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

Holiday group friends 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 market, paying shareholders HKD 6.68 per share plus 0.3552608 shares of Lantu Auto.

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

Buying 1 share at Dongfeng’s current price of about HKD 9.8, after receiving HKD 6.68 cash, effectively costs only HKD 3.12 to acquire Lantu Auto shares.

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

Calculation: (9.8 - 6.68) / 0.3552608 ≈ 8.78

According to official documents, independent advisors value Lantu Auto 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 Auto 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 Auto sold 150,000 vehicles, with a net profit of RMB 1.02 billion and a gross margin of 20.9%.

In the Hong Kong new energy sector, this profit-supported “central enterprise’s darling” 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 isn’t Dongfeng’s stock price just rising 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% opposing 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 Auto is listed, March 19.

Firstly, Lantu Auto 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 not definitive.

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

Additionally, many veteran investors see Lantu Auto 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 plunge sharply at the opening.

4. My thoughts

I believe the biggest risk is that Lantu Auto might break below its listing price on the first day, which is quite possible.

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 Auto’s breakeven price is around HKD 8.22. This safety margin is sufficient to withstand a first-day stampede.

But if you can’t accept losses, my advice is to stay put now and watch March 19 closely.

The safest approach is to wait until that day when institutions are forced to sell, pushing Lantu Auto down to a fundamentally detached low, say HKD 8.5 or even lower.

Then, you can directly buy those bloodied chips in the secondary market at a lower cost than trying to swap now. No lock-up period, quick execution, higher win rate.