Dongfeng Motor Group (HK.07489) Shareholder Privatization Arbitrage Analysis

Holiday group members want me to analyze whether there is an arbitrage opportunity in Dongfeng Motor Group’s privatization of its Hong Kong-listed shares. Here’s a detailed analysis today. Dongfeng Motor Group (HK|00489) Lantu Auto (HK|07489)

In simple terms: Dongfeng plans to delist from the Hong Kong stock exchange, paying shareholders HKD 6.68 per share plus 0.3552608 shares of Lantu Auto.

1. First, do the math and see the potential.

Entering at Dongfeng’s current price of about HKD 9.8, buying 1 share, and after receiving HKD 6.68 in cash, effectively costs only HKD 3.12 to acquire Lantu’s stock.

Converted, the cost basis for Lantu in hand is only HKD 8.78.

Calculation: (9.8 - 6.68) / 0.3552608 ≈ 8.78

According to official documents, independent advisors value Lantu at RMB 10.21–11.56, which, based on the exchange rate as of February 23, 2026, corresponds to HKD 11.56–13.08, with a median of HKD 12.32.

This means that if you participate now, you are essentially sitting on a “theoretical red envelope” of over 30% on paper.

Using the lower bound valuation: 11.56 / 8.78 - 1 = 31.66%

Image The above image is from page 48 of Dongfeng Group’s official document released on February 13.

2. Is Lantu really worth this price?

Looking at the fundamentals, it’s quite different from those new forces still burning cash and pitching PPTs.

In 2025, Lantu sold 150,000 vehicles, earning a net profit of RMB 1.02 billion, with a gross margin of 20.9%.

In the Hong Kong new energy sector, this profit-supported “central enterprise favorite” with a market cap of around HKD 400 billion is quite justified and not an unreasonable asking price.

3. Why is there a discount now?

Here’s the key point: if it’s so attractive, why doesn’t Dongfeng’s stock price just go up directly?

There are two main risks:

First, whether the shareholder meeting on March 9 can approve the privatization. It requires 75% approval from independent shareholders present, with no more than 10% opposition votes. I believe the probability of approval is high, but if rejected, the stock price will immediately revert.

Second, the “stampede” risk on the day Lantu lists, March 19.

Firstly, Lantu is a listing introduction, with no new share subscriptions or additional funds; it relies entirely on existing share turnover. The official valuation is only for reference and cannot be taken as definitive.

Secondly, many dividend funds holding Dongfeng are not allowed to hold growth stocks like Lantu. On March 19, when trading opens, they will have to sell without hesitation.

Additionally, many veteran investors see Lantu as a free lottery ticket—if they can sell for cash, it’s pure profit.

The combined selling pressure could cause the stock price to plummet sharply at the opening.

4. My thoughts

I believe the biggest risk is that Lantu’s listing day could see a price below the IPO price, and the probability is not small.

Using the latest valuation lower bound of HKD 11.56, let’s recalculate the expected profit and safety margin for Dongfeng’s buy-in price:

Image If you want to buy Dongfeng now to swap, keeping costs below HKD 9.6 means Lantu’s breakeven price is around HKD 8.22. This safety margin is sufficient to withstand a potential first-day stampede.

But if you cannot accept losses, my advice is to stay put and watch March 19 closely.

The safest approach is to wait until that day when institutions are forced to sell, pushing Lantu’s price down to a fundamentally disconnected low, such as HKD 8.5 or even lower.

At that point, you can directly buy those bloodied chips in the secondary market with cash—costs lower than trying to swap now—and without lock-up periods. If you see an opportunity, strike quickly and walk away. The win rate is higher.