EQUITY RESEARCH GAC (2238.HK) Good state is to continue Hong Kong Automobile Update Report Profits Doubled in the First Quarter In 217, GAC Group recorded revenues of RMB16.885 billion, representing a quarter-onquarter increase of 66%. The net profit attributable to shareholders stood at RMB3.833 billion, rocketing by 99% on a quarter-on-quarter basis, which accounts for more than 6% of the net profit in last year. Earnings per share was RMB.59. The figure was RMB.3 in last year. With a number of best-selling vehicles, the profitability of self-owned brand and jointventure brand in GAC Group remained robust, which is the driving force of such impressive growth. Surprising Sales Volume of the First Quarter In the first quarter of 217, the sales volume of the self-owned brand represented an increase of 67.5% to 122, units, the monthly sales of the main model GS4 amounted to nearly 3, units, which ranked in the second in the domestic SUV market and, at the same time, we are narrowing the gap with the No. 1 Haval H6. The large SUV with 7 seats, GAC GS8, was very popular after launching. The monthly sales reached more than 1, units. The sales volume of SUV accounted for 95%, which, to the greatest extent, shared the dividend brought by the domestic consuming upsurge of SUV. The sales volume of GAC Toyota was 111,7 units, representing an increase of 12.8%, and GAC Honda 144, units, representing an increase of 17.7%. Among the high-end models, the sales volume of Accord (+73%) and Highlander (+32%) was impressive, while the proportion of the low-end models dropped significantly. Due to the contribution of both Renegade and Compass to sales, the sales volume of GAC Fiat Chrysler represented an increase of 75% to 5, units. And thanks to the strong sale of Outlander, GAC Mitsubishi recorded an increase of 43% on a quarter-on-quarter basis to 26, units. All the Financial Indicators Exceeded Expectation Thanks to the optimization of product structure and product capacity by the subsidiaries and associates, scale effect remained -- in the first quarter, the profit of major business recorded a quarter-on-quarter increase of 162% to 1.86 billion, and the investment yield of major business reported a quarter-on-quarter increase of 75% to 2.32 billion. The gross margin rose by 3.3 percentage points to 23.82%, and ROE increased quarterly by 3.3percentage points to 7.99%. Both reached a new high. The net profit margin recorded an increase of 4.2 percentage point to 22.7%. Good Performance is Expected to Continue Good state is to continue The best-selling Trumpchi GS8 is the beginning of good performance of GAC Group. At present, good performance is to continue. Apart from best-selling vehicles GS4 and GS8, the company will launch new products in this year: GS3(small SUV oriented), GS7(medium SUV oriented), GA4, GM8, etc. As for the new energy vehicles, brand-new vehicles like GS4PHEV/EV, GE3 EV and GA6 PHEV are projected to be marketed in 217, which will diversify product lines for new energy. Among the joint venture automobile companies, GAC Toyota and Honda continue to enjoy the optimization of product structure brought by "Highlander + Avancier". With "Jeep + Outlander", GAC Fiat-Chrysler and GAC Mitsubishi are expected to restore their position in profit. 5 June 217 Accumulate (maintain) CMP: HKD 12.6 (Closing price as at 1 June 217) TARGET: HKD 14.89 (+18%) COMPANY DATA O/S SHARES (MN) : 6451 MARKET CAP (HKD MN) : 27888 52 - WK HI/LO (HKD): 14.1 / 8.76 SHARE HOLDING PATTERN, % Guangzhou Automobile Industry Group Co., Ltd PRICE VS. HSI Source: Phillip Securities (HK) Research 6.8 KEY FINANCIALS CNY mn FY15 FY16 FY17E FY18E Net Sales 29,418 49,418 68,257 8,785 Net Profit 4,212 6,288 9,6 11,747 EPS, CNY.65.98 1.49 1.82 P/E, x 16.1 11.6 7.6 6.3 BVPS, CNY 6.1 6.81 7.79 9.8 P/BV, x 1.8 1.7 1.5 1.3 DPS (CNY).2.31.47.57 Div. Yield (%) 1.9% 2.7% 4.1% 5.% Source: Company reports, Phillip Securities Est. Research Analyst ZhangJing (+ 86 516994-13) zhangjing@phillip.com.cn Investment Thesis and Valuation We believe the good state of GAC is to continue for the rest of this year, and so we adjust the estimate of the company`s EPS to RMB 1.46/1.82 in 217/218, and target price to HKD 14.15, equivalent to 9/7.5x P/E ratio in217/218, and maintain the "accumulate" rating. (Closing price as at 1 June 217) Page 1 PHILLIPCAPITAL HONGKONG RESEARCH
GAC`s net profit by quarters (RMB mil) 45 4 35 3 25 2 15 1 5-5 -1 211 212 213 214 215 216 217 Q1 Q2 Q3 Q4 GAC Toyota monthly sales (units) 5 45 4 35 3 25 2 15 1 5 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 GAC Honda monthly sales (units) 12 1 8 6 4 2 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Page 2 PHILLIPCAPITAL HONGKONG RESEARCH
GAC Mitsubishi monthly sales (units) 12 1 8 6 4 2 GAC Fiat- Chrysler monthly sales (units) 25 2 15 1 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 5 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 GAC Self-brand monthly sales (units) 5 45 4 35 3 25 2 15 1 5 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Peer Comparison Ticker Name P/E-217E P/B ROE 614 CH SAIC 9.4 1.6 17.4% 625 SZ Changan 6.6 2.3 26.4% 489 HK Dongfeng 4.6.7 14.7% 2238 HK GAC 14.9 1.5 15.2% Source: Wind, Phillip Securities Hong Kong Research Page 3 PHILLIPCAPITAL HONGKONG RESEARCH
Financials FYE DEC FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY18F Valuation Ratios P/E (X), adj. 14.7 57.5 24. 2. 16.1 11.6 7.6 6.3 P/B (X) 2.2 2.1 1.9 1.8 1.8 1.7 1.5 1.3 Dividend payout Yield (%) 28.8% 51.1% 38.8% 32.3% 3.6% 32.1% 31.8% 31.9% Dividend Yield (%) 2.%.9% 1.6% 1.6% 1.9% 2.7% 4.1% 5.% Per share data (RMB) EPS, reported.69.18.41.49.65.98 1.49 1.82 EPS, adj..69.18.41.49.65.97 1.46 1.79 DPS.2.9.16.16.2.31.47.57 BVPS 4.75 4.84 5.18 5.5 6.1 6.81 7.79 9.8 Grow th & Margins (%) Grow th Revenue 25.6% 18.% 45.2% 18.9% 31.5% 68.% 38.1% 18.4% EBIT -27.5% -7.9% 134.6% 2.% 39.8% 58.2% 51.% 22.% Net Income, adj. -.5% -73.5% 133.9% 2.1% 32.2% 49.3% 52.7% 22.4% Margins Gross margin 3.9% 5.3% 1.6% 11.4% 11.7% 15.1% 16.9% 16.8% EBIT margin 37.3% 9.2% 14.9% 15.% 16.% 15.% 16.4% 16.9% Net Profit Margin 38.9% 8.7% 14.1% 14.2% 14.3% 12.7% 14.1% 14.5% Key Ratios ROE (%) 15.6% 3.8% 8.2% 9.3% 11.4% 15.2% 2.4% 21.5% ROA (%) 1.3% 2.4% 4.9% 5.3% 6.5% 8.4% 11.% 11.6% Income Statement (RMB mn) Revenue 1984 12964 18824 22376 29418.2 49417.7 68257 8785 Gross profit 424 69 1994 2547 3444 7456 11522 13564 EBIT 498 1193 2798 3359 4696 7427 11216 13688 Profit before tax 457 1 2629 353 4386 75 176 13175 Tax 11 65-11 -126-4 -754-1139 -1398 Profit for the period 4167 165 2529 2926 3986 6295 9621 11777 Minority interests -15-69 -124-259 -226.2 7.713 21 3 Total capital share 6148 6435 6435 6435 6435 6439 6457 6467 Net profit 4272 1134 2653 3185 4212 6288 96 11747 Source: PSR (Financial figures as at 1 June 217) Page 4 PHILLIPCAPITAL HONGKONG RESEARCH
PHILLIP RESEARCH STOCK SELECTION SYSTEMS Total Return Recommendation Rating Remarks >+2% Buy 1 >2% upside from the current price +5% to +2% Accumulate 2 +5% to +2%upside from the current price -5% to +5% Neutral 3 Trade within ± 5% from the current price -5% to -2% Reduce 4-5% to -2% downside from the current price <-2% Sell 5 >2%downside from the current price We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock`s risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation GENERAL DISCLAIMER This publication is prepared by Phillip Securities (Hong Kong) Ltd ( Phillip Securities ). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below. 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