Industry Flash Note. China Auto Sector. China / Hong Kong. January PV sales boosted by strong demand for SUVs

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1 Industry Refer to important disclosures at the end of this report Page 1 DBS Group Research. Equity 22 ruary 216 China Auto Sector Analyst: Rachel MIU rachel_miu@hk.dbsvickers.com uary PV sales boosted by strong demand for SUVs Vehicle purchase tax cut continues to boost PV sales SUV demand remains robust; domestic brands top the sales list BUY automotive parts companies: Minth (425 HK) and Nexteer (1316 HK); selective on automakers: GAC (2238 HK) Great Wall Motor (2333 HK), SAIC-GM-Wuling (under SAIC 614 CH) and Guangzhou Automobile (2238 HK). In the past three years ( ), SUV sales have grown a rapid 4-5 per year. The strong demand has resulted in many automakers launching new SUV models at a faster pace to ride on the market uptrend. As such, market competition is also rising. The SUV segment s share of the total PV market has further increased to 35, up from 29 in 215. uary automotive market stays firm. Total vehicle sales grew by 7.8 to approximately 2.5m units last month. The passenger vehicle (PV) market posted 9.4 expansion while the commercial (CV) market fell 3.4 y-o-y. The strong PV sales were largely attributable to the vehicle purchase tax cut, which has benefited the unit sales of domestic brands. The Chinese New Year effect also had some impact on the PV volume growth. The Chinese auto brand volume sales increased by 16.6 and accounted for 45.5 of the total PV market, a 3ppts improvement from 15. Since the implementation of the stimulus policy to boost car demand, the domestic brand market share has been rising. Demand for SUVs is still growing strongly. The key PV volume drivers are SUVs (+61 y-o-y) and MPVs (+15.9 y-o-y). The top three SUV models are dominated by the Chinese brands CV market outlook is weak. Sales of commercial trucks continued to be affected by the weak economy. Sales of CVs fell by 3.4 y-o-y last month. We expect the CV market to remain weak for the rest of the year. BUY automotive parts companies; selective on automakers. Automotive parts manufacturers Minth (425 HK; TP HK$15.8) and Nexteer (1316 HK; TP HK9.6) are our top picks because these players have a more diversified market base, hence lowering their earnings risk profile. For automakers, Guangzhou Auto (TP HK$7.5) domestic brand Trumpchi is moving up the ranking in SUV sales as the company widens the range of product offerings. Besides, the company s Japanese JVs continued to post encouraging sales last month, with Guangqi Honda and GAC Toyota recording volume growth of 25 and 36 respectively. ed- JS / sa- CW

2 Monthly vehicle sales ' units YoY MoM growth growth () () 1M15 1M16 YTD YoY growth () As a of total PV (1M16) China total vehicle sales 2,32 2,786 2, (1.2) 2,32 2, Passenger Vehicles 2,38 2,442 2, (8.7) 2,38 2, Sedan 1,222 1,281 1,111 (9.1) (13.3) 1,222 1,111 (9.1) 5 MPV (4.1) SUV (1.1) Cross (31.) (24.7) (31.) 3 Commercial Vehicles (3.4) (2.8) (3.4) Source: CEIC Page 2

3 Monthly total vehicle sales in China Monthly total vehicle sales growth in China m units Monthly PV sales in China (2) (4) (6) /6 /6 /7 /7 /8 /8 /9 /9 /1 /1 /11 /11 /12 /12 /13 /13 /14 /14 /15 /15 /16 Monthly PV sales growth in China m units Monthly CV sales in China (2) (4) (6) /6 /6 /7 /7 /8 /8 /9 /9 /1 /1 /11 /11 /12 /12 /13 /13 /14 /14 /15 /15 /16 Monthly CV sales growth in China m units (5) /6 /6 /7 /7 /8 /8 /9 /9 /1 /1 /11 /11 /12 /12 /13 /13 /14 /14 /15 /15 /16 Source: CEIC Page 3

4 Dongfeng - total monthly sales Dongfeng - total monthly sales growth unit 4, 35, 3, 25, 2, 15, 1, 5, Y-o-Y growth (LHS) M-o-M growth (RHS) GAC total monthly sales GAC total monthly sales growth unit 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, YOY growth Brilliance China total monthly sales (BMW) Brilliance China total monthly sales growth (BMW) unit 35, 2 3, 25, 2, , 5 1, 5, (5) Source: Companies Page 4

5 Geely total monthly sales Geely total monthly sales growth unit 7, 6, 5, , 5 3, 2, 1, Great Wall Motor total monthly sales Great Wall Motor total monthly sales growth unit 12, 1, 8, 6, 4, 2, Source: Companies Automobile price index - Domestic made Vehicle inventory alert index 24 = PV Small High class Mini Medium class Luxury Source: CEIC Source: CADA, DBS Vickers Page 5

6 NEV sales PV sales by country mix (-15) units 35, 3, CAGR: 196 Japanese 17 German 15 25, 2, 15, 1, 5, Pure electric Plug in hybrid Self-owned 43 Other.4 French 3 American 13 Korean 9 Audi monthly sales Audi monthly sales growth ' units (2) (4) /1 /1 /11 /11 /12 /12 /13 /13 /14 /14 /15 /15 / BMW Group monthly sales BMW Group monthly sales growth ' units (2) (4) /1 /1 /11 /11 /12 /12 /13 /13 /14 /14 /15 /15 /16 Source: CAAM, Companies Page 6

7 Mercedes Benz monthly sales Mercedes Benz monthly sales growth ' units (2) (4) (6) /1 /1 /11 /11 /12 /12 /13 /13 /14 /14 /15 /15 /16 Porsche monthly sales Porsche monthly sales growth ' units (2) (4) (6) /11 /11 /12 /12 /12 /12 /13 /13 /13 /13 /14 /14 /14 /14 /15 /15 /15 / Jaguar Land Rover monthly sales Jaguar Land Rover monthly sales growth ' units (5) (1) /1 /1 /1 /11 /11 /11 /12 /12 /12 /13 /13 /13 /14 /14 /14 /15 /15 /15 Source: Companies Page 7

8 Peers valuation - Automakers Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE Currency Price Cap Fiscal 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F Company Name Code Local$ US$m Yr x x x x x x Hong Kong GZ Auto 'H'* 2238 HK HKD , Sinotruk (Hongkong) 388 HK HKD Dongfeng Motor 'H'* 489 HK HKD , Brilliance China* 1114 HK HKD , Great Wall Motor 'H'* 2333 HK HKD , BYD 'H' 1211 HK HKD , Qingling Motors 'H' 1122 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a Geely Automobile* 175 HK HKD , BAIC Motor 'H' 1958 HK HKD , Average 7.6~ 6.4~ China SAIC Motor 'A' 614 CH CNY , Faw Car 'A' 8 CH CNY , CQ Changan 'A' 625 CH CNY , CQ Changan 'B' 2625 CH HKD , Beiqi Foton Motor 'A' 6166 CH CNY , Tianjin Faw Xiali 'A' 927 CH CNY ,425 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Dong Feng Auto 'A' 66 CH CNY , n.a. 1.4 n.a. 1.8 n.a. n.a. n.a. n.a. n.a. Anhui Jianghuai 'A' 6418 CH CNY , Yutong Bus 'A' 666 CH CNY , Haima Automobile 'A' 572 CH CNY , n.a. 1.5 n.a. 1. n.a. n.a. n.a. n.a. n.a. Great Wall Motor 'A'* CH CNY , GZ Auto. 'A' CH CNY , BYD 'A' 2594 CH CNY , Average 17.~ US Ford Motor F US USD , General Motors GM US USD , Average Korea Kia Motors 27 KS KRW 49, 16, Hyundai Motor 538 KS KRW 149, 34, Average Japan Toyota Motor# 723 J P J PY , Honda Motor# 7267 J P J PY , Nissan Motor# 721 J P J PY , Suzuki Motor# 7269 J P J PY , Mitsubishi# 836 J P J PY , n.a. n.a Average Europe BMW BMW GR EUR , V olkswagen (Swx) V OW GR CHF , Saab 'B' SAABB SS SEK , Peugeot UG FP EUR , Porsche Aml.Hldg.Pref. PAH3 GR EUR , n.a. n.a Daimler DAI GR EUR , Fiat Chrysler Auto FCA IM EUR , Average # FY16: FY17; FY17: FY18 ~ Exclude outliners Source: Thomson Reuters, *DBS Vickers Page 8

9 Peers valuation Auto dealers Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE Currency Price Cap Fiscal 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F Company Name Code Local$ US$m Yr x x x x x x Hong Kong Dah Chong Hong* 1828 HK HKD ZhongSheng* 881 HK HKD , China ZhengTong* 1728 HK HKD Baoxin Auto Group 1293 HK HKD , China Yongda 3669 HK HKD China Meidong Auto 1268 HK HKD n.a. n.a China Harmony Auto 3836 HK HKD Sparkle Roll Group 97 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Auto Italia Holdings 72 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. New Focus Auto 36 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Rundong Auto 1365 HK HKD Sunfonda Group 1771 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average Other Asia J ardine Cyc.& Carr. J CNC SP SGD , Tan Chong Intl TCM MK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Zhejiang Material 674 CH CNY , n.a..7 n.a. 4.4 n.a. n.a. n.a. n.a. n.a. Power Diversity Auto CH CNY , n.a. 4. n.a..7 n.a. n.a. n.a. n.a. n.a. Wuhu Yaxia Auto 267 CH CNY n.a..2 n.a. 3.6 n.a. n.a. n.a. n.a. n.a. Sinomach Auto 6335 CH CNY ,34 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Grand Auto 6297 CH CNY , n.a. n.a Wuxi Coml.Mansion 6327 CH CNY n.a. 1.7 n.a. 2.3 n.a. n.a. n.a. n.a. n.a. Shanghai Shenhua 6653 CH CNY ,16 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fujian Zhangzhou 753 CH CNY n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Yulon Motor 221 TT TWD , Hotai Motor 227 TT TWD , Average US Autonation AN US USD , Group 1 Auto GPI US USD , Asbury Auto ABG US USD , Carmax KMX US USD , Lentuo Intl LASLY US USD.3.1 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average Source: Thomson Reuters, *DBS Vickers Page 9

10 Peers valuation Auto parts EV / Earnings Earnings Mkt PE PE P/Bk EBITDA ROE Growth CAGR Currency Price Cap 16F 17F 16F 16F 16F 16F 17F FY15-17 Company Name Code Local$ US$m x x x x Hong Kong listed Changan Minsheng 1292 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Metal Intl.Hdg. 319 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China V eh.compns.tech HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fortunet E-Commerce Gp. 139 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fuyao Glass Industry Gp. Co.'H' 366 HK HKD , Huazhong In-V ehicle Hdg. 683 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Launch Tech 'H' 2488 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Minth Group* 425 HK HKD , Nexteer Automotive Group* 1316 HK HKD , Perennial Intl. 725 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Shougang Ccrd.Cen.Hdg. 13 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Weichai Power 'H' 2338 HK HKD , (6.6) 24.1 (3.1) Wuling Motors Holdings 35 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Xinchen China Power Hdg.* 1148 HK HKD Xingda Intl.Holdings 1899 HK HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Xinyi Glass Holdings 868 HK HKD , Average ~ ~ 16.8~ 8.8 China listed Anhui Quanchai Engine 6218 CH CNY n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Avic Aero-Engine Cntls. 738 CH CNY , Changchai 257 CH HKD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fangda Special Stl.Tech. 657 CH CNY n.a Faway Auto Compns CH CNY n.a. 1.1 n.a n.a. n.a. Fengfan Stock 6482 CH CNY , n.a Fuyao Glss.Ind.Group 'A' 666 CH CNY , Guihang Auto Components 6523 CH CNY n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Harbin Dongan Auto Enn CH CNY n.a (5.5) 39.1 Huayu Automotive Sys.'A' 6741 CH CNY , J ialeng Songzhi Auto 2454 CH CNY n.a J iangnan Mould & Plastic 7 CH CNY ,18 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. J iangsu Pac.Precn.Frgg. 'A' 3258 CH CNY n.a n.a n.a. Kunming Yunnei Pwr. 93 CH CNY n.a Liaoning Sg Autv.Gp. 'A' 633 CH CNY , n.a. n.a. n.a Lingyun Industrial 'A' 648 CH CNY Ningbo Huaxiang Elt. 248 CH CNY , n.a Shanghai Aerospace Auto 6151 CH CNY 1.8 1, n.a Shanghai Jiao Yun Group 6676 CH CNY ,452 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Shenyang J inbei Autv. 669 CH CNY n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sic.Chengfei Intg.Tech. 219 CH CNY ,755 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sichuan Haowu Erml.'A' 757 CH CNY n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Steyr Motors 'A' 76 CH CNY ,667 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Wanxiang Qiangchao 'A' 559 CH CNY , n.a Weifu High Tech.Gp CH HKD , Xuchang Ynd.Drive Shaft 246 CH CNY n.a Zhejiang Wanliyang Tnsm CH CNY ,84 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Zongshen Pwr. Machinery 1696 CH CNY 1.5 1, n.a China Autv.Sy s. CAAS US USD n.a. n.a. n.a. n.a n.a. n.a. China Yuchai Intl. CYD US USD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sorl Auto Parts SORL US USD n.a. n.a. n.a. n.a. 21. n.a. n.a. Average 25.2~ 19.5~ ~ ~ Exclude outliners Source: Thomson Reuters, *DBS Vickers Page 1

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