CHINA AUTOS BNP PARIBAS Vict oria Li

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1 CHINA AUTOS BNP PARIBAS Vict oria Li THIS REPORT IS SOLELY FOR RECIPIENTS WHO ARE NON-CHINESE INVESTORS LOCATED OUTSIDE THE PEOPLE'S REPUBLIC OF CHINA ("PRC"). WITHOUT THE PRIOR WRITTEN CONSENT OF BNP PARIBAS, THE RECIPIENTS OF THIS REPORT SHALL NOT FURTHER DISTRIBUTE SUCH REPORT OR DISCLOSE ANY INFORMATION THEREIN TO ANY OTHER PERSON INCLUDING BUT NOT LIMITED TO ANY OTHER NON-CHINESE INVESTORS OR ANY PERSON IN PRC. 4 SEPTEMBER 215 SECTOR REPORT CHINA AUTOS DETERIORATING Survival of the fittest in China s new normal China PV demand to remain low, price pressure to continue We cut our estimates for China PV sales volume growth in 215 and 216 to 1.% and 3.3% y-y. Auto prices will remain under pressure if there are no improvements in overcapacity, weak demand, and high inventories. SUVs should continue to deliver stronger growth, given their better performance-to-price ratios than sedans and their low penetration rate. We estimate SUV growth of 4% and 25% y-y in 215 and 216. We also expect China s luxury car sales to increase 5% y-y in each of 215 and 216, compared with 5.3% in 1H15, as new entry level models capture replacement demand. We expect leading Chinese brands and entry level luxury cars to outperform With China s GDP growth slowing down, customers especially first-time buyers prefer economical cars. Models of the Chinese brands like Changan and Geely have the highest performance-to-price ratios, offsetting their brand-image weaknesses and making them more attractive than JV brands. Strong new model pipelines with high exposure to SUVs should drive sales volumes and further market share gains in the next three years. We also expect margin improvement on economies of scale. Beijing Benz should outperform in the luxury segment. Initiating coverage on Geely and Changan with BUYs; Upgrade Brilliance China to HOLD We remain cautious on sector fundamentals, and cover only the market share gainers in selected segments. Geely is our preferred pick given it is a pure Chinese play with the strongest expected earnings growth in We like BAIC, but find it less interesting than Geely given its exposure to the mass market. We upgrade Brilliance China to a HOLD expecting its new model upcycle to drive net profit bottoming out in E. Changan Auto and Great Wall are the least interesting of the BUYs fundamentally. Among component suppliers, we like Fuyao. BNPP recommendations Company BBG code Rating Share price Target price Upside/downside Fuyao Glass 366 HK Buy % Geely Auto 175 HK Buy % BAIC Motor 1958 HK Buy % Changan Auto 625 CH Buy % Great Wall Motor (A) CH Buy % Great Wall Motor 2333 HK Buy % Brilliance China Auto 1114 HK Hold % Note: Priced at close of business 2/9/215. Share prices and TPs are in listing currency. Sources: FactSet; BNP Paribas estimates Victoria Li Victoria.li@asia.bnpparibas.com Our research is available on Thomson One, Bloomberg, TheMarkets.com, FactSet and on Please contact your salesperson for authorisation. Please see the important notice on the inside back cover. PREPARED AND PUBLISHED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (ASIA) LTD. THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 92

2 CHINA AUTOS Victoria Li Investment thesis China s auto sales growth has decelerated more quickly than the market expected, posting 4.8% volume growth in 1H15. In 7M15, sales volume growth was lower again, at 3.4% y-y. The weak sales were caused weak end-demand (on economic slowdown), dealer destocking, and the reverse wealth effect from the A-share market. In June and July 215, the A-share market crash hurt auto sales, with volumes declining 3.4% and 6.6% y-y, respectively. We estimate 2H15 sales will remain weak on the residual effect of the A-share market collapse in July, weak enddemand in the low season, and dealer destocking. We estimate that customers who have been waiting for better buying opportunities since April will not proceed with purchases until 4Q15/1Q16, driving a PV sales volume growth rebound. Auto prices will remain under pressure in E if there is no improvement in industry overcapacity, overall weak auto demand, and high inventories at dealers. We still prefer SUVs given their better performance-to-price ratios and low penetration in China. We expect SUV y-y sales growth to remain strong at 4% and 25% in 215 and 216. We also prefer luxury brands that have good entry-level models. We estimate China s luxury car sales will increase 5% y-y in each of 215 and 216, compared with 5.3% in 1H15. Leading Chinese brands and luxury brands with good entrylevel models are our preferred plays. Stock calls Preference for SUVs, luxury cars and Chinese brands drives our stock calls. We expect a 32% CAGR in SUV sales and a 5% growth rate in the luxury car segment in E. We also prefer the leading Chinese brands with the best-valued models, aggressive new model pipelines, healthy capacity utilisation, and the possibility of margin improvements. Our top BUYs are Geely and BAIC. Risk to our call Downside risks to our BUY recommendations are: 1) weaker-than-expected auto sales due to the GDP slowdown, new sector-related policies, weaker-than-expected new model sales, new model launch delays, and a volatile A- share market; 2) worse-than-expected pricing war; 3) raw material costs going higher than expected; and 4) product recalls related to quality flaws, which would increase costs. CONTENTS Investment summary H15 demand outlook remains weak, with pricing pressure... 8 Leading Chinese brands are gaining further market share Net margins of Chinese leaders to go up; JVs have peaked Entry-level luxury to still do better than mass-market JVs Geely is our preferred pick Geely is our preferred pick (y-y %) Geely BAIC Sources: Bloomberg; BNP Paribas Profit growth-216e (LHS) Current valuation - 216E P/E(RHS) Fuyao-H Fuyao-A Changan GWM-A GWM-H BCA (x) Risks Company reports BNP PARIBAS 4 SEPTEMBER 215

3 CHINA AUTOS Victoria Li Exhibit 1: Auto sector valuation matrix H-Share BBG code Rating TP Up/down Mkt cap Price P/E EV/EBITDA P/BV ROE E 16E 14 15E 16E 14 15E 16E 14 15E 16E (LC) (%) (USD m) (LC) (x) (x) (x) (x) (x) (x) (x) (x) (x) (x) (x) (x) Fuyao Glass 366 HK Buy , Geely Auto 175 HK Buy , BAIC Motor 1958 HK Buy , Great Wall Motor 2333 HK Buy , Brilliance China Auto 1114 HK Hold , n.m n.m n.m Average A-Share Fuyao Glass - A 666 CH Buy , Changan Auto 625 CH Buy , Great Wall Motor - A CH Buy , Average Note: Priced at 2 Sep 215 Sources: Bloomberg; BNP Paribas estimates 3 BNP PARIBAS 4 SEPTEMBER 215

4 CHINA AUTOS Victoria Li Investment summary FY15 PV sales growth expectation lowered to 1.%, price pressure continues Hurt by weak end-demand, dealer destocking and a reverse wealth effect from the A- share market, China auto sales growth decelerated more quickly than the market expected, posting 4.8% volume growth in 1H15. We cut our estimates for China PV sales volume growth in 215 and 216 to 1.% and 3.3%, respectively, from the previous 6.1% and 5.7%. We still like SUVs. SUV sales growth should remain strong at 4% y-y and 25% y-y in 215 and 216. Auto prices could still be under pressure in 215 and 216 due to industry overcapacity, overall weak auto demand in China, and high inventories at dealers. However, in the short term, we have seen dealers reduce inventory significantly in July, which should ease pricing pressure for the rest of this year. But, if OEMs turn aggressive on auto shipments again, dealers will have to keep offering discounts for destocking. Exhibit 2: China s PV sales volume to grow 1% y-y, SUVs to outperform (y-y %) Sales volume growth 215E Sales volume growth 216E (1) (2) (1.) (6.) Sedan MPV SUV PV Sector Source: BNP Paribas estimates Leading Chinese brands to gain further market share with improving margins In 1H15, market share for Chinese brands increased to 41.4% from 38.3% in 214. We believe this trend will last for the next three years because: 1) Our analysis of car models performance-to-price ratios shows that Chinese brands models are much more attractive than competing models from JV brands. Changan, Geely and BYD have the best-valued cars, key to their market share gains; 2) There are more new models during and a higher percentage of SUVs in the new model pipelines. On average, Chinese brands have seven new models each (53% of new models are SUVs), compared with four for JV brands (46% of new models are SUVs). Our performance-to-price ratio analysis also shows that SUVs are more economical than sedans; 3) Referring to historical experience in the US market, the more economical cars (Japanese brands) took market share from the more expensive cars (US brands) when US GDP growth was slowing and customers were becoming more down-to-earth. This indicates that Chinese brands (more economical than Japanese brands in China) might take further market share in China as GDP growth slows further in the longer term. 4 BNP PARIBAS 4 SEPTEMBER 215

5 CHINA AUTOS Victoria Li Exhibit 3: Major OEMs new model pipeline comparison Chinese brands JV brands Total Sector No of OEMs Luxury car exposure (%) na Number of new models (in E) Number of models in New Models E vs. 214 (%) Number of New SUV models SUV percentage in new models (%) Per OEM Number of new models Number of models in Number of new SUV models SUV percentage in new models (%) Note 1. Luxury car exposure: Calculated as total luxury car sales/total car sales in 1H15 2. New models E vs. 214: Calculated as total number of new models in E divided by number of models available in 214 Sources: Companies data; BNP Paribas Although Chinese brands have a serious overcapacity issue, the top Chinese brands utilisation rates are healthy. With more-attractive new car models on the market, these companies margins should improve in the next few years, in our view, because: 1) stronger-than-average sales volume growth raises margins due to economies of scale; 2) there is a higher sales contribution from SUVs, increasing margins; 3) there is less pricing pressure than JV brands due to the lower prices offered. Also, even if the price war expands to all Chinese brands eventually, they should be hurt less than JV brands given their lower production costs and improved quality. Exhibit 4: In the sedan segment, Changan, BYD and DFM brands have the best average performance-to-price ratios of listed companies (%) Changan Auto BYD Huatai DFM Chery Haima Auto South East Motor GWM Beijing Auto JAC SAIC-GM-WULING GAC Geely Lifan GAC MITSUBISHI DFM PSA GAC Fiat FAW Mazda FAW Toyota Changan Ford DFM Yueda Kia FAW VW SAIC FAW SAIC GM DFM Honda Changan PSA Beijing Hyundai DFM Nissan Changhe SUZUKI GAC Toyota Qoros Auto SAIC VW Changan Suzuki Huacheng Changan MAZDA GAC Honda Note: Data of each brand is the arithmetic average of all their available car models ratios in the sedan segment. Green highlights are for Chinese brands, grey for JV brands. Performance price means the fair value of the features provided by car models. The brand models with higher performance/price ratios offer better value to customers by offering better feature value at similar retail prices. Small gaps in ratios of different brands may be led by premium pricing of models with a low ratio, but better brand reputation. If the gap between two brands models is huge (above 5%) in the same sub-market, we believe more customers will choose the high ratio one. Sources: Zhixuanche; BNP Paribas 5 BNP PARIBAS 4 SEPTEMBER 215

6 CHINA AUTOS Victoria Li Exhibit 5: In the SUV segment, DFM, BYD and Changan brands have best average performance-to-price ratios of listed companies (%) DFM BYD FAW Changan Auto JAC Chery Geely Beijing Auto Huacheng Huatai GWM Changan Suzuki Haima Auto GAC JMC SAIC SAIC GM DFM Yueda Kia DFM PSA DFM Honda Changan Ford Changan MAZDA GAC Toyota DFM Nissan Beijing Hyundai SAIC VW GAC MITSUBISHI FAW Mazda FAW Toyota Note: Data of each brand is the arithmetic average of all their available car models ratios in the sedan segment. Green highlights are for Chinese brands, grey for JV brands. Performance price means the fair value of the features provided by car models. The brand models with higher performance/price ratios offer better value to customers by offering better feature value at similar retail prices. Small gaps in ratios of different brands may be led by premium pricing of models with a low ratio, but better brand reputation If the gap between two brands models is huge (above 5%) in the same sub-market, we believe more customers will choose the high ratio one. Sources: Zhixuanche; BNP Paribas Exhibit 6: With China s economy entering a new-normal, Chinese brands (economical cars) have the chance to gain market share (%) China GDP growth (LHS) Chinese brand market share (RHS) German brand market share (RHS) 12 US brand market share (RHS) H9 2H9 1H1 2H1 1H11 Sources: NBS; CAAM; BNP Paribas 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 (%) Exhibit 7: Net margin gap between JV brands and Chinese brands will narrow, in our view (Net margin) Chinese brand JV brand Chinese brands include BYD (1211 HK), GWM (2333 HK), Haima (572 CH), FAW Tianjin (927 CH), Chongqing Lifan (61777 CH), Huacheng Jinbei (669 CH), FAW Car (8 CH), Anhui Jiangling (6418 CH) and Geely (175 HK). JV brands (all brands below are not listed) include DF Honda, DF Nissan, DF PSA, Changan Ford, Changan Mazda, Changan Suzuki, Changan PSA, Beijing Benz, Beijing Hyundai, BMW Brilliance, GAC Honda, GAC Toyota, GAC Fiat, GAC Mitsubishi, SAIC GM and SAIC GM-Wuling Sources: Company data; BNP Paribas estimates E 216E Entry-level luxury brands should still do better than mass-market JVs We still favour luxury brands that have good entry-level models. We estimate 48% replacement demand will support demand for the entry-level models of luxury brands, while the remaining 52% of demand from first-time purchasers will favour Chinese brands due to their better performance-to-price ratios. Also, the low penetration of luxury cars in China is another reason it may grow faster than the mass-market. In 1H15, Luxury car sales were only 8.7% of China s total PV sales, compared with 16.9% in the US and 22.4% in Europe. Based on our calculation, luxury cars per capita in China is about 8.9% of the level in the US and 6.8% of Europe s in 214, (Exhibit 42) compared with disposable income at 1.7% of the US and 15.1% of Europe in 213 (Exhibit 43). We estimate China luxury car sales will increase 5% y-y in each of 215 and 216, compared with 5.3% in 1H15. 6 BNP PARIBAS 4 SEPTEMBER 215

7 CHINA AUTOS Victoria Li Geely is our preferred pick We initiate coverage on Geely (175 HK; BUY; TP: HKD5.9) and Changan (625 CH; BUY; TP: RMB19.86) with BUY ratings. Geely is our preferred pick in China s auto sector given its strongest expected earnings growth in E. We still like BAIC, but we think its exposure to Korean brands through Beijing Hyundai makes it less interesting than Geely. We also upgrade Brilliance China to HOLD as it enters a new product pipeline upcycle, which we expect to drive net profit grow of 8% and 22%, respectively, in 216 and 217. Changan Auto and Great Wall are the least interesting in our coverage given slow earnings growth in 216 due to fewer new model launches, in our view. We expect the gross profit of Changan s local brands to grow at a CAGR of 23% in E, but profit contribution from its JVs (9% of Changan s 215E net profit) will grow at 3% pa, while we expect Great Wall s EPS growth to remain relatively low due to fierce competition in SUV segment. 7 BNP PARIBAS 4 SEPTEMBER 215

8 CHINA AUTOS Victoria Li 2H15 demand outlook remains weak, with pricing pressure FY15 PV sales growth estimate lowered to 1% y-y When we initiated coverage on China s auto sector in March, we estimated FY15 PV sales growth could go down to 2.3% if there were no auto price cuts in the market or if auto price cuts didn t boost sales. In April, OEMs cut MSRPs, delaying customer purchases on expectations of further price cuts. Together with dealer destocking and the A-share market crash, auto sales growth decelerated more quickly than the market expected since 2Q15, leading to 4.8% volume growth in 1H15. In July, China s PV sales declined 6.6% y-y, which led to 7M15 volume growth of only 3.4% y-y. We think customers that are waiting to buy at lower prices will return to the market in 4Q15/1Q16, but those whose wealth has been eliminated by volatility in the A-share market may not be able to buy in these years. As a result, we cut our estimated growth for China PV sales volume to 1.% in 215 from 6.1%. Although growth is decelerating in the overall auto market, SUV sales should continue to deliver stronger growth than sedans, given SUVs penetration is still relatively low at 26% in 1H15, from 2.7% in 214, compared with 28% in Korea and 33% in the US in 214. Based on our latest ground checks, August 215 retail demand is stabilising m-m with the negative effect of the A-share market collapse fading. But we estimate August PV sales growth will remain negative due to lower production from OEMs, dealer destocking and its being a low demand season. We estimate demand growth may turn positive in September-November with the negative wealth effect from the A- share market being diminished, a hot sales season coming and a lower base in the same period last year. In December, sales volume growth could turn negative again due to the abnormally high volumes in December 214, led by OEMs aggressively shifting inventory to dealers. Although there is no visibility on 216 yet, we estimate the customers who are waiting for better buying opportunities since April will proceed with their purchases in 1Q16, when car prices become more attractive, which might drive a PV sales volume growth rebound. We lower our estimated PV sales growth for 216 to 3.3% from 5.7%. We estimate SUV sales growth to be 4% and 25% y-y in 215 and 216, respectively. Exhibit 8: Updated China auto sales forecasts Previous forecast New forecast E 216E 215E 216E Sales volume (') Passenger vehicles 19,379 21,5 22,965 24,473 21,785 22,538 Sedan 12,1 12,374 12,374 12,25 11,137 1,469 MPV 1,35 1,915 2,49 2,988 2,17 2,36 SUV 2,989 4,78 5,98 6,118 5,71 7,137 Crossover 1,625 1, Luxury car 1,45 1,8 2,7 2,381 1,89 1,985 Growth (y-y %) Passenger vehicles Sedan (1.) (1.) (6.) MPV SUV Crossover (28.) (18.) (3.) (21.1) (29.3) (37.5) Luxury car Sources: CAAM; BNP Paribas estimates 8 BNP PARIBAS 4 SEPTEMBER 215

9 CHINA AUTOS Victoria Li Exhibit 9: Growth forecasts for different PV segments (y-y %) Sales volume growth 215E Sales volume growth 216E (1) (2) (1.) (6.) Sedan MPV SUV PV Sector Source: BNP Paribas estimates Exhibit 1: China s July retail sales y-y rebounded slightly in negative horizon (' units) 2,5 2, 1,5 1, 5 PV retail sales volume (LHS) Growth (RHS) Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 (y-y %) (1) (2) (3) Exhibit 11: China s July PV wholesale volumes declined by 6.6% in July (' units) 2,5 2, 1,5 1, 5 PV wholesale volume (LHS) Growth (RHS) Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 (y-y %) (1) (2) (3) Sources: CPCA; BNP Paribas; Sources: CAAM; BNP Paribas Exhibit 12:1H15 China auto sector sales summary 1H15 1H14 Growth (' units) (' units) (y-y %) Sedans 5,789 6,149 (5.9) MPVs 1, SUVs 2,661 1, Crossover (19.2) Total PV 1,95 9, Sources: CAAM; BNP Paribas 9 BNP PARIBAS 4 SEPTEMBER 215

10 CHINA AUTOS Victoria Li Exhibit 13: July 215 sedan sales volume dropped 19.7% y-y (' units) 1,4 1,2 1, Sources: CAAM; BNP Paribas Sedan wholesale volume (LHS) Growth (RHS) Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 (y-y %) (1) (2) (3) (4) Exhibit 14: July 215 SUV sales volume grew 34.2% y-y (' units) Sources: CAAM; BNP Paribas SUV wholesale volume (LHS) Growth (RHS) Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 (y-y %) (2) Exhibit 15: July 215 MPV sales volume dropped 5.3% y-y Exhibit 16: July 215 Crossover sales volume dropped 15.8% y-y (' units) 25 MPV wholesale volume (LHS) Growth (RHS) (y-y %) 28 (' units) 3 Crossover wholesale volume (LHS) Growth (RHS) (y-y %) (2) (4) (2) (6) Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sources: CAAM; BNP Paribas Sources: CAAM; BNP Paribas Auto prices will remain under pressure in 215 and 216 There are three factors that will keep auto prices under pressure in 215 and 215, in our view: industry overcapacity, overall weak auto demand in China, and high inventory at dealers. As we have already mentioned, capacity additions in the sector remain unabated and industry utilisation will drop to about 6% in E on our estimates. This will keep forcing OEMs with low capacity utilisation to offer more attractive retail prices on their cars, to achieve sufficient profit to survive. Given overall auto demand is weak, other OEMs, especially those who do not have enough new models to offset the market share being taken by cheaper cars, will have to follow and lower their retail prices, too. Meanwhile, high inventory levels at dealers have forced dealers to offer more retail discounts (i.e., lowering retail prices further) to get cash inflows for business operation. The positive signal is that we saw dealers inventory levels go down significantly in July. If OEMs remain gentle on auto shipments, the extent of retail price cuts would be less serious than happened in 1H15. 1 BNP PARIBAS 4 SEPTEMBER 215

11 CHINA AUTOS Victoria Li Exhibit 17: China s PV sector utilisation to be around 6% in E (m units) OEM Capacity (LHS) PV Sales volume (LHS) 4 Utilisation (RHS) E 216E 25 Sources: CAAM; Company data; BNP Paribas estimates (%) Exhibit 18: More discounts offered in 2Q15, but it failed to drive demand (RMB/unit) 14, 13, 12, 11, 1, 9, 8, 7, 6, 5, 4, Feb-11 Jun-11 Oct-11 Sources: CADA; BNP Paribas Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Exhibit 19: July 215 warning index of car dealer inventory dropped sharply as dealer destocking proceeded (index) Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Sources: CADA; BNP Paribas Note: 5 is the benchmark value for this index. An index value of greater than 5 indicates lower market demand, high pressure on inventory, operation and high risks May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Exhibit 2: July 215 dealer inventory index still above warning line at 1.65 (index) Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sources: CADA; BNP Paribas Note: Dealer inventory index is equal to inventory divided by sales in the period. A normal index level should stay between.8-1.2; an index value greater than 1.5 indicates large inventory pressure Exhibit 21: US and Japan brands will have biggest capacity expansions, while German have the least in 215E Capacity E ( ) ( ) ( ) ( ) ( ) ( ) ( ) (y-y %) US brands 1,3 2,3 2,39 2,93 3,17 4,12 5, Japan brands 2,2 2,52 2,81 3,47 4,26 4,9 6, French brands Chinese brands 6,4 7,835 9,415 1,45 11,865 12,895 14, Korea brands German brands 1,535 1,85 2,31 2,71 3,53 4,8 4, Other brands Total 12,35 15,69 18,425 21,5 25,215 29,175 34, Note: Capacity number includes Sedans, MPVs, and SUVs Sources: Company data; BNP Paribas estimates 11 BNP PARIBAS 4 SEPTEMBER 215

12 CHINA AUTOS Victoria Li Leading Chinese brands are gaining further market share According to an Autohome customer survey in 215, 35% of respondents preferred to buy Chinese brands compared to 29% in 214. As indicated by the survey, an increase in customer preference has translated into Chinese brands gaining market share since 2H14. In 1H15, market share for Chinese brands increased to 41.4% from 38.3% in 214. We believe this trend will last for the next three years because: 1) Chinese brands have much better performance-to-price ratios than competing models from JV brands; 2) Referring to historical experience in the US market, the more economical cars (Japanese brands) took market share from the more expensive cars (US brands) when US GDP growth was slowing and customers were becoming more down-to-earth. This might also happen in China as GDP growth slows further in the long term; and 3) There are more new models during and a higher percentage of SUVs in the new model pipelines. On average, Chinese brands have seven new models each (53% of new models are SUVs), compared with four for JV brands (46% of new models are SUVs). Exhibit 22: Chinese brands gaining market share from 1H14 (%) Chinese brand market share (LHS) German brand market share (RHS) 49 US brand market share (RHS) (%) H9 2H9 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 Sources: CAAM; BNP Paribas Exhibit 23: Chinese new car buyers brand preference, 214 Exhibit 24: Chinese new car buyers brand preference, 215 Others 16.% Chinese 29.% Others 15.% Chinese 35.% Japan 18.% Japan 14.% US 15.% Germany 22.% US 15.% Germany 21.% Source: Autohome Source: Autohome Huge premium in performance-to-price ratio compared with JV brands We conducted a data analysis on available car models in all segments. Based on data collected by a third-party vendor, Zhixuanche, every car model has a retail price and a performance price, which shows the fair value of the major features (inner space, engine and chassis, security, exterior features, interior features, entertainment systems, etc.). By comparing the performance price-to-retail price ratios of cars in the same segment, one could conclude that models having higher ratios offer better value to customers. However, this data cannot factor in the price premium a customer is willing to pay for a better brand; therefore, small differences 12 BNP PARIBAS 4 SEPTEMBER 215

13 CHINA AUTOS Victoria Li in ratios of different brands models are acceptable as a model with low ratio may have better brand reputation. However, if the gap between two brands models is huge (above 5%) in the same sub-market, we believe more customers will choose the high ratio model. Also, with China s GDP growth slowing in the next few years, first-car buyers in the mass market would be more sensitive to absolute retail prices than brands, especially when cheaper cars have no particular weakness in performance. The conclusion of our analysis is that almost all Chinese brands models have better performance-to-price ratios than their JV competitors. Changan, Geely and BYD have the most high-valued cars, which explain why they outperformed in 1H15. Also, in general, SUVs are more attractive than sedans, based on performance-to-price ratio, which indicates that choosing an SUV rather than a sedan is more economical. In the A sedan segment, it is no surprise to see that most of the available models are from Chinese brands. In the A segment, almost all car models are unattractive; indicating demand for A sedans will remain weak. The A and B sedan segments are the most crowded, and most Chinese brands are more attractive than JV brands, except for SAIC and Huacheng. The C segment market is dominated by JV brands. Only Beijing Auto and FAW have models in this segment. In our view, a small performance-to-price gap between Chinese brands and JV brands is reasonable and can be justified by JV brands better brand reputations in general. But the most aggressive Chinese brands, including Changan, BYD, FAW, Geely and Beijing Auto offer huge premiums against JV brands, which indicates they should gain further market share. Further, JV brands will have to keep lowering retail prices to attract potential customers, but their higher production cost limits the downside from here. For example, in the A sedan segment (Exhibit 27), Changan offers similar car performance to SAIC VW, but SAIC VW s retail price is nearly twice that of Changan s. 13 BNP PARIBAS 4 SEPTEMBER 215

14 CHINA AUTOS Victoria Li Exhibit 25: Price performance comparison for A sector most models are from Chinese brands, Changan is most attractive 53 Changhe SUZUKI 48 Changan Auto JAC Changan SUZUKI BYD 43 Zotye Performance price (RMB ') 38 Chery Geely SAIC-GM-WULING Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 14 BNP PARIBAS 4 SEPTEMBER 215

15 CHINA AUTOS Victoria Li Exhibit 26: Price performance comparison for A sector Changan, Cherry have most attractive models Changan Ford 8 Performance price (RMB ') 7 6 JAC FAW Toyota SAIC VW Huacheng Zhonghua 5 Chery DFM Yueda Kia GAC Toyota 4 Changan Auto Beijing Auto Beijing Hyundai GAC Honda SAIC GM DFM Nissan 3 Haima SAIC Motor Changan Mazda Geely Changhe SUZUKI Lifan Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 15 BNP PARIBAS 4 SEPTEMBER 215

16 CHINA AUTOS Victoria Li Exhibit 27:Price performance comparison for A sector most Chinese brands cars are more attractive than JV brands Changan PSA 12 Performance price (RMB ') 1 8 FAW BYD Zotye Changan Auto Huatai JAC Geely GWM GAC DFM Chery MITSUBISHI GAC Fiat Haima DFM Yulong DFM PSA SAIC VW Beijing Auto SAIC Motor GAC Toyota Qoros Auto FAW VW DFM Honda Changan Ford SAIC GM DFM Nissan Changan Mazda GAC Honda DF Yueda Kia Huacheng Zhonghua Beijing Hyundai FAW Toyota FAW Audi 6 South East Motor Lifan SAIC-GM-Wuling Changan SUZUKI Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 16 BNP PARIBAS 4 SEPTEMBER 215

17 CHINA AUTOS Victoria Li Exhibit 28: Price performance comparison for B sector BYD and Changan have the most attractive models Performance price (RMB ') 17 BYD Changan Auto FAW Car Beijing Auto FAW Toyota DFM Nissan Changan PSA DFM PSA SAIC GM GAC Honda FAW VW DF Honda SAIC VW SAIC Motor CA Ford BMW Brilliance FAW Audi Beijing Benz Haima Geely DFM Yueda Kia GAC Toyota Beijing Hyundai Zotye FAW Mazda 12 Lifan GAC PV Huacheng Zhonghua Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 17 BNP PARIBAS 4 SEPTEMBER 215

18 CHINA AUTOS Victoria Li Exhibit 29: Price performance comparison for C sector FAW and Beijing Auto are the most attractive ones 4 36 Performance price (RMB ') FAW Beijing Auto Changan Ford SAIC GM FAW Audi BMW Brilliance Beijing Benz FAW Toyota Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche BNP Paribas Retail price (RMB ') 18 BNP PARIBAS 4 SEPTEMBER 215

19 CHINA AUTOS Victoria Li Exhibit 3: Price performance comparison for MPV sector not many suppliers here Fujian Benz Performance price (RMB ') DFM SAIC-GM-WULING Chery GAC Haima BYD FAW MAZDA Changan Ford JAC GAC Toyota SAIC VW DFM NISSAN SAIC GM DFM Yulong DFM Honda GAC Honda 13 FAW Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 19 BNP PARIBAS 4 SEPTEMBER 215

20 CHINA AUTOS Victoria Li Exhibit 31: Price performance comparison for SUV sector Beijing Benz 245 FAW Mazda Performance price (RMB ') 195 GAC MITSUBISHI DFM Yulong Beijing Auto JAC Changan Mazda DFM Nissan BYD GWM DFM PSA Changan PSA Zotye Changan Ford GAC Gonow SAIC GM Geely Haima GAC PV Beijing Hyundai Changan Auto SAIC VW DFM SAIC Motor FAW GAC Honda JMC DFM Honda BMW Brilliance GAC Toyota FAW Audi FAW Toyota 145 Chery DFM Yueda Kia Lifan Huatai Changan SUZUKI Huacheng Zhonghua Huacheng Jinbei Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 2 BNP PARIBAS 4 SEPTEMBER 215

21 CHINA AUTOS Victoria Li Exhibit 32: Price performance comparison for Mini-SUV sector major Chinese brands ratios are close to each other JAC Changan SUZUKI SAIC GM DFM PSA DFM Honda GAC Honda 145 GWM Changan Auto Lifan FAW Huacheng Zhonghua Chery GAC CA Ford DFM Yueda Kia Beijing Hyundai Performance price (RMB ') Huacheng Jinbei Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 21 BNP PARIBAS 4 SEPTEMBER 215

22 CHINA AUTOS Victoria Li Exhibit 33: Price performance comparison for Compact-SUV sector Geely, DFM and Beijing Auto have most attractive models 26 FAW BMW Brilliance Beijing Benz Performance price (RMB ') JAC GAC GWM Beijing Auto Haima DFM Huatai SAIC Motor Changan Mazda Changan Auto Changan PSA JMC DFM Yueda Kia Geely Chery Beijing Hyundai Changan Ford GAC MITSUBISHI DFM PSA SAIC VW FAW Audi DFM Yulong DFM Honda DFM Nissan FAW Toyota Huacheng Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas 22 BNP PARIBAS 4 SEPTEMBER 215

23 CHINA AUTOS Victoria Li Exhibit 34: Price performance comparison for Mid-Large-SUV sector BYD, Geely and GAC Gonow win DFM Nissan Beijing Benz DFM Yulong Beijing Hyundai DFM Infiniti Performance price (RMB ') 25 2 Zotye BYD Geely JMC Changan Ford GAC MITSUBISHI FAW Mazda GAC Toyota SAIC GM FAW Audi Chery-landrover GAC Gonow GAC SAIC Motor Retail price (RMB ') Note: Green highlighted for Chinese OEMs, black highlighted for JV OEMs Sources: Zhixuanche; BNP Paribas When economic growth slows, Chinese brands have chance to gain market share With China s GDP growth slowing, and car purchasers getting more down-to-earth, we estimate new buyers in the market will continue to prefer Chinese brands, which are more economical than JV brands; especially those that have aggressive pipelines with attractive models and good-quality track records in the market. 23 BNP PARIBAS 4 SEPTEMBER 215

24 CHINA AUTOS Victoria Li Exhibit 35: With China s economy entering a new-normal, Chinese brands (economical) have chance to gain market share China GDP growth (LHS) Chinese brand market share (RHS) (%) German brand market share (RHS) US brand market share (RHS) (%) H9 2H9 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 Sources: NBS; CAAM; BNP Paribas We saw such market share change in the US in During this period, US GDP growth slowed to -2% from 9%, while the market share of Japan brands, which are considered more economical than US brands, doubled, with US brands share nearly halving. Exhibit 36: Market share of Japanese brands doubled in the US market from 198 as US GDP growth slowed Japanese brand market share in US market(lhs) (%) US brand market share in US market (LHS) (%) 1 US GDP growth (RHS) (2) (4) Source: WIND Strong new model pipelines and better exposure to SUVs Our car model performance-to-price ratio analysis above (exhibits 25-34) shows SUV models are more attractive than sedans on average. Also, strong new model pipelines are more important than ever in the current China auto market, given overall weak demand. From the table below, we see both Chinese and JV brands have strong new model pipelines during E on average. Chinese brands have more new models by volume and they have more SUV models in the pipeline than JV brands. This should also help Chinese brands gain market share from JV brands BNP PARIBAS 4 SEPTEMBER 215

25 CHINA AUTOS Victoria Li Exhibit 37: New model pipeline comparison of Chinese and JV brands Company name Luxury car exposure Number of new models Number of models in 214 New model pipeline E Number of new SUV models Number of total new models SUV percentage in new models (%) (%) (%) Chinese brands Beijing Auto GWM Geely Changan Auto GAC DFM SAIC BYD Sub total Average JV brands Beijing Benz Beijing Hyundai BMW Brilliance Changan Ford Changan Mazda Changan PSA Changan Suzuki GAC Toyota GAC Honda GAC Fiat GAC Mitsubishi DFM Nissan DFM Honda DFM Yueda kia SAIC VW SAIC GM SAIC-GM-Wuling BYD Daimler n.a Sub total Average Total Note 1. Luxury car exposure: Calculated as total luxury car sales/total car sales in 1H15 2. New models E vs. 214: Calculated as total number of new models in E divided by number of models available in 214 Sources: Companies data; BNP Paribas 25 BNP PARIBAS 4 SEPTEMBER 215

26 CHINA AUTOS Victoria Li Net margins of Chinese leaders to go up; JVs have peaked With the quick ramp-up of Chinese brands, JV brands have had to lower their retail prices to make their models more attractive. MSRP cuts by JV brands in April are evidence of this. Also, their lower exposure to SUVs has led to a faster-than-average decline in auto sales YTD. Both are eroding JV brands profitability, in our view. However, JV brands latest retail prices are still not attractive enough, according to our analysis, which indicates that JV brands will probably have to lower their retail prices further. This puts JV brands margins under pressure in the next few years. Our observation that many JV plants are focusing on cutting production costs for the next few years indicates that they have recognised the necessity of lowering sales prices in the near future. Chinese brands suffered from weak new model pipelines and small production scale in They benefited much less than JV brands from the last upcycle, starting in 29. As a result, the margin gap between Chinese brands and JV brands widened to 4.55ppt in 214 from 1.21ppt in 28. In 215, the wind changed. Although Chinese brands have a serious overcapacity issue, utilisation rates for the top Chinese brands get healthy with their volume increases. With more attractive new models in the market, these companies margins are going to improve in the next few years, in our view. The reasons for this are: 1) stronger-than-average sales volume growth raises margins due to economies of scale; 2) there should be more contribution from SUVs, which increases margins; and 3) less downward pressure on auto prices. Also, even if the price war expands to all Chinese brands eventually, they should be hurt less than JV brands, given that they have lower production costs with improving product quality. Exhibit 38:Chinese brands have overcapacity issues, but Geely and Changan s rates are in healthy ranges Capacity utilization (%) E Chinese brand Geely Changan GWM Note: Assuming 2H15 sales growth of local brands to be the same as 1H15 (15.3%); Changan s utilisation rate includes its local brand PVs and CVs Sources: Company data; BNP Paribas 26 BNP PARIBAS 4 SEPTEMBER 215

27 CHINA AUTOS Victoria Li Exhibit 39: Net margin gap between JV brands and Chinese brands to narrow (%) Chinese brand JV brand E 216E Sources: Company data; BNP Paribas estimates Exhibit 4: Net margin history of major JV brands (%) 14 JV brand DFM JVs Changan JVs BAIC JVs Brilliance BMW GAC-JVs GM-JVs Sources: Company data; BNP Paribas Exhibit 41:Net margins of major Chinese brands are improving (%) GWM Changan Geely E 216E 217E Sources: Company data; BNP Paribas estimates 27 BNP PARIBAS 4 SEPTEMBER 215

28 CHINA AUTOS Victoria Li Entry-level luxury to still do better than mass-market JVs We still favour luxury brands that have good entry-level models. We estimate the 48% replacement demand in the market will support demand for the entry-level models of luxury brands, while the remaining 52% of first-buyer demand will prefer Chinese brands due to their better performance-to-price ratios. Also, the low penetration of luxury cars in China is another reason to support its faster-than-mass-market growth. China s disposable income was 1.7% of that in the US and 15.1% of Europe s in 213, while its luxury cars per capita were about 8.9% of US and 6.8% of Europe s in 214, based on our calculations (Exhibit 42-43). In 1H15, China s luxury car sales contributed 8.7% of total PV sales, compared with 16.9% in the US and 22.4% in Europe. In China, HNWIs (high net worth individuals) accounted for only.6% of the total population, compared with the US s 1.26% and Europe s 1.15%. But China has the strongest y-y growth of HNWIs and their wealth at 17.9% and 2.5%, respectively, in 213. We estimate China s luxury car sales will increase by 5% y-y in 215 and 216, compared with 5.3% in 1H15. Exhibit 42: China s luxury cars per capita was 8.9% of the US and 6.8% of Europe in 214 Exhibit 43: China s disposable income was 1.7% of the US and 15.1% of Europe in 213 (units) (USD) , 45, 42, , 35, 3, 25, 2, 15, 1, 5, 4,614 3,578 China US EU China US Europe Note: Based on an estimated 1-year life expectancy for luxury cars, and calculating total luxury cars in use by summing sales volume in the past 1 years in each of the areas Sources: CAAM; Autodata, Department of Commerce; ACEA; BNP Paribas Note: China data as of 214 and others as of 213 Sources: OECD; NBS Exhibit 44: China has only 8.7% of auto sales from luxury cars, compared to 16.9% in the US and 22.4% in EU 1H15 (%) China US Europe H15 Sources: ACEA; CAAM; BNP Paribas 28 BNP PARIBAS 4 SEPTEMBER 215

29 CHINA AUTOS Victoria Li Exhibit 45: China has only.6% HNWI of total population, much lower than the US and Europe (%) China USA Europe Note: High net worth individual (HNWI) refers to those with asset value of USD1m or more Sources: Capgemini Financial Services Analysis; BNP Paribas Exhibit 46: But China s HNWI population is growing faster than the US and Europe s (y-y %) China USA Europe Note: High net worth individual (HNWI) refers to those with asset value of USD1m or more Sources: Capgemini Financial Services Analysis; BNP Paribas Exhibit 47: China s HNWI total wealth is also growing faster than the US and Europe s (y-y %) China USA Europe (5) Note: High net worth individual (HNWI) refers to those with asset value of USD1m or more Sources: Capgemini Financial Services Analysis; BNP Paribas Exhibit 48: China auto market demand breakdown 214 Exhibit 49: Luxury car sales growth to remain higher than mass-market (y-y %) 8 Luxury brand sales growth Mass market brand sales growth First buy 52% Source: CAAM Replacement demand 48% (2) (4) Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Note: Luxury car sales include BMW, Benz, Audi, Volvo, Cadillac, Infiniti, DS, JLR and Porsche Sources: Company data; CAAM; BNP Paribas 29 BNP PARIBAS 4 SEPTEMBER 215

30 CHINA AUTOS Victoria Li Exhibit 5: Volvo and DS have highest performance/price ratios in luxury segment Exhibit 51: German brands have highest loyalty in China (%) (%) Volvo Changan DS Cadillac BMW Brilliance DFM Infiniti FAW Audi Beijing Benz Chery-landrover German Chinese Japanese US Sources: Zhixuanche; BNP Paribas Note: Loyalty rate means the percentage of current car owners who will choose their existing brand as their second car Source: Autohome 3 BNP PARIBAS 4 SEPTEMBER 215

31 CHINA AUTOS Victoria Li Geely is our preferred pick We initiate coverage on Geely (175 HK; BUY; TP: HKD5.9) and Changan (625 CH; BUY; TP: RMB19.86) with BUY ratings. We add these two to our stock coverage based on our preference for leading Chinese brands that will likely gain market share and see margin improvements on increasing sales and healthy utilisation rates in the next few years. Geely is our preferred pick in China s auto sector. It is a pure Chinese play with strong earnings growth expected. We still like BAIC, but we think its exposure to Korean brands through Beijing Hyundai makes it less interesting than Geely. We also upgrade Brilliance China to HOLD as it enters a new product pipeline upcycle, which we expect to drive net profit grow of 8% and 22%, respectively, in 216 and 217. Geely (175 HK; BUY; CP: HKD2.81; TP: HKD5.9) We estimate Geely s net profit will grow at a CAGR of 43% during with net margin improving to 9.1% in 217E from 6.6% in 214, driven by strong new model pipeline with upgraded car design, and margin improvement from increasing sales contribution from B-class sedans and SUVs. In , it will launch seven new models co-developed with Volvo, as against 12 models under the old three-brand strategy in 214, which is being given up. We expect this will drive auto sales volume growth at a CAGR of 22% in E with an average 5.7% ASP increase p.a. Margin is expected to be driven by new models that will be more attractive given Volvo s cooperation and higher sales contribution from SUVs, which have higher margins than sedans. We estimate SUV sales volume will contribute 29% of total sales in 217E, compared with 15% in 214. Our TP is set at HKD5.9, based on 1x 216E P/E, implying 81.% upside potential. BAIC (1958 HK; BUY; CP: HKD6.14; TP: HKD1.18) After a 3-4% earnings forecast cut on BAIC due to poor sales of Beijing Hyundai, we estimate BAIC s EPS will grow strongly (5% y-y) in 216E, after a 14% y-y decrease in 215E, driven by Beijing Benz s strong earnings growth, and Beijing Hyundai s bottoming out. We think the current stock price has factored in Beijing Hyundai s weak earnings. The stock is trading at 5.6x 216E P/E, indicating 65.8% upside potential to our new TP of HKD1.18, based on 9x 216E P/E. Reiterate BUY. Brilliance China (1114 HK; BUY; CP: HKD8.45; TP: HKD8.62) We upgrade Brilliance China to HOLD from REDUCE. We estimate Brilliance China s net profit to bottom in FY15 with a 4% y-y decline. Its stock price decline YTD has factored in weak fundamentals this year, in our view. With the company entering a new upcycle for its product pipeline, we expect net profit to grow 8% and 22%, respectively, in 216 and 217. Our new TP of HKD8.62 is based on 1x 216E P/E, compared with the previous 9x, to factor in a better outlook going forward. Changan Auto (625 CH; BUY; CP: RMB14.69; TP: RMB19.86) We estimate Changan s EPS will grow at a CAGR of 17% during E mainly driven by new models from its local brand. With the successful launch of CS35 and CS75, Changan has become the largest Chinese brand OEM by sales volume in 1H15. With four more new SUV models to come in , we estimate Changan s local brand gross profit will grow at a CAGR of 23% in E. However, earnings contribution from all of Changan s JVs, which would be equivalent to 9% of Changan s estimated FY15 net profit, will see weak growth due to lack of new models from major JVs. We estimate the JV contribution will grow stably at 3% p.a in E. Our TP is set at RMB19.86, based on 8x 216E P/E, implying 35.2% upside potential. Great Wall Motor (2333 HK; BUY; CP: HKD19.6; TP: HKD23.35) We cut our earnings forecast on GWM in E by 2%, 19% and 26% respectively, due to weaker-than-expected sales and margins in 1H15. In 216, with concerns on fiercer competition in the SUV market and EPS dilution from A-share placement, we estimate Great Wall s EPS growth will only increase slightly, to 9.3% from 7.7% in 215E. The stock has significantly derated to 5x P/E from the previous 31 BNP PARIBAS 4 SEPTEMBER 215