Deals on Wheels Great Wall’S Haval H2 Has Been Met with Strong Demand Domestic Brands Attempt Turnaround One Trend We Didn’T Forecast
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CHINA Deals on Wheels Great Wall’s Haval H2 has been met with strong demand Domestic brands attempt turnaround One trend we didn’t forecast . Two trends we forecast at the outset of 2013 – strong demand for premium cars and SUVs – have played out as expected. One we did not identify has been the implosion in market share of the domestic brands. This month we take a closer look at who has been winning and losing market share among the domestic brands and by model and the impact on discounting. Our proprietary dealer survey shows that while the domestic OEMs have selectively cut prices on some models, discounting has not escalated. Hopeful of new models reversing the trend Source: Macquarie Research, August 2014 . All four domestic brands in our survey – Great Wall, Geely, BYD and Chery – have lost share this year, with Geely and BYD suffering the biggest losses. Great Wall and Geely are both looking for better performance in 2H helped by Inside new models. We see Great Wall as the best positioned as its new models are focused on the popular SUV segment, which is likely to continue to out-pace Domestic brands attempt turnaround 2 the market. There is no evidence of any discounting on the Haval H2 across JV brands – discounts jump 9 the 14 cities in our survey, with a waiting list of up to 4 months. The Haval H6 Premium brands –intensifying continues to sell well with an average discount of just 0.1%. competition 17 Discounts expand for JV brands Model types – SUV premiums fading 21 . Our survey shows that inventory levels were generally edging lower in July for Dealer policies – Great Wall, Geely the international brands but discounts accelerated their recent increase, with and Chery 22 seven JVs seeing average discounts rising by at least 0.5%. Only Shanghai VW managed to see discounts decline due to lower pricing on the POLO and Appendices 24 Skoda Octavia. At recent analyst meetings, a number of the dealers noted that the OEMs are reviewing what started out as aggressive volume growth targets, which could take the pressure off discounting in 2H. Premium discounts rise for Audi, Mercedes but not BMW . Another theme in the recent results season has been lower margins for dealers on premium car sales and our survey shows that Audi in particular has been fighting for sales with big discounts, especially on its sedans. For Mercedes Analyst(s) the discounts have been focused on the outgoing C-Class, with the new Macquarie Capital Securities Limited Janet Lewis, CFA model launching 25 August in China. BMW managed to reduce its discounts +852 3922 5417 [email protected] in July and also saw the 3 Series outsell the Audi A4 for the first time. Leo Lin +852 3922 1098 [email protected] Top picks are Great Wall, Dongfeng, Zhengtong, Baoxin Zhixuan Lin +86 21 2412 9006 [email protected] . Our top picks among the OEMs in order of preference are Great Wall and Macquarie Capital (Europe) Limited Christian Breitsprecher, CFA Dongfeng Motor, both of which are benefiting from the launch of new models +49 69 50957 8014 in 2014-15 and which lead the SUV market. Our top picks among the dealers [email protected] Jens Schattner are Zhengtong and Baoxin due to their higher exposure to premium sales and +49 69 50957 8026 [email protected] growing profits from financing & insurance. Macquarie Securities Korea Limited Michael Sohn Proprietary survey gives view across China +82 2 3705 8644 [email protected] Macquarie Capital Securities India (Pvt) Ltd . Macquarie has engaged ISE Search Engine on a proprietary basis to furnish Amit Mishra, CFA +91 22 6720 4084 [email protected] data on sales, inventory, customer traffic and transaction prices for 18 auto brands in 14 cities across China (premium brands are from 4 cities). The data 27 August 2014 helps us keep tabs on which models and brands are seeing the biggest – and least – discounting as well as volume and inventory trends. Please refer to page 31 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. Macquarie Research Deals on Wheels Domestic brands attempt turnaround Macquarie has engaged ISE Search Engine on a proprietary basis to furnish us with data on sales, inventory, and transaction prices for 18 auto brands in 14 cities across China (premium brands are from 4 cities). We also receive OEM policies for dealers on incentives. Deals on Wheels is primarily based on the data provided by ISE. Fig 1 Coverage and ratings for auto OEMs and dealers in China Current Price Target Price Company Ticker Recommendation (HK$) (HK$) Upside/Downside Great Wall 2333 HK Outperform 32.65 52.00 59.3% Dongfeng 489 HK Outperform 14.58 17.50 20.0% GAC 2238 HK Outperform 8.65 11.50 32.9% Geely 175 HK Outperform 3.02 3.80 25.8% Brilliance 1114 HK Neutral 14.08 15.60 10.8% BYD 1211 HK Underperform 50.90 12.80 -74.9% Baoxin 1293 HK Outperform 5.94 10.00 68.4% DCH 1828 HK Outperform 4.76 7.10 49.2% Zhengtong 1728 HK Outperform 4.16 7.30 75.5% Yongda 3669 HK Neutral 6.75 7.40 9.6% Zhongsheng 881 HK Neutral 8.91 10.30 15.6% Source: Share prices at 26 August 2014; FactSet, Macquarie Research, August 2014 . Steady decline in market share: From the heyday of 2009-10, when domestic brands benefited from the government’s subsidies for smaller cars, the domestic brands have seen their market share decline steadily by 8.3% points to 37.3% for Jan-July 2014, down 3.1% points YoY. The loss has come at the expense primarily of European – both German and French – and American brands, while Japanese brands have lost share at a less precipitous rate. Fig 2 Domestic brands have lost share at an accelerating rate in 2014 100% 11.3% 10.1% 10.9% 11.8% 12.5% 12.3% 12.8% 90% 7.9% 7.6% 8.1% 8.7% 80% 8.8% 9.1% 9.0% 70% 21.2% 19.5% 19.5% 16.6% 16.4% 15.1% 15.3% 60% 17.2% 50% 16.9% 19.3% 21.4% 22.2% 19.6% 25.2% 40% 30% 44.3% 45.6% 20% 42.2% 41.6% 40.1% 40.4% 37.3% 10% 0% 2009 2010 2011 2012 2013 2013 1-7M 2014 1-7M CN EU JP KR US Source: CAAM, Macquarie Research, August 2014 . Sedans hit hard in 2014: The jump in loss in share this year has reflected both the loss of share in the sedan market as well as the overall weakness in sedan sales relative to other vehicle types. The domestic brands have had some success in the SUV market, with Great Wall continuing to dominate sales with the top-selling Haval H6 but other than Great Wall, the domestics typically only have one or two SUV models, hence the weak sedan sales have hit hard. 27 August 2014 2 Macquarie Research Deals on Wheels Fig 3 2013 – breakdown by type of PV Fig 4 2014 Jan-July – sedans losing share of market Mini-bus Mini-bus 9.1% 7.9% SUV SUV 16.7% 19.3% MPV Sedan Sedan 7.3% MPV 67.0% 63.8% 9.1% Source: CAAM, Macquarie Research, August 2014 Source: CAAM, Macquarie Research, August 2014 . Domestic sedans lose share to international brands: The problem of the stagnant sedan market has been further compounded by the declining share for domestic sedans, where the market share of domestic models in the top 100 selling sedans has declined from 22.6% in 2013 to 16.1%. A key culprit has been the entry onto the list of newly launched or full model changes for JV products. The Toyota Vios and Yaris L didn’t make the top-100 list in 2013 but for Jan-July they are in 28th and 47th positions respectively, with models that are selling for Rmb65-108k. The newly launched Peugeot 301 has debuted at 50th with a price range of Rmb76-108k. Even the all-new Ford Focus HB starts at Rmb90k. Fig 5 Ranking of domestic sedans (place in top 100) and SUVs (place in top 50) YTD YTD 2014 Top selling domestic Jan-July 2013 2013 2014 Top-selling Jan-July 2013 2013 rank sedans 2014 sales rank rank domestic SUVs 2014 sales rank 20 Changan Eado 87,589 90,723 46 1 GWM Haval H6 169,662 217,889 1 The Eado & 30 Geely Emgrand (EC7) 70,039 193,210 14 8 Changan CS35 57,626 75,643 14 King Kong 38 SAIC Roewe 350 61,068 113,033 34 9 BYD S6 57,327 93,168 11 The CS35 moved up 42 BYD F3 53,685 83,175 49 10 GWM M4 56,315 128,054 5 saw its rank the ranks 49 Changan Alsvin V3 44,038 76,858 51 17 Chery Tiggo 5 47,576 NR jump 52 BYD Surui 42,988 123,643 27 19 Trumpchi GS5 43,646 65,742 16 several 53 BAIC E-Series 42,864 113,033 62 20 Chery Tiggo 3 42,742 78,245 13 places 56 Geely MK (King Kong) 41,286 44,556 83 22 FAW Besturn X80 41,845 41,505 27 57 Chery E3 40,967 NR 24 Geely GX7 33,836 52,440 22 60 FAW Besturn B50 38,144 62,342 59 25 Lifan X60 32,477 56,647 20 61 Venucia R50 36,970 53,694 70 26 GWM Haval H5 31,494 61,875 17 68 GWM C30 34,624 126,036 26 33 Zotye T600 24,564 NR 69 Chery QQ 34,453 123,630 28 35 JMC Landwind SUVs 20,516 20,983 37 71 FAW Xiali 33,756 101,071 38 37 JAC S5 18,533 31,226 33 72 Changan CX20 32,883 NR 38 JMC Yusheng 18,101 NR 78 Changan Benni Mini 31,421 51,462 76 39 Zhonghua V5 17,227 47,936 24 79 Zhonghua H330 31,323 NR 40 Haima 7 16,815 42251 26 80 BYD L3 30,200 99,450 40 43 Haima S5 14,890 NR 85 Zotye Z300 27,770 58,323 64 44 Changan CS75 11,281 NR 88 Changan Alsvin V5 25,340 52,203 73 46 Liebao Heijingang 10,327 23,416 34 89 Baojun 630 24,573 68,200 54 48 Hawtai Santa Fe 7,634 16,604 40 90 GWM C50 24,404 65,611 55 49 Hawtai B35 7,439 NR 91 Venucia D50 24,031 51,731 75 50 SAIC Roewe W5 7,227 NR 92 Haima Family 23,330 NR 95 BYD F0 22,335 52,565 71 98 SAIC MG3 19,831 45,446 81 99 Dongfeng Fengshen S30 18,482 NR Note: Red indicates a big fall in ranking; NR not in top ranks in 2013.