars=63%:17%:2%:18% Car rental: car services= 67%: 33% Fleet (as of end-1H14) - Size 52,498 (ST: 37,195; LT: 5,946; leasing: 4,475) 15,409 (car rentals: 14,260; car services: 1,149) - Car models 122 models from 29 makes over 200 - Top brands GM, Kia, Toyota, Honda and Citroën GM/Buick, Honda, Volkswagen, Citroën and Ford Network (as of end-1H14) - No. of directly operated 717 (233 stores and 484 pick-up points) in 70 cities Car rental: 760 (243 stores and 517 pick-up points) in service location 90 cities - No. of franchise service 202 in 162 cities Car services: 57 cities locations

Customers (as of end-1H14) - No. of customers ~1,962,000 Car rentals: 1.8 mn (individual: ~1,949,000; institutional customers: ~12,600) (550,000 or 31% had used the services) - No. of registered ~3.9 mn (~1,962,000 or 51% had used the service) Car services: 32,000 corporate clients members - % repeat customers 68% (2013) Reservation (as of end-1H14) - Website 38.8% 52.80% - Mobile app 27.6% (30.1% for 2Q14) 30% Partners Hertz(strategic partner and investor) Enterprise (global affiliation), Youxinpai (strategic partner) Ctrip (strategic partner and investor) Kuaidi (strategic partner) QQ.com, JD.com. Taobao.com, Expedia and China Eastern Airline (strategic partner). Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 95 23 October 2014

Figure 170: Peer comparison with eHi —Strengths and strategies CAR eHi Strengths and strategies Strengths  Clear market leading position provides unique  Leadership in China's fast growing car rentals and competitive advantages car services industry  Established the most recognized and trusted brand by  Innovation and technology driving business providing a superior customer experience excellence  Effective, reliable and scalable technology platform to  Efficient fleet management enhance operational efficiency and customer experience  Diversified business mix to capture growth  Strong brand recognition focusing on customer opportunities while managing market fluctuations experience  An experienced management team with strong  Strategic partnerships with leading global travel shareholder support service providers Mission    To become China's leading auto mobility provider,  To provide comprehensive car mobility solutions to while further strengthening its leadership position in customers by best using existing resources and China's car rental market sharing economies to create optimal value Strategies  Increase fleet utilisation rate and operational efficiency  Continue to leverage the strengthens of the one- stop comprehensive services business model to capture opportunities in the continually evolving markets  Grow rental fleet and expanded network coverage  Further increase network penetration in existing markets and expand geographically in selected markets  Continuously enhance customer experience and  Retain and grow customer base and attract more strengthen brand premium customers through targeted marketing as well as tailored service offerings  Continue product innovation and further expand along  Continue identify strategic partnership opportunities value chain Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 96 23 October 2014

Figure 171: Peer comparison with eHi—industry CAR eHi Industry Market size - Revenue 2008-13 CAGR: 29% (Rmb9-34 bn) 2009-13 CAGR: 29% (Rmb11-30 bn) 2013-18E CAGR: 14% (Rmb34-65 bn) 2013-17E CAGR: 17% (Rmb30-56 bn)

- No. of fleet 2008-13 CAGR: 30% (~100K - ~369K) 2009-13 CAGR: 29% (~135K - ~375K) 2013-18E CAGR: 16% (~369K - ~779K) 2013-17E CAGR: 17% (~375K - ~696K)

Market share for Top 3 CAR: 6.6%; Avis: 2.3%; eHi: 1.7% CAR: 6.6%; Avis: 2.3%; eHi: 1.7% Growth driver (ST)  Increased spending on leisure and business travel  Increasing number of driver's license holders who do not own cars  Growing gap between and numbers of licensed drivers  Increasing demand for leisure travel and private cars  Government car ownership reforms  Shift in lifestyle towards driving as a preferred means of travel  Development of replacement rental market  Surging passenger throughput from high-speed railways and airlines and improved accessibility if metropolitan areas by car  Increasing Internet and mobile penetration  Potential demand from government institutions and officials Growth driver (LT)  Increased car use by corporations  Increased car use by corporate clients  Project-based business activities and corporate benefit  Maintenance, repairs and fleet management programs services provide an important value-added service  Financial optimisation for business  Financial flexibilities and tax benefits for businesses  Policy reforms on government car ownership  Potential demand from government institutions and officials China's used car market - Sales volume 2008-13 CAGR: 23% (from 1.6 mn to 3.5 mn units) 2009-13 CAGR: 15% (from 2.0 mn to 3.4 mn units) 2013-18E CAGR: 18% (rom 3.5 mn to 8.0 mn units) 2013-17E CAGR: 8% (rom 3.4 mn to 4.7 mn units) Source: CAR prospectus; eHi F-1filing

CAR Inc. (0699.HK / 0699 HK) 97 23 October 2014 Appendix 10: Local peer comparison

Figure 172: Local peer comparisons CAR eHi Avis Topone Shouqi Dazhong Reocar (神州租车) (一嗨租车) (安飞士) (至尊租车) (首汽租赁) (大众租车) (瑞卡租车) Establishment 2007 2006 2002 2006 1992 1993 2009 Headquarter Beijing Shanghai Shanghai Shenzhen Beijing Shanghai Guangzhou Form of ownership Private Private Joint venture Private SOE Dazhong Private Transportation (Group); capital injection subsidiary ST self-drive rental(1) 31.2% 8.2% 1.2% 1.9% 0.8% 0.1% 1.9% City coverage(2) 221 81 33 67 17 11 6 Effective city coverage(3) 60 23 15 17 2 1 5 Company-owned physical 751 244 45 149 35 15 117 service location No. (4) Fleet size 53,022 11,500 8,000 2,500 3,500 5,000 3,500 - ST self-drive fleet size 33,986 9,500 1,000 1,700 840 100 3,500 - LT fleet size 6,241 2,000 6,000 400 2,500 4,000 - Utilisation rate 62% (1H14) c70% 70% 65% 80% 90% c70% Fleet structure - LT : ST 15%:82%:3% 19%:81% 75%:25% 15%:85% 58%:42% 82%:18% 0%:100% (3% for leasing) - ST self-drive : ST 96%:4% 30%:70% 90%:10% chauffeured - Low-end : mid-range : 20%:45%:35% 10%:40%:50% 0%:80%:20% 80%:20%:0% 2%(mid- and 90%:10%:0% high-end(5) low-end):98% Used car disposal (1) own online Mainly relies on Sells to Anji Sells to Relies on Relies on Sells to system, (2) 3rd- auction Used Auto members (credit auction Dazhong intermediary party auction companies and Economic Ltd. points available) company Transportation used car companies and a few sold to or to auction Group's industry companies (3) other offline end users houses/individu resources sales als Revenue breakdown - ST:LT 78%:20%:2% 80%:20% 20%:80% 80%:20% 33%:67% 20%:80% 100%:0% (2% for leasing) - ST self-drive:ST 100%:0% 86%:14% 45%: 55% 76%: 24% 75%: 25% 0%: 100% 100%: 0% chauffeured % of revenue from Tier-1 ~43% 70-80% 70% 50-60% 90% from 80% from ~50% from GZ city Beijing Shanghai and SZ Consumer acquisition 100% 100% 100% 100% 100% 100% 100% - Web 36% 50% 20% 20% 50% - Mobile APPs 30% 10% - Offline 40% 50% - Call centre 29% 50% - Service and locations 9% 30% - Sales staff ~80% ~100% Strategy - Segmentation Corporate and Corporate and Corporate Corporate Corporate Corporate Individual individual individual customers customers customers customers customers customers customers - Pricing Relatively high Relatively low High Relatively high High High Low competitive Note: (1) Market share is based on revenue; (2) cities with physical service locations (including franchised); (3) cities with physical service location equal or more than three (including franchised); (4) service locations with parked operating cars; (5) low-end cars: retail price Rmb150k. Source: Credit Suisse research?

CAR Inc. (0699.HK / 0699 HK) 98 23 October 2014 Appendix 11: Global peer comparison

Figure 173: Global peer comparison—CAR, Hertz, Avis and Localiza CAR (Rmb mn) 1H14 Hertz (US$ mn) 2013 Avis (US$ mn) 2013 Localiza (BRL mn) 2013 Fleet size: 53,022 Fleet size: 821,000 Fleet size ~500,000 Fleet size: 109,900 Fair value (US$ bn): 2.8~3.6 Mkt cap(US$ mn): 13,493 Mkt cap(US$ mn): 7,088 Mkt cap(US$ mn): 3,490 EV (US$ mn) 2016E: 3,603 EV (US$ mn) 28,757 EV (US$ mn) 14,345 EV (US$ mn) 3,633 Mkt cap/car (US$, 2016E) 37,921 Mkt cap/car (US$): 16,435 Mkt cap/car (US$): 14,176 Mkt cap/car (US$): 31,756 EV/car (US$, 2016E) 43,045 EV/car (US$) 35,027 EV/car (US$) 28,352 EV/car (US$) 33,057 No. of cities covered 232 No. of countries covered 227 No. of countries covered 175 No. of cities covered 381 No. of service locations 919 No. of service locations 11,555 No. of service locations 8,800 No. of service locations 540 Revenue structure 1H14 2013 2013 2013 Revenue 1,862 Revenue 10,772 Revenue 7,937 Revenue 3,506 - Rental revenue 1,381 - Rental revenue 10,245 - Vehicle rental 5,707 - Rental revenue 1,759 * Short-term rentals 1,081 * Car rental 8,707 - Other 2,230 * Car Rental 1,164 * Long-term rentals 245 * Equipment rental 1,538 * Fleet Rentals 576 * Finance lease 19 - All other operations 527 * Franchising 19 * Franchise related income 9 - Cars sold 1,747 - Sales of used vehicles 481 Revenue mix 100% Revenue mix 100% Revenues mix 100% Revenue mix 100% - Rental revenue 74% - Rental revenue 95% - Vehicle rental 72% - Rental revenue 50% * Short-term rentals 58% * Car rental 81% - Other 28% * Car rental 33% * Long-term rentals 13% * Equipment rental 14% * Fleet rentals 16% * Finance lease 1% - All other operations 5% * Franchising 1% * Franchise related income 0% - Cars sold 50% * Others 1% - Sales of used vehicles 26% Cost structure (rental biz) 1H14 2013 2013 2013 Depreciation as % of rental 25% Depreciation as % of 25% Depreciation as % of 21% Depreciation as % of 13% revenue rental revenue rental revenue rental revenue DOE as % of rental revenue 35% DOE as % of rental 56% DOE as % of rental 51% DOE as % of rental 41% revenue revenue revenue SG&A/ rental revenue 14% SG&A / rental revenue 9% SG&A / rental revenue 13% SG&A / rental revenue 12% Interest / rental revenue 11% Interest / rental revenue 6% Interest / rental revenue 5% Interest / rental revenue 11% Earnings (overall biz) 1H14 2013 2013 2013 Gross profit 579 Gross profit 2,494 Gross profit 2,052 Gross profit 1,062 - Rentals 562 Operating profit 1,473 Operating profit 1,033 Operating profit(2) 652 - Sales of used vehicles 17 EBITDA 3,814 EBITDA 2,191 - Car Rental 382 Operating profit 389 Net profit 394 Net profit 16 - Fleet Rentals 260 Adj. EBITDA(3) 820 EBITDA 881 Adj. net profit(3) 318 Net profit 384 Growth (2011-13 CAGR) Rental revenue 69% Rental revenue 12% Rental revenue 15% Rental revenue 10% Gross profit 62% Gross profit 17% Gross profit 11% Gross profit 8% Adj. EBITDA 100% EBITDA 14% EBITDA 10% EBITDA 5% Adj. net profit (2012-13) n.m. Net profit 34% Net profit (2012-13) -94% Net profit 15% Margin (overall biz) 1H14 2013 2013 2013 Gross margin 31% Gross margin 23% Gross margin 26% Gross margin 30% Adj. EBITDA margin(1) 59% EBITDA margin(1) 37% EBITDA margin(1) 38% EBITDA margin(1) 50% Adj. net margin 23% Net margin 4% Net margin 0% Net margin 11% Leverage 1H14 2013 2013 2013 Net debt/assets 45% Net debt/assets 65% Net debt/assets 62% Net debt/assets 29% Return ROE (2016E) 19.6% ROE (2013) 28.5% ROE (2013) 33.5% ROE (2013) 28.8% ROIC (2014) 11% ROIC (2014) 5.5% ROIC (2014) 5.7% ROIC (2014) 17.5% Note: (1) EBITDA margins for the rental business; (2) Localiza's operating income includes both rental and used car sales operations; and (3) Adj. EBITDA and adj. net profit exclude costs related to suspended fleet. Source: Company data, Hertz, Avis and Localiza annual reports, Credit Suisse research

CAR Inc. (0699.HK / 0699 HK) 99 23 October 2014

Companies Mentioned (Price as of 21-Oct-2014) AP Moller Maersk (MAERSKb.CO, Dkr12950.0) Ajisen (0538.HK, HK$5.71) Anta Sports Products Limited (2020.HK, HK$14.56) Audi AG (Unlisted) Autohome Inc. (ATHM.N, $49.07) Avis Budget Group, Inc. (CAR.OQ, $54.6) Baidu Inc (BIDU.OQ, $222.35) Belle International Holdings Ltd (1880.HK, HK$8.65) Bitauto Holdings Limited (BITA.N, $81.06) CAR Inc. (0699.HK, HK$10.6, OUTPERFORM[V], TP HK$12.3) Cafe De Coral (0341.HK, HK$26.5) China Lodging Group (HTHT.OQ, $25.39) China Mengniu Dairy (2319.HK, HK$32.45) China Modern Dairy Holdings Ltd (1117.HK, HK$3.1) Ctrip.com International (CTRP.OQ, $57.34) Expedia (EXPE.OQ, $80.31) Ford Motor Company (F.N, $14.26) Future Bright (0703.HK, HK$2.96) GOME Electrical Appliances Holding Limited (0493.HK, HK$1.26) General Motors Corp. (GM.N, $30.84) Google, Inc. (GOOGL.OQ, $538.03) Gourmet (2723.TW, NT$205.5) Hengan International (1044.HK, HK$79.0) Hertz Global Holdings Inc. (HTZ.N, $22.2) Home Inns & Hotels Management Inc (HMIN.OQ, $29.15) Honda Motor (7267.T, ¥3,316) Hyundai Motor (005380.KS, W167,000) International Business Machines Corp. (IBM.N, $163.23) Intime (IMXH.F, €0.656) Intime Retail Group Co Ltd (1833.HK, HK$6.61) Jinjiang Hotel (2006.HK, HK$2.58) Kia Motors (000270.KS, W54,000) Localiza (RENT3.SA, R$34.88) MeadWestvaco Corporation (MWV.N, $42.03) Microsoft Corporation (MSFT.OQ, $44.88) New Oriental Education (EDU.N, $21.55) Peugeot (PEUP.F, €9.4) Priceline.com (PCLN.OQ, $1132.97) Qunar (QUNR.OQ, $26.83) Sembcorp Industries Limited (SCIL.SI, S$4.83) Siemens (SIEGn.DE, €85.43) SouFun (SFUN.N, $10.6) Synutra Int (SYUT.OQ, $5.68) TAL (XRS.C, $22.7) TAL Education Group (XRS.N, $31.03) Tencent Holdings (0700.HK, HK$115.4) Tingyi (0322.HK, HK$19.4) Toyota Motor (7203.T, ¥5,931) TripAdvisor LLC (TRIP.OQ, $88.08) Tsui Wah Holding (1314.HK, HK$2.98) Volkswagen (VOWG_p.DE, €159.3) WesternAsset EHI (EHI.N, $12.07) Xueda (XUE.N, $2.92)

Disclosure Appendix

Important Global Disclosures I, Kevin Yin, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings

CAR Inc. (0699.HK / 0699 HK) 100 23 October 2014 are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10- 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favourable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (54% banking clients) Neutral/Hold* 39% (50% banking clients) Underperform/Sell* 13% (44% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for CAR Inc. (0699.HK) Method: We use P/E and EV/EBITDA multiple as our primary matrix to derive our fair value range for CAR. Our HK$12.3 target price represents 23x 2015E P/E, 10x 2015 EV/EBITDA, 3x P/B and 0.4x PEG. Risk: Risks that could impede achievement of our target price of HK$12.3 for CAR include: (1) direct and indirect competition; (2) capital requirement and high operating leverage; (3) restriction on car plates and auto purchase; (4) suspension of operational cars; and (5) disposal price of used cars.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (0699.HK, XRS.N, VOWG_p.DE, TRIP.OQ, PCLN.OQ, HMIN.OQ, BITA.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (0699.HK, VOWG_p.DE, TRIP.OQ, HMIN.OQ, BITA.N) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (0699.HK, VOWG_p.DE, BITA.N) within the past 12 months.

CAR Inc. (0699.HK / 0699 HK) 101 23 October 2014

Credit Suisse has received investment banking related compensation from the subject company (0699.HK, VOWG_p.DE, TRIP.OQ, HMIN.OQ, BITA.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (0699.HK, XRS.N, VOWG_p.DE, TRIP.OQ, PCLN.OQ, HMIN.OQ, EDU.N, BITA.N, 0538.HK, 1314.HK, RENT3.SA) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (XRS.N, TRIP.OQ, PCLN.OQ, HTHT.OQ, HMIN.OQ, EDU.N, CTRP.OQ, CAR.OQ, BITA.N, EXPE.OQ, ATHM.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (EXPE.OQ). Credit Suisse has a material conflict of interest with the subject company (HMIN.OQ) . Credit Suisse is acting as financial advisor to Home Inns & Hotels Management Inc. and Credit Suisse AG, Singapore Branch has been mandated by Home Inns & Hotels Management Inc. to arrange a financing for it in relation to the announced acquisition of Motel 168 International Holdings Limited.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (0699.HK, XRS.N, VOWG_p.DE, TRIP.OQ, PCLN.OQ, HTHT.OQ, HMIN.OQ, EDU.N, CTRP.OQ, CAR.OQ, BITA.N, 0538.HK, 1314.HK, RENT3.SA, EXPE.OQ, ATHM.N) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: (VOWG_p.DE). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (0699.HK, VOWG_p.DE, BITA.N, ATHM.N) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited ...... Kevin Yin

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

CAR Inc. (0699.HK / 0699 HK) 102 23 October 2014

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