7 February 2019
EQUITIES Global Auto Top Picks AUTOS
HSBC Top 10 Buys in Global Autos in 2019 Global
Leveraging the expertise of HSBC’s auto analysts across six Horst Schneider* markets, this report features our Top 10 Buy ideas for 2019 Global Head of Automotive Research HSBC Trinkaus & Burkhardt AG [email protected] Global Autos has re-rated 9% YTD on earnings cuts but also +49 211 910 3285 with genuinely improved sentiment – which could be premature Henning Cosman* Analyst HSBC Bank plc Relief really could be short-lived: with negative global volumes in [email protected] H1 2019e and cyclical/structural risks, stock picking is key +44 20 7991 0369 Giulio Pescatore*, CFA Analyst Top 10 Buys from Europe, Asia and selected EMs HSBC Trinkaus & Burkhardt AG [email protected] For the first time, we present our top ideas within HSBC’s Global Autos coverage, +49 211 910 3018
spanning Europe, Asia and Emerging Markets. We include carmakers and suppliers with Pushkar Narendra Tendolkar* high implied upside to our target prices and tangible catalysts, selecting 10 companies Associate Bangalore with self-help potential, structural tailwinds, defensive characteristics and attractive valuations – our relative preference in this difficult environment for global Autos. * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations EMEA – Ferrari, Michelin, Renault and Ford Otosan: In Europe we like the defensive characteristics of Ferrari (p42) and Michelin (p46), and the attractive valuation of Renault (p50). In Turkey, despite the difficult domestic market conditions, we see Ford Otosan (p68) as a long-term sustainable export growth story at an attractive valuation. Asia – Brilliance, Bajaj Auto, Escorts and Hyundai Mobis: In China we like Brilliance’s (p34) focus on the premium market, and the structural growth profile of Minth Group (p38). In India we look for exposure to the domestic market with Bajaj Auto (p54) and Escorts (p58). In Korea we pick Hyundai Mobis (p61) for its exposure to electric mobility. LatAm – Livent: Despite FX volatility in LatAm, we like Livent (p65) as a lithium pure-play uniquely positioned to benefit from EV growth.
Ratings, target prices and valuation summary Market cap Current Upside/ 2018e 2019e 2020e Implied 2020e Company Bloomberg RRC Rating Currency (USDm) price New TP Old TP Downside PE PE PE PE (at TP) Livent LTHM US Buy USD 1,838.1 12.6 22.0 22.0 74.6% 14.0x 12.3x 10.2x 17.9x Escorts ESCO IN Buy INR 1,177.0 689.0 980.0 980.0 42.2% 13.1x 12.4x 11.2x 15.9x Ford Otosan FROTO TI Buy TRY 3,763.6 56.0 68.8 70.5 22.8% 10.8x 9.8x 7.9x 9.8x Michelin ML FP Buy EUR 19,316.5 94.0 115.0 115.0 22.4% 10.0x 8.9x 7.8x 9.5x Renault RNO FP Buy EUR 20,325.3 60.1 73.0 73.0 21.4% 4.3x 4.0x 3.6x 4.4x Minth Group 425 HK Buy HKD 4,302.2 29.5 35.1 35.1 19.2% 14.4x 11.4x 9.6x 11.5x Bajaj Auto BJAUT IN Buy INR 10,931.7 2,710.6 3,200.0 3,200.0 18.1% 17.4x 15.3x 14.0x 16.5x Ferrari RACE IM Buy EUR 23,790.8 110.4 130.0 125.0 17.8% 29.5x 28.0x 25.3x 29.8x Hyundai Mobis 012330 KS Buy KRW 19,490.5 224,000 250,000 250,000 11.6% 11.2x 7.7x 7.5x 8.3x Brilliance Auto 1114 HK Buy HKD 5,015.3 7.8 8.5 8.5 9.0% 4.8x 4.4x 4.0x 4.4x Source: HSBC estimates, Refinitiv Datastream, share prices as of 4 February 2019. The PE in the above table is calculated using reported EPS and hence differs from the F&V pages where PE is calculated on adjusted EPS.
Disclosures & Disclaimer Issuer of report: HSBC Trinkaus & Burkhardt AG This report must be read with the disclosures and the analyst certifications in View HSBC Global Research at: the Disclosure appendix, and with the Disclaimer, which forms part of it. https://www.research.hsbc.com
EQUITIES ● AUTOS 7 February 2019
Contents
HSBC Global Automotive Research team 3
Executive Summary 4
Regional outlook 19 China 20 Europe 24 India 26 Korea 29 Turkey 31
Company Profiles 33 Brilliance 34 Minth Group 38 Ferrari 42 Michelin 46 Renault 50 Bajaj Auto 54 Escorts Limited 58 Hyundai Mobis 61 Livent 65 Ford Otosan 68
Appendix 85
Disclosure appendix 91
Disclaimer 95
2 EQUITIES ● AUTOS 7 February 2019
HSBC Global Automotive Research team
Europe
Horst Schneider* Henning Cosman* Global Head of Automotive Research Equity Analyst European OEMs and Suppliers European Auto Suppliers and Tyremakers [email protected] [email protected]
+49 211 910 3285 +44 20 7991 0369
Giulio Pescatore*, CFA Equity Analyst European OEMs and Luxury OEMs [email protected]
+49 211 910 3018
China
Wei Sim* Tracy Li*, CFA Equity Analyst Equity Analyst Chinese OEMs Chinese Auto Suppliers and Car Dealerships [email protected] [email protected]
+852 2996 6602 +852 2996 6751
India
Yogesh Aggarwal* Vivek Gedda* Head of Research, India Equity Analyst Indian OEMs Indian OEMs HSBC Securities and Capital Markets (India) Private Limited [email protected]
[email protected] +91 22 6164 0693 +91 22 2268 1246
South Korea Turkey
Paul Choi* Cenk Orcan* Equity Analyst Co-Head of Turkey Equity Research South Korean OEMs & Suppliers Turkish OEMs [email protected] [email protected]
+82 2 3706 8758 +90 212 376 46 14
Americas
Alexandre Falcao Global Head of Ag/EV Materials & LatAm Industrials Analyst [email protected] +1 212 525 4449
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
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Executive Summary
Leveraging the expertise of HSBC’s auto analysts across Developed and Emerging Markets, this report features our Top 10 2019 Buy ideas Global Autos has re-rated 9% YTD on earnings cuts but also with genuinely improved sentiment – which could be premature With negative global volumes in H1 2019e and cyclical and structural risks, stock-picking is key as the relief rally in the sector could be short- lived
Reasons for YTD bounce in 2019 – premature?
2018 was a bad year for the auto sector in all regions with the respective regional MSCI auto Market sentiment has recently clearly improved – indices showing double-digit falls. While the global Autos & Auto Component index de-rated possibly too soon in our view 26% in 2018, it has re-rated 9% in 2019-YTD. This performance pattern has been directionally similar across all relevant regional indices, with the exception of India where the de-rating has strongly accelerated in 2019. Turkey has re-rated the most in 2019 YTD, ahead of the Korean, European and Chinese indices. Similarly to Europe, the US and Japanese auto markets both experienced a positive re-rating YTD after a significant de-rating in 2018. But unlike Europe, earnings revisions have been flat YTD for both regions.
The two key reasons for the 2019 YTD re-rating in our view are:
Mechanical re-rating due to sell-side consensus earnings cuts Genuinely improved sentiment anticipating normalisation of the negative factors of 2018
Global auto stocks rebounded strongly YTD from the December 2018 lows – too early for further re-rating?
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 STOXX Global 1800 / Automobiles & Parts - SS Linear (STOXX Global 1800 / Automobiles & Parts - SS)
Source: Factset at 4 February 2019
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De-rating and re-rating of Global Autos & Components by region in 2018 and 2019 YTD MSCI Autos & Parts ___ World ______Europe ______US ______Japan ___ __ China ______India ______Korea ______Turkey ____ NTMA PE EPS PE EPS PE EPS PE EPS PE EPS PE EPS PE EPS PE EPS 2012 12% 12% 27% 9% 24% (3%) 3% 36% 25% (1%) 31% 11% (9%) 6% 23% 3% 2013 13% 15% 27% 10% 35% 2% (5%) 65% (9%) 41% (7%) 11% 10% (1%) 6% 10% 2014 (5%) 1% (8%) (1%) (6%) 10% (5%) 16% (18%) 14% 12% 17% (10%) (8%) 16% 13% 2015 (4%) 1% 1% (2%) (18%) 17% (4%) 8% (1%) (1%) 18% (24%) 7% (14%) (9%) 15% 2016 1% (6%) (12%) 5% (3%) (1%) 15% (19%) (4%) 17% (7%) 17% 4% (8%) (2%) 19% 2017 5% 16% (1%) 29% 25% (4%) (5%) 16% 45% 28% 31% (2%) 20% (16%) 13% 42% 2018 (26%) 2% (30%) (1%) (26%) 5% (27%) 9% (44%) (2%) (3%) (23%) (3%) (20%) (42%) 18% 2019 YTD 9% (1%) 14% (1%) 11% (0%) 5% 0% 12% (8%) (6%) (2%) 19% (7%) 20% (3%) Source: MSCI, Factset at 4 February 2019
Chinese Autos & Components have re-rated 12% in 2019 YTD after de-rating 44% in 2018
Chinese market most Chinese Autos & Components have only recovered around a quarter of their over 40% de-rating controversial for 2019 with in 2018, as weekly (wholesale) sales and production declines remain in double-digit negative low visibility – but recent territory even ahead of the Chinese New Year in February and as: inventory contraction a small positive 1. The timing and nature of government incentives remain highly uncertain. Most recently, Chinese Autos traded down again on the back of continued vague stimulus comments from the National Development and Reform Commission (NDRC). On 29 January 2019, the NDRC, together with nine other ministries, said local governments can provide subsidies to rural residents for purchase of some kinds of trucks and cars if “conditions permitted” and the measures were approved by local governments (source: Bloomberg);
2. Most factors that led to the weakness in 2018 are not (fully) alleviated. Pricing uncertainty persists with the risk of escalating US-China trade tensions, as do the effects of the poor performance of the A-share and real estate markets. This is also reflected in Auto company market outlooks, with eg Aptiv seeing Chinese production falling 8% in 2019.
3. On the positive side, recent weekly data points show that retail sales declines moderated during the period 1-25 January to a 1% decline vs. a 17% decline for the whole month of December. Most significantly, however, even though the retail data is based on a relatively small dataset, this trend suggests that inventory reduction would have clearly accelerated in 2019 YTD, as wholesale sales have remained double-digit negative – if sustainable, possibly starting to reverse the significantly inventory inflation we have witnessed since 2017.
January has shown signs of destocking with moderating retail declines
12% 15% 12% 11% 9% January retail data indicates 10% 8% 5%5% significant destocking - very 3% 5% 1% 2% positive if sustainable 0% -5% -2% -1% -5% -10% -6%-6% -7% -9% -10% -15% -13% -13% -15% -20% -16%-17% -17%-17% -25% -25% -30% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan 1-25th Wholesale Retail
Source: CPCA, HSBC calculations
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EU Autos & Components up a strong 14% in 2019 YTD – after de-rating 30% in 2018 Sector re-rating 2019 YTD driven by suppliers – In Europe the sector peaked in January 2018 with a 12M-forward PE of 8.8x and since implying that market then, gradually declined. The decline accelerated in H2 with numerous profit warnings in assumes volume the sector caused by (i) volatility in production/sales due to WLTP regulation, (ii) continuing normalisation and better diesel-related fines, (iii) heightened trade tensions between the US and China and (iv) the China continued volume slowdown in China. At the bottom, EU autos had traded at a 12-M-forward PE of 5.6x at YE2018, only slightly above its low of c5x in 2012, but has now re-rated back to 6.3x by end of January 2019. Admittedly, the re-rating partly reflects the fact that sell-side earnings estimates have eventually adjusted for 2018 profit warnings, weaker-than-expected market volumes and very low 2019 corporate guidance (or even in some cases, the absence of guidance entirely). As consensus has adjusted down, multiples have mechanically re-rated somewhat, alleviating some of the earlier de-rating. The de-rating was triggered by a de-rating of EU suppliers, which have been less immune to volume fluctuations than originally thought. As a consequence, the premium of EU/US Suppliers vs EU/US OEMs contracted from c80% in April 2018 in both regions to only c25% in the US and c45% in Europe by YE 2018. By end-January 2019, however, the premium has expanded back to c45% in the US and c60% in Europe, indicating that the market anticipates a normalisation of the volume volatility and a return to better growth and margins for the suppliers – possibly premature in our view as disruption to production especially could last well into H1’19. For example, Autoliv said on 29 January that it expects Chinese Q1 production to be “significantly worse” than the IHS forecast of -9.2% at the time, while by Q3’19e, growth could return to the high-single-digit percentage territory globally – the very volatility that has made capacity utilisation and fixed cost allocation so difficult in H2’18, has led to warnings by virtually all global suppliers and which resulted in the de-rating.
Interestingly, German OEM share prices ceased to decline as of H2 18, despite some profit warnings (BMW, Daimler) and additional trade concerns. VW is now trading at a 12m forward consensus PE of 5x, Daimler at 6x and BMW at 7x.
While some of the re-rating appears to be mechanical on reduced earnings forecasts, we Re-rating partly mechanical – but sentiment has also also notice a genuinely more constructive sentiment amongst investors, as (i) a lot appears genuinely improved priced in at these levels, (ii) Chinese and EU/WLTP related volume weakness is anticipated to normalise during Q2’19, and (iii) earnings revisions are already anticipated to turn positive again eventually – despite probably one more (big) cut to sell-side consensus.
De-rating mostly driven by Europe and China, Indian high multiples justified by relative lower market maturity
21.0x
18.0x
yr fwd. yr 1
PE PE 15.0x - 12.0x
9.0x
6.0x
MSCI Auto & Comp.Auto&MSCI 3.0x 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 Europe China India Korea
Source: Factset 04/Feb/2019
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Conclusion: Stock-picking key in challenging environment
HSBC Top 10 Auto Buys for As the environment for Global Autos remains highly uncertain, we select 10 companies that 2019 have been selected to have at least one of the following criteria: perform well in uncertain Self-help potential: Michelin, Minth, Hyundai Mobis environment Structural tailwinds: Escorts, Brilliance, Bajaj Auto, Livent, Ford Otosan Defensive characteristics: Ferrari, Michelin Attractive valuations: Renault, Brilliance
Thanks to these features, we expect our Top 10 Global Auto Buys 2019 to perform relatively well and outperform the sector in a range of scenarios. Most prominently, a range of macro risks also persists in 2019 – both upside and downside – including the outcome of US-China trade dynamics, the risk for US tariffs in EU car imports, the outcome of the Brexit negotiations and the timing and nature of government incentives (for car purchases and for the wider economy) in China.
Chinese market is arguably Given the large share of the Chinese market, the outcome of a potential incentive-driven the biggest unknown and volume-boost is arguable the most significant sector catalyst right now. This is highly therefore most in focus… controversial, however, with IHS forecasting +2% 2019 production growth in China, while Aptiv (the most recent large supplier to have given a market outlook) expecting a -8% contraction. Overall, a (much) stronger Chinese market would be relatively more supportive for EU/US suppliers than for EU/US OEMs in our view, as suppliers are more geared to local Chinese volumes.
… with a strong development The chart below illustrates the relative premium (12M-forward PE) of EU suppliers vs OEMs. in either direction arguably The contraction from mid-2018 was driven by multiple supplier profit warnings – in turn driven by more significant for suppliers high volume volatility but bad visibility, causing a lack of fixed cost absorption. The recent re- than OEMs rating implicitly assumes a normalisation – possibly premature in our view, as especially the supplier companies expect Chinese volumes to remain clearly negative in 2019. Within that, we also forecast volatility by quarter to remain very high – difficult for suppliers to manage with limited visibility, as we observed in 2018 already. The table overleaf summarises the most recent market commentary by large listed suppliers and OEMs.
EU supplier premium versus EU OEMs (12-month forward PE): EU suppliers now trade at only a c60% premium to US OEMs compared to c90% at start of 2018
16.0 100%
14.0 80% 12.0 60% 10.0 40% 8.0
6.0 20%
4.0 0%
Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Oct-16 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Apr-17 Oct-17 Apr-18 Oct-18
Jan-19 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 OEMs Suppliers Supplier to OEM premium (%)-rhs
Source: FactSet
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Market outlook for 2019e by suppliers and OEMs Company Date of announcement 2019e market outlook Continental 16-Jan-19 Europe: flat; North America: flat; China: -3.3%; South America: +7%; Global: flat Volkswagen 16-Jan-19 W.Europe: flat; US: -2.3%; Brazil: +12.5%; China: +4.6%; Global: +1.6% Ford 16-Jan-19 Europe: flat; US: -3/-4%; Brazil: increasing slightly; China: decreasing modestly Autoliv 29-Jan-19 Europe: flat; North America: -1%; China: +2%; South America: +6%; Global: +1% Aptiv 31-Jan-19 Europe: -1%; North America: -2%; China: -8.0%; South America: +6%; Global: -2.5% Source: company data; production outlook for Continental, Autoliv and Aptiv; sales outlook for Volkswagen and Ford
HSBCe still lower than most recent IHS revisions
Industry volume forecaster IHS has again made very substantial cuts to its global light vehicle sales (LVS) and production (LVP) forecasts with its most recent revision in mid-January February. IHS now forecasts -0.9% global LVP for 2018e and +1.1% for 2019e. However, three of the biggest listed global suppliers are already more negative, with Continental and Autoliv and Aptiv expecting flat, -1% and -2.5% global LVP in 2019, respectively. Specifically, all three companies expect a decline in the Chinese market, with Autoliv saying on 29 January 2019 that it expects a significantly larger decline in Q1 2019e than the -9.2% forecast by IHS.
Light vehicle production y-o-y growth: Revisions to IHS Markit forecasts and comparison with HSBC estimates Annual Production 2018 2018 change 2018e 2019 2019 change 2019e 2020 2020 old change 2020e 2021 2021 old change 2021e new old (pp) HSBC new old (pp) HSBC new (pp) HSBC new (pp) HSBC Western Europe -3.7% -3.3% -0.4 -3.7% -0.5% 0.3% -0.8 -1.1% 0.4% 0.2% 0.2 0.0% 2.4% 0.1% 2.3 1.4% Eastern Europe 3.8% 2.9% 0.9 3.8% 1.6% 3.3% -1.7 -0.5% 4.1% 3.6% 0.5 5.3% 2.9% 3.2% -0.3 4.0% Central Europe 3.4% 3.7% -0.4 3.4% 0.2% 1.9% -1.7 -1.3% 1.6% 0.9% 0.7 -0.5% 1.6% 3.2% -1.5 1.6% North America -0.7% -0.4% -0.2 -0.7% -0.5% 0.2% -0.7 -1.0% -2.4% -3.5% 1.1 -2.9% 1.5% 3.6% -2.1 1.0% South America 3.1% 5.3% -2.1 3.1% 6.4% 5.6% 0.9 6.4% 5.9% 4.2% 1.7 5.9% 6.2% 5.2% 1.0 6.2% Middle East/Africa -2.2% -3.2% 1.0 -2.2% -5.3% -2.2% -3.1 -5.3% 9.5% 9.6% -0.1 9.5% 6.5% 5.5% 1.0 6.5% Greater China -3.5% -2.7% -0.8 -3.5% 1.9% 2.4% -0.5 -3.2% 4.4% 4.1% 0.2 3.3% 3.4% 3.1% 0.3 3.4% ASEAN + India 6.9% 7.4% -0.4 6.9% 4.5% 4.6% -0.1 2.4% 4.7% 4.1% 0.6 3.6% 8.4% 8.7% -0.2 8.4% Others -1.1% -1.0% -0.1 -1.1% 0.5% -0.6% 1.2 0.5% -3.9% -3.8% -0.1 -5.9% -0.1% -0.4% 0.3 -1.1% Total Sum -0.9% -0.5% -0.4 -0.9% 1.1% 1.5% -0.4 -0.9% 1.5% 1.1% 0.4 0.6% 3.1% 3.0% 0.1 2.8%
Quarterly Production Q1 2018 Q1 2018 change Q1 2018 Q2 2018 Q2 2018 change Q2 2018 Q3 2018 Q3 2018 change Q3 2018 Q4 2018 Q4 2018 change Q4 2018 new old (pp) HSBCe new old (pp) HSBCe new old (pp) HSBCe new old (pp) HSBCe Western Europe -1.1% -1.2% 0.1 -1.1% 4.4% 4.4% 0.0 4.4% -9.9% -9.6% -0.3 -9.9% -9.1% -7.6% -1.5 -8.6% Eastern Europe 9.8% 9.8% 0.0 9.8% 3.6% 3.6% 0.0 3.6% 1.5% 1.5% 0.0 1.5% 0.7% -2.5% 3.2 0.7% Central Europe -0.1% 0.2% -0.3 -0.1% 5.6% 5.3% 0.3 5.6% 1.2% 1.1% 0.1 1.2% 6.5% 8.0% -1.5 6.5% North America -3.2% -3.2% 0.0 -3.2% -1.8% -1.8% 0.0 -1.8% 1.0% 1.2% -0.1 1.0% 1.7% 2.5% -0.8 1.7% South America 11.4% 11.0% 0.4 11.4% 9.7% 9.7% 0.0 9.7% 2.1% 2.3% -0.2 2.1% -8.9% -0.7% -8.2 -8.9% Middle East/Africa 10.0% 8.2% 1.8 10.0% 12.0% 11.9% 0.0 12.0% -7.4% -8.2% 0.8 -7.4% -20.9% -22.3% 1.3 -20.9% Greater China -1.4% -1.8% 0.4 -1.4% 11.0% 10.4% 0.6 11.0% -4.6% -5.0% 0.4 -7.6% -14.8% -11.2% -3.7 -12.5% ASEAN + India 6.4% 6.4% 0.0 6.4% 9.1% 9.1% 0.0 9.1% 5.5% 5.5% 0.0 5.5% 2.3% 4.0% -1.7 2.3% Japan/Korea Total -2.2% -2.2% 0.0 -2.2% -1.9% -1.9% 0.0 -1.9% -5.6% -5.6% 0.0 -5.6% 8.3% 8.6% -0.3 8.3% Global 0.1% -0.1% 0.2 0.1% 4.9% 4.7% 0.2 4.9% -2.9% -3.0% 0.1 -3.8% -5.3% -3.3% -1.9 -4.4%
Quarterly Production Q1 2019 Q1 2019 change Q1 2019 Q2 2019 Q2 2019 change Q2 2019 Q3 2019 Q3 2019 change Q3 2019 Q4 2019 Q4 2019 change Q4 2019 new old (pp) HSBCe new old (pp) HSBCe new old (pp) HSBCe new old (pp) HSBCe Western Europe -5.9% -4.0% -1.9 -6.9% -6.1% -5.2% -0.9 -7.1% 6.1% 7.0% -0.9 5.1% 6.6% 5.9% 0.7 5.4% Eastern Europe -5.1% -4.5% -0.6 -5.1% 1.0% 1.9% -0.9 1.0% 8.5% 9.2% -0.7 8.5% 2.7% 7.2% -4.5 -5.2% Central Europe 0.7% 2.8% -2.1 -0.8% -2.5% -0.9% -1.7 -4.0% 5.9% 7.9% -2.0 4.3% -1.9% -0.8% -1.1 -3.4% North America 0.4% 2.0% -1.6 -0.1% 0.0% 2.2% -2.3 -0.5% 1.2% 1.2% 0.0 0.7% -3.7% -5.0% 1.3 -4.1% South America 0.7% 4.0% -3.2 0.7% 6.5% 7.9% -1.4 6.5% 9.6% 9.1% 0.4 9.6% 8.8% 1.0% 7.7 8.8% Middle East/Africa -19.6% -15.9% -3.7 -19.6% -19.8% -18.3% -1.4 -19.8% 3.3% 6.0% -2.7 3.3% 21.6% 26.3% -4.7 21.6% Greater China -9.2% -1.1% -8.1 -13.7% -0.3% -0.2% -0.1 -5.3% 8.2% 3.5% 4.7 6.2% 9.1% 7.1% 2.0 0.8% ASEAN + India 1.9% 2.5% -0.6 -0.1% 3.1% 3.4% -0.3 1.0% 3.0% 3.7% -0.7 0.9% 10.1% 8.7% 1.4 7.9% Japan/Korea Total 3.3% 1.8% 1.5 3.3% -1.4% -1.3% -0.1 -1.4% 8.1% 7.4% 0.6 8.1% -6.8% -9.3% 2.5 -6.8% Global -3.5% -0.5% -3.0 -5.3% -1.4% -0.6% -0.8 -3.3% 5.9% 4.9% 1.1 4.8% 3.8% 2.5% 1.3 0.5% Source: IHS Markit, HSBC estimates; IHS new update: mid Jun 2019, IHS old update: mid-Dec 2018
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Related reading and other recent HSBC Autos reports
For a deep-dive into each region we suggest the following reports published by our Global Other HSBC Autos reports by region… teams over the past few months: Global autos: The Year Ahead: Top ten themes for 2019 (29 November 2018) China autos: Here comes the cavalry (9 January 2019) India Autos: Brace for a volatile 2019 (10 January 2019) Korea Autos: Conservative 2019 sales guidance (2 January 2019) Turkey Autos: Tough 2019 for everyone but exporters to worry less (29 November 2018) For a deep-dive into battery electric vehicle (BEV) related topics including 2020/2025 CO2 … with a particular focus on EVs and EV Battery regulation, proprietary HSBC Powertrain forecasts substantiating our 2030e BEV forecast materials… penetration rate of 15%, compliance costs and the entire EV battery materials value chain, we suggest the following reports published by our Global teams over the last few months:
Global EV Value Chain: New lithium, cobalt, EV and battery forecasts (5 December 2018) Global EV Battery Materials: Brighter tomorrow starts today (2 December 2018) Asia/Europe EV Battery: Who will take the Li-ion’s share? (14 June 2018)
For some interesting proprietary work on analyst and corporate sentiment in China and the … and a focus on recent sentiment on China implications of the analysis for equity markets, we suggest the following reports published by our multi-asset and equity strategy teams in January 2019:
China Sentiment: Listen up: Turning raw text into alternative data (17 January 2019) Global Equity Strategy: China risks for DM – pricing them in (17 January 2019)
9 EQUITIES ● AUTOS 7 February 2019
Regional overview – Bracing for another year of no-growth
China (p20): The MSCI Auto China is up 6% YTD, mostly due to the expectation of fiscal Chinese market remains weak but we expect growth to stimulus, which is not yet in our forecast. Nevertheless, the market remains weak as a return in 2019 thanks to consequence of multiple factors. Feedback from on the ground visits suggests that much of structural tailwinds the weakness has been driven by pricing uncertainty about the lowering of import tariffs as well as the escalating US-China trade war. However, we think the poor performance of the A-share and real estate markets are also contributing factors. We think the poor sentiment is likely to carry over into 2019 and our revised growth forecasts are below IHS estimates. Despite the poor sentiment, we still expect growth to revert to positive territory in 2019. China’s vehicle penetration is still very low, providing a long-term tailwind. We recognise that auto trends are changing and with increasing environmental standards, license plate restrictions and future vehicle autonomy, China’s penetration rate is unlikely to reach the levels seen in western markets, but we still see considerable room for growth. We forecast growth rates moderating from historical double-digit growth rates and longer-term, forecast 2-3% growth rates over the coming five-ten years. Europe (p24): After the challenges of 2018, this year in auto kicked-off with constructive We do not expect a significant rebound in Europe sentiment. The European auto index is up 11% so far, turning auto stocks into the second as political and regulatory best performers in the region. This positive uplift materialised despite the persistence of headwinds persist in 2019 negative earnings revisions. We find it difficult to become incrementally more excited about further re-rating, given the regulatory and political risks still looming (see below). Nevertheless, we do see the potential for earnings revisions to have bottomed, providing some support to share prices in the short term. From a sales prospective we do not expect a catch-up effect in 2019 after the WLTP-related issues of 2018. The base of comparison will not be easy until September 2019, increasing the risk of a small decline in y-o-y terms in 2019. We are therefore more negative than IHS on the European outlook: HSBC 2019e: -1.5% y-o-y, HSBC 2020e: -3.3% y-o-y vs. IHS 2019e -0.1% y-o-y, IHS 2020e -1.0% y-o-y. India (p26): The 4W industry slowed sharply through the year, but this was expected. As High inventory levels remain a cause of concern, but rural discussed in some of our notes, eg 1Q strength vs impending headwinds (5 Jul 2018) and markets should continue to Creditworthy margin resilience (26 Oct 2018), there was a visible increase in inventory drive sales growth levels through 2018. Maruti’s strong-selling models such as the Baleno and Brezza also saw moderation in demand, while the benefit of the seventh pay commission normalised as well. We believe the 4W industry is seeing structural issues as discussed in our report (26 Oct 2018). Apart from the popular Baleno and Brezza models, the industry has seen limited
Light vehicle sales by region 2011-20e
20% 15% 14% 15% 12% 9% 10% 9% 10% 7% 7% 6% 6% 6% 6%6% 5% 5% 5% 5% 5% 3% 3% 4% 2% 2% 1% 1% 1% 1%1% - (1%) (2%) (1%) (1%) (2%) (2%) (3%) (2%) (2%)(2%) (5%) (4%)
(10%) (8%) (8%) 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e EU28+EFTA North America China RoW
Source: HSBC estimates from 2019 onwards, IHS Markit for historical data
10 EQUITIES ● AUTOS 7 February 2019
growth over the past five-six years, despite robust rural demand and seventh pay commission benefits, and this leaves us worried for 2019 as well. Nevertheless, rural markets continue to drive sales growth for passenger vehicles (PVs) and two-wheelers (2Ws), while urban markets have been relatively muted. We think PVs are likely to see double-digit growth in rural (rural + public sector sales) in FY19e compared with a 3-5% decline in urban markets. Korea (p29): The Korea auto market grew c1% in 2018 on the back of: 1) new volume We expect solid car sales growth in the Korean market model launches, and 2) the government’s consumption tax cut. In 2019, we expect the in 2019e Korean automotive market to show solid sales, in particular in H119 as: 1) the government has extended the consumption tax cut of 30% until 30 June 2019, and 2) HMC/Kia launch volume models (Sonata) and SUVs. We expect slowing sales growth in H219 as most of the model launches are scheduled for the first half of the year. Similar to other markets, Korea’s preference for SUVs is increasing (20.3% in 2015 to 27.7% in 2018) and we expect the proportion to continue to increase as major OEMs introduce full-sized SUVs and entry level SUVs to the market. Key risks for the sector include higher interest rates and slowing Korea economic growth negatively impacting consumption spending. Turkey (p31): Recovery will take time, and expectations for the 2019 outlook for Turkish TRY depreciation in 2018 caused the worst fall in new vehicle sales remain quite cautious and pessimistic. Industry participants, including vehicle sales since 2001. associations (such as ODD – Auto Distributors’ Association) and manufacturers and Recovery will take time importers anticipate a total vehicle market of 400-500k, which implies a further decline of 20-35%. This is despite continued tax support until the end of March when Turkey has local (municipal) elections. Beyond March, macro conditions (such as FX and interest rates and consumer confidence) will play a key role in shaping demand for vehicles.
11 EQUITIES ● AUTOS 7 February 2019
10 auto stocks for 2019
China China rebound in 2019e; we like Brilliance for its Brilliance (Buy, TP HKD8.5, 9.0% implied upside): We expect BMW-Brilliance to continue exposure to premium, and to outperform in 2019, based on our view that luxury will continue to gain market share at Minth Group the expense of premium and mass, and top-rated brands within each price class will continue to gain market share at the expense of lower rated brands – BMW is favourably exposed to both trends. Growth should also be helped by a full-year contribution from the domestically produced X3 in 2019 as well as the launch of the domestic X2 in 2H 2019. For the Renault-Brilliance JV (RBJAC), we see improvement in 2019e after declining sales in 2018, helped by the launch of visually attractive new models vs. the 2018 model year Jinbei products, whose technology was very dated. We think RBJAC could reach break-even in 2019 instead of 2020, which would be ahead of management’s guidance and would be a positive catalyst for the company.
Minth Group (Buy, TP HKD35.1, 19.2% implied upside): Minth Group is a Chinese supplier with a positive growth story. After a very weak 2018 (due to the 4% drop in China market volumes we expect momentum to pick up for the company in 2019e. While market growth in China is still challenging we think Minth will regain growth momentum in 2019e backed by a strong backlog. Margins should expand slightly driven by multiple positive factors: 1) a larger contribution from high-margin aluminium products; 2) a margin pick-up at its Mexico plants; and 3) stabilised raw material prices. In the longer term, we see Minth as a structural beneficiary of the increasing popularity of aluminium products, driving its content growth. It should also benefit from the capacity expansion and market share gains of Japanese brands in China and make further inroads into those brands’ global purchasing systems.
Europe In Europe we like the relative defensiveness of Ferrari and Ferrari (Buy, TP EUR130, from EUR125, 17.8% implied upside): We continue to consider Michelin and the deep Ferrari the most resilient company in our Global autos coverage. We believe the valuation discount of Renault investments it is undertaking in its 2022 plan will allow it to continue to grow, particularly from a profitability and cash generation perspective, well beyond that time horizon. The next catalyst for the share price could be the launch of the first new generation hybrid vehicle, which we expect to see in March. The introduction of hybrid powertrains at Ferrari is a significant opportunity to increase pricing, in our view. We expect to see the price of the new vehicle considerably above that of its ICE predecessor, highlighting the potential for price increases. Ferrari expects 60% of its portfolio vehicles to be electrified by 2022e.
HSBC global auto top picks overview
25%
e) 20%
20 Minth Group
- Livent
15% Ford Otosan 2018 Escorts 10% Mobis Bajaj Auto Ferrari Brilliance 5% Michelin
Renault
Revenue growth ( growth Revenue 0%
-5% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% EBIT margin 2019e
Source: HSBC estimates, FactSet (as of 4 February 2019); size of the bubble corresponds to relative level of 12 month forward PE multiple
12 EQUITIES ● AUTOS 7 February 2019
Michelin (Buy, TP EUR115, 22.4% implied upside): With cEUR200m incremental EBIT from the Camso and Fenner acquisitions, EUR100m net efficiencies, cEUR200m mix, cEUR300m volume drop-through (c150m EBIT on 2ppt group volume growth in 2019 and 2020, respectively) and cEUR70m positive FX at current spot rates compared to the EUR2,660m FY18 “solid EBIT floor”, Michelin’s 2020 EBIT guidance of ~EUR3,325m appears very well supported. The c2ppt annual volume growth is undemanding in our view, supported by continued solid growth in Specialty Tyres and versus an easy 2018 comp base – so that Michelin should also be able to continue to afford offsetting raw material inflation with pricing at the same time.
Renault (Buy, TP EUR73, 21.4% implied upside): In our view the resignation of Carlos Ghosn as CEO and Chairman of Renault paves the way for a better relationship with alliance partner Nissan. This should sooth the fears which have dominated Renault’s share price which is down 10% since 10 Nov 2018 when the scandal broke out. Renault’s share trade at a 12 month forward PE of 3.9x (vs 6.2x for the EU sector) and have de-rated by c35% since the end of Q1 2018 (driven by the rumours about a possible Renault-Nissan merger, source: Bloomberg). At the current Renault share price, the Nissan stake is valued at around a 60% holding discount (assuming the rest of Renault’s assets are valued in line with our SOTP assumptions). We think the positive governance news and a subsequent improvement in the Renault-Nissan relationship could reduce again this discount. While the valuation is cheap and we are up to 11% above clean EBIT consensus we still sound a word of caution on the FY 18 results. We only expect a group clean EBIT of around EUR1.58bn (=4% below consensus) and an automotive operational FCF of around zero for H2 18.
India We structurally like the Indian domestic market. Bajaj Auto Escorts Limited (Buy, TP INR980, 42.2% implied upside): Escorts (tractor manufacturer) has and Escorts our key Buy seen robust improvement in its domestic tractor market share as well as margin profile. New ratings product introductions have done well for the company over the past three years. We expect the new paddy tractors and partnership with Kubota to help improve the addressable market, especially in the southern regions (a relatively weak market for Escorts). The increased focus on exports, spares, implements and the engines business should help reduce exposure to tractor demand volatility. The company is targeting 2.5x revenue growth by FY22 (from FY17 levels), to improve EBITDA margins to 13-14% (from c11% in FY18) and to expand return ratios. Assuming the company achieves all its targets would imply earnings CAGR of c25-30% for FY18-22e, which is significantly above the Street and our expectations.
Bajaj Auto Limited (Buy, TP INR3,200, 18.1% implied upside): We think Bajaj Auto is one of the most defensive 2W players with exposure to the structurally growing domestic 2W market and wide exposure to key emerging export markets. Bajaj has seen a strong recovery in domestic 2W market share in 2018 and we expect gains to continue in 2019. The company’s portfolio of 2W products is focused on the economy and premium segments, which are seeing relatively stronger growth. Valuations at 14x, (FY 2020e PE, exc. KTM) are currently undemanding as well. Volatility in the export macro environment and near-term safety regulations remain the key risks to our thesis.
Korea Hyundai Mobis: self-help potential coupled with long- Hyundai Mobis (Buy, TP KRW250,000, 11.6% implied upside): While the sustainability of term structural growth earnings turnaround in China remains uncertain, we continue to forecast long-term structural improvement in earnings for Hyundai Mobis, backed by: (1) A/S business earnings stability; (2) an increasing proportion of ADAS and NEVs (New Energy Vehicle) in the sales mix; and (3) potential customer diversification in the US and EU. The company remains optimistic on customer diversification and expects another 25% non-captive orders in 2019. It expects customer diversification to be a long-term catalyst for margin improvement, which should have a positive impact on margins in 2020 through operational leverage.
13 EQUITIES ● AUTOS 7 February 2019
LatAm Livent is a lithium pure-play with competitive cost Livent (Buy, TP USD22.0, 74.6% implied upside): Livent is an established lithium producer structure with products made to exacting standards for its various long-term customers. With the rise in EVs expected to fuel further lithium demand and Livent’s position in the Salar del Hombre Muerto in Argentina, from which it operates one of the lowest (if not the lowest) cost lithium production operations globally. Livent looks well-positioned to continue benefiting from the lithium super-cycle. The December sell-off, which we view as an overreaction, provides an opportunity to add to positions.
Turkey We maintain a cautious stance on the Turkish market Ford Otosan (Buy, TP TRY68.8, from TRY70.2, 22.8% implied upside): We see Ford but we see Ford Otosan as a Otosan as a long-term sustainable export growth story, catering to Europe’s commercial long-term growth story vehicle segment, which is driven by e-commerce. The recent pull-back in the shares (due in part to Brexit worries and in part to weak domestic demand) is an opportunity to build positions in a quality business in our view. The company’s exposure to the weak Turkish market is limited, with exports comprising more than 80% of its total sales. Ford Otosan provides more than 70% of the CVs sold by parent Ford Motor in Europe, indirectly benefiting from more competitively priced vehicles in the market driven by a weaker TRY (exports are on a EUR based cost plus an absolute mark-up scheme with procurements in Turkey representing c50% of total costs). We like Ford Otosan in terms of its capex cycle (an upcycle in investments for new generation vehicles to start from 2020e) and dividend visibility equating to a 2018e yield of 7.2%.
Share price performance for our top-pick stocks and regional auto index (in %) Company RRC 2010 2011 2012 2013 2014 2015 2016 2017 Q1 18 Q2 18 Q3 18 Q4 18 2018 2019 YTD Brilliance 1114 HK 170.8 41.3 13.8 32.5 (1.4) (21.7) 9.5 95.7 (21.6) (13.6) (10.6) (53.9) (72.1) 33.8 Minth Group 425 HK 11.5 (42.9) 22.2 80.7 0 (4.3) 56.8 95.2 (24.2) (7.3) (2.6) (21.8) (46.4) 16.6 China - MSCI Auto & Components (16.0) (20.0) 24.8 31.8 (8.3) (6.5) 4.3 98.7 (16.5) (16.0) (9.1) (17.7) (47.6) 6.1
Ferrari RACE IM 58.1 11.5 19.4 1.8 (26.8) (0.8) 28.2 Michelin ML FP 3.7 (14.9) 56.7 7.9 (2.6) 16.8 20.3 13.1 0.3 (13.0) (1.3) (15.8) (27.5) 9.1 Renault RNO FP 20.2 (38.4) 51.8 43.7 3.6 53.0 (8.8) (0.7) 17.4 (26.1) 2.3 (26.8) (35.0) 10.7 Euro - MSCI Auto & Components 45.1 (23.3) 36.6 34.7 3.5 10.5 (3.7) 12.2 1.7 (12.6) (2.0) (16.8) (27.5) 10.9
Bajaj Auto BJAUT IN 45.2 14.9 7.0 15.8 (2.9) 19.3 16.7 (2.1) (17.3) 2.3 (4.4) 1.2 (1.6) (0.5) Escorts Limited ESCO IN 95.2 (67.2) (9.7) 80.2 10.3 9.4 287.6 51.9 4.0 6.3 (29.8) 15.6 (16.2) (2.9) India - MSCI Auto & Components 28.3 (3.3) 45.8 3.7 31.6 (9.8) 7.9 28.6 (12.4) (0.7) (10.2) (4.8) (25.6) (8.5)
Hyundai Mobis 012330 KS 66.4 2.6 (1.4) 1.9 (19.6) 4.4 7.1 (0.4) (8.9) (11.5) 7.5 (16.7) (27.8) 17.9 Korea - MSCI Auto & Components 61.7 19.4 (3.3) 9.4 (17.7) (7.3) (4.5) 0.5 (8.4) (10.1) 6.6 (11.2) (22.0) 11.2
Ford Otosan FROTO TI 44.2 17.2 39.9 6.1 43.4 (7.0) 1.0 97.0 3.4 (1.6) 7.3 (24.0) (17.0) 15.6 Turkey - MSCI Auto & Components 26.9 16.4 30.9 5.0 16.3 59.9 (7.2) (5.7) (0.3) (21.1) (31.2) 13.9 *excl Livent due to limited performance data – the stock IPOed in October 2018. Source: Factset at 4 February 2019
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Changes to HSBC estimates and comparison with consensus Sales (m) 2018e 2019e 2020e
Company name Curr HSBC New HSBC Old Cons. Chg HSBC vs HSBC New HSBC Old Cons. Chg HSBC vs HSBC New HSBC Old Cons. Chg HSBC vs ●
Cons Cons Cons AUTOS Ferrari EUR 3,420 3,427 3,432 (0.2%) (0.3%) 3,622 3,613 3,670 0.2% (1.3%) 3,951 4,035 3,995 (2.1%) (1.1%)
Michelin EUR 21,701 21,701 21,679 - 0.1% 23,689 23,689 23,324 - 1.6% 24,393 24,393 24,039 - 1.5%
Renault EUR 56,448 56,448 58,108 - (2.9%) 56,599 56,599 59,180 - (4.4%) 57,592 57,592 59,723 - (3.6%) Mobis KRWb 35,149 35,149 35,135 - 0.0% 37,894 37,894 36,620 - 3.5% 39,459 39,459 38,206 - 3.3% Brilliance CNY 5,731 5,731 4,912 - 16.7% 6,541 6,541 5,195 - 25.9% 6,672 6,672 5,823 - 14.6% Minth Group CNY 12,601 12,601 12,812 - (1.6%) 15,636 15,636 14,696 - 6.4% 17,669 17,669 16,766 - 5.4% Ford Otosan TRY 33,656 33,745 33,464 (0.3%) 0.6% 38,341 38,279 38,842 0.2% (1.3%) 44,583 45,752 46,630 (2.6%) (4.4%) Bajaj Auto INR 298,398 301,349 299,803 (1.0%) (0.5%) 332,883 336,742 333,467 (1.1%) (0.2%) 360,492 364,670 364,300 (1.1%) (1.0%) Escorts INR 58,207 58,207 61,624 - (5.5%) 60,563 60,563 67,931 - (10.8%) 65,576 65,576 70,460 - (6.9%) Livent USD 448 448 446 - 0.4% 504 504 508 - (0.7%) 622 622 604 - 3.0%
EBIT (m) 2018e 2019e 2020e Company name Curr HSBC New HSBC Old Cons. Chg HSBC vs HSBC New HSBC Old Cons. Chg HSBC vs HSBC New HSBC Old Cons. Chg HSBC vs Cons Cons Cons Ferrari EUR 825 830 827 (0.6%) (0.3%) 906 917 888 (1.2%) 2.1% 1,033 1,048 1,002 (1.5%) 3.0% Michelin EUR 2,709 2,709 2,674 - 1.3% 3,110 3,110 2,983 - 4.2% 3,417 3,417 3,158 - 8.2% Renault EUR 3,492 3,492 3,503 - (0.3%) 3,787 3,787 3,631 - 4.3% 4,118 4,118 3,688 - 11.7% Mobis KRWb 2,025 2,025 2,025 - (0.0%) 2,397 2,397 2,293 - 4.6% 2,480 2,480 2,452 - 1.2% Brilliance CNY (510) (510) (561) - 9.2% (139) (139) (477) - 70.9% 73 73 (303) - 124.0% Minth Group CNY 2,531 2,531 2,446 - 3.5% 3,226 3,226 2,854 - 13.0% 3,783 3,783 3,273 - 15.6% Ford Otosan TRY 2,516 2,525 2,343 (0.3%) 7.4% 2,753 2,712 2,734 1.5% 0.7% 3,258 3,441 3,361 (5.3%) (3.1%) Bajaj Auto INR 46,995 48,837 48,100 (3.8%) (2.3%) 55,367 57,692 54,700 (4.0%) 1.2% 61,040 63,571 58,500 (4.0%) 4.3% Escorts INR 5,999 5,999 6,724 - (10.8%) 6,276 6,276 7,570 - (17.1%) 6,934 6,934 7,716 - (10.1%) Livent USD 164 164 162 - 1.2% 185 185 188 - (1.8%) 223 223 225 - (0.8%)
EPS (m) 2018e 2019e 2020e Company name Curr HSBC New HSBC Old Cons. Chg HSBC vs HSBC New HSBC Old Cons. Chg HSBC vs HSBC New HSBC Old Cons. Chg HSBC vs Cons Cons Cons Ferrari EUR 3.95 3.95 3.37 (0.0%) 17.2% 3.73 3.78 3.52 (1.2%) 6.0% 3.95 4.02 3.89 (1.8%) 1.3% Michelin EUR 9.42 9.42 9.68 - (2.7%) 10.52 10.52 10.78 - (2.4%) 12.11 12.11 11.64 - 4.0% Renault EUR 13.91 13.91 14.03 - (0.8%) 15.13 15.13 14.69 - 3.0% 16.47 16.47 15.03 - 9.6% Mobis KRWb 20.00 19.97 19.52 0.2% 2.4% 29.01 29.01 24.59 - 18.0% 30.04 30.04 26.47 - 13.5% Brilliance CNY 1.40 1.40 1.23 - 14.1% 1.53 1.53 1.39 - 10.1% 1.67 1.67 1.58 - 5.8%
Minth Group CNY 1.76 1.76 1.79 - (1.9%) 2.24 2.24 2.08 - 7.6% 2.64 2.64 2.41 - 9.5% Ford Otosan TRY 5.19 5.22 5.19 (0.6%) (0.0%) 5.73 5.75 6.30 (0.5%) (9.1%) 7.12 7.15 7.98 (0.4%) (10.8%) Bajaj Auto INR 155.66 154.94 151.00 0.5% 3.1% 176.92 182.73 170.00 (3.2%) 4.1% 193.82 200.94 182.00 (3.5%) 6.5% Escorts INR 52.71 52.71 50.90 - 3.6% 55.70 55.70 57.10 - (2.4%) 61.56 61.56 64.70 - (4.9%) Livent USD 0.90 0.90 0.91 - (0.9%) 1.02 1.02 1.03 - (1.4%) 1.23 1.23 1.23 - (0.1%)
Source: HSBC estimates, Factset consensus at 4 February 2019
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7 February February 7 2019 EQUITIES
16
HSBC carmakers coverage universe Company Name RIC Analyst Rating Target Price Share price Mkt Cap Currency ___ EV/Sales ______EV/EBIT ______EV/EBITDA ______P/E ______04-Feb-19 (USD million) 2019e 2020e 2019e 2020e 2019e 2020e 2019e 2020e
European Automotive ●
OEMs AUTOS Aston Martin Lagonda AML.L Giulio Pescatore, CFA* Hold 15.50 12.37 3,690 GBP 3.80 2.76 26.3 16.1 15.5 9.9 42.8 24.8 BMW BMWG.DE Horst Schneider* Hold 74.00 73.24 50,391 EUR 0.30 0.28 3.4 3.2 2.1 2.1 6.6 6.7 Daimler AG DAIGn.DE Horst Schneider* Reduce 45.00 52.17 63,790 EUR 0.29 0.30 4.2 4.6 2.7 2.9 6.5 7.0
FCA FCHA.MI Giulio Pescatore, CFA* Hold 16.00 14.82 26,248 EUR 0.42 0.42 6.2 5.8 3.7 3.5 6.5 5.8 Ferrari RACE.MI Giulio Pescatore, CFA* Buy 130.00 110.35 23,792 EUR 5.92 5.43 23.7 20.8 17.1 14.9 29.6 28.0 Peugeot PEUP.PA Horst Schneider* Buy 24.00 21.890 22,637 EUR 0.18 0.17 2.1 2.1 1.6 1.4 5.2 5.0 Renault RENA.PA Horst Schneider* Buy 73.00 60.140 20,326 EUR 0.30 0.29 4.6 4.0 2.6 2.4 4.1 3.7 Volkswagen AG Prefs VOWG_p.DE Horst Schneider* Buy 170.00 147.66 85,557 EUR 0.30 0.27 3.9 3.5 2.4 2.1 5.1 4.9 Porsche SE PSHG_p.DE Horst Schneider* Buy 66.00 57.14 15,714 EUR n.m. n.m. n.m. n.m. n.m. n.m. 4.0 3.8 Turkish Automotive OEMs Dogus Otomotiv DOAS.IS Cenk Orcan* Hold 5.00 4.86 205 TRY 0.24 0.21 4.7 4.9 4.5 4.6 6.4 5.2 Ford Otosan FROTO.IS Cenk Orcan* Buy 68.80 56.95 3,829 TRY 0.62 0.56 8.6 7.6 7.2 6.3 10.0 8.1 Tofas TOASO.IS Cenk Orcan* Buy 22.50 19.16 1,835 TRY 0.47 0.46 7.3 7.2 4.2 4.1 6.3 5.5 Chinese Automotive OEMs BAIC 1958.HK Wei Sim* Buy 5.40 5.38 1,728 HKD 0.03 0.05 0.2 0.3 0.2 0.3 5.7 4.8 Brilliance Auto 1114.HK Wei Sim* Buy 8.50 7.80 5,015 HKD 0.00 0.00 n.m. n.m. n.m. n.m. 4.4 4.0 Dongfeng Motor 0489.HK Wei Sim* Buy 9.30 8.29 3,017 HKD nm nm nm nm 0.0 0.0 4.0 3.8 GAC Group 2238.HK Wei Sim* Buy 8.90 8.72 11,257 HKD n.m. n.m. n.m. n.m. n.m. n.m. 5.9 5.3 Geely Automobile Holdings 0175.HK Wei Sim* Hold 15.90 13.26 15,181 HKD 0.54 0.38 4.2 2.9 3.4 2.4 6.3 5.2 Great Wall Motor 2333.HK Wei Sim* Reduce 3.50 5.38 2,125 HKD 0.26 0.23 5.2 4.5 3.1 2.6 7.1 6.7 Korean Automotive OEMs Hyundai Motor 005380.KS Paul Choi* Hold 129000.00 129500.00 24,717 KRW 0.53 0.50 12.5 11.7 6.5 6.1 8.2 7.9 Kia Motors 000270.KS Paul Choi* Hold 36000.00 35850.00 12,982 KRW n.m. n.m. n.m. n.m. n.m. n.m. 8.2 7.1 Indian Automotive OEMs Mahindra & Mahindra MAHM.BO Yogesh Aggarwal* Buy 960.00 674.45 11,163 INR 1.11 0.96 10.3 8.9 7.7 6.7 16.1 15.8 Maruti Suzuki India Ltd MRTI.BO Yogesh Aggarwal* Hold 7600.00 6988.20 29,443 INR 2.02 1.79 20.3 17.2 15.1 13.1 27.6 23.3 Tata Motors TAMO.BO Yogesh Aggarwal* Hold 200.00 180.25 7,259 INR 0.22 0.21 11.5 4.5 2.1 1.5 119.4 6.5 Asean Automotive OEMs Astra International ASII.JK Colin Davis, CFA* Hold 7800.00 8200.00 23,748 IDR 1.47 1.32 13.4 11.7 9.8 8.7 15.0 13.4 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Source: HSBC estimates, share price as on 4 February 2019
7 February February 7 2019 EQUITIES
HSBC automotive suppliers, tyremakers and EV battery materials coverage Company Name RIC Analyst Rating Target Price Share price Mkt Cap Currency ___ EV/Sales ______EV/EBIT ______EV/EBITDA ______P/E ______04-Feb-19 (USD million) 2019e 2020e 2019e 2020e 2019e 2020e 2019e 2020e
European Automotive ●
suppliers and tyremakers AUTOS Continental CONG.DE Henning Cosman* Hold 155.00 133.85 30,597 EUR 0.67 0.61 7.3 6.4 4.6 4.1 9.3 8.1 ElringKlinger ZILGn.DE Henning Cosman* Reduce 6.50 7.45 539 EUR 0.78 0.76 12.1 11.0 6.4 6.0 7.4 6.3 Faurecia** EPED.PA Horst Schneider* Hold 37.00 38.02 5,987 EUR 0.27 0.24 4.0 3.6 2.3 2.1 7.1 6.8
Hella KGaA Hueck & Co HLE.DE Henning Cosman* Hold 45.00 39.16 4,973 EUR 0.64 0.62 5.6 8.1 3.6 4.4 10.8 10.2 Leoni LEOGn.DE Henning Cosman* Hold 30.00 31.58 1,179 EUR 0.34 0.32 8.9 7.4 4.8 4.2 7.8 6.4 Michelin MICP.PA Henning Cosman* Buy 115.00 93.98 19,318 EUR 0.99 0.91 7.5 6.5 5.1 4.5 9.0 7.8 Nokian Renkaat NRE1V.HE Henning Cosman* Hold 28.50 29.28 4,620 EUR 2.35 2.27 10.5 10.3 8.1 7.7 13.2 12.8 Pirelli PIRC.MI Henning Cosman* Buy 7.50 5.78 6,601 EUR 1.60 1.43 8.8 7.3 6.3 5.4 8.5 7.2 Schaeffler AG SHA_p.F Henning Cosman* Buy 10.00 7.78 8,506 EUR 0.79 0.74 7.5 6.6 4.9 4.4 5.0 4.5 Valeo VLOF.PA Henning Cosman* Hold 27.50 26.36 7,238 EUR 0.50 0.47 7.5 6.9 4.1 3.7 7.8 7.0 China Automotive suppliers and dealers China Zhengtong Auto Serv 1728.HK Tracy Li, CFA* Hold 3.80 4.20 1,313 HKD 0.76 0.83 10.6 11.0 9.2 9.7 5.3 4.3 Fuyao Glass Industry 3606.HK Tracy Li, CFA* Buy 32.10 27.90 8,769 HKD 2.67 2.47 11.2 10.6 8.5 7.9 14.1 13.3 Minth Group Limited 0425.HK Tracy Li, CFA* Buy 35.10 29.45 4,302 HKD 1.79 1.52 8.7 7.1 7.1 5.9 11.3 9.6 Nexteer Automotive Group 1316 HK Tracy Li, CFA* Hold 12.30 11.36 3,627 HKD 0.80 0.73 7.5 6.7 5.0 4.4 10.0 9.3 Yongda Auto 3669.HK Tracy Li, CFA* Hold 4.80 5.03 1,178 HKD 0.18 0.16 4.0 3.0 3.3 2.5 4.7 3.3 Zhongsheng Group 0881.HK Tracy Li, CFA* Hold 17.00 15.22 4,406 HKD 0.39 0.33 5.6 4.8 4.8 4.2 6.1 5.4 Holdings Korean Automotive suppliers and tyremakers Hankook Tires 161390.KS Paul Choi* Hold 49000.00 42100.00 4,659 KRW 0.49 0.35 3.7 2.7 2.3 1.7 6.5 6.4 Hyundai Glovis 086280.KS Paul Choi* Buy 170000.00 141000.00 4,723 KRW 0.31 0.30 6.8 6.6 5.5 5.3 9.4 9.0 Hyundai Mobis 012330.KS Paul Choi* Buy 250000.00 224000.00 19,478 KRW 0.00 0.00 0.0 0.0 0.0 0.0 7.7 7.5 Hyundai Wia 011210.KS Paul Choi* Buy 69000.00 43150.00 1,048 KRW 0.25 0.23 8.2 7.4 3.5 3.1 6.4 6.1 Nexen Tire Corp 002350.KS Paul Choi* Hold 10000.00 9770.00 852 KRW 0.64 0.53 7.2 5.9 3.7 3.0 7.8 7.3 Indian Automotive suppliers and tyremakers Balkrishna Ltd. BLKI.Bo Puneet Gulati, CFA* Hold 1090.00 806.90 2,176 INR 2.81 2.40 13.8 9.9 10.5 8.0 18.0 14.4 Bharat Forge BFRG.BO Puneet Gulati, CFA* Buy 600.00 487.65 3,167 INR 2.29 2.05 13.7 11.7 10.6 9.1 18.5 15.9 Bosch Ltd. BOSH.BO Puneet Gulati, CFA* Hold 20000.00 19048.10 8,108 INR 3.68 3.11 24.6 19.8 20.4 16.8 32.9 26.5 Escorts Ltd. ESCO.BO Vivek Gedda* Buy 980.00 678.55 1,160 INR 1.19 1.09 11.5 10.5 10.0 9.1 12.9 12.2 Motherson Sumi MOSS.BO Puneet Gulati, CFA* Buy 233.33 138.30 6,091 INR 0.74 0.62 10.6 7.9 7.3 5.8 17.6 14.3 Asean Automotive suppliers and tyremakers Astra Otoparts AUTO.JK Colin Davis, CFA* Buy 1940.00 1615.00 557 IDR 0.20 0.17 7.5 6.7 3.6 3.4 11.6 10.0
Americas EV battery materials and auto parts Marcopolo S.A. POMO4.SA Augusto Ensiki Reduce 3.02 4.12 973 BRL 0.91 0.78 12.5 8.9 10.2 7.6 17.1 12.8 Iochpe-Maxion MYPK3.SA Augusto Ensiki Buy 32.00 22.85 939 BRL 0.50 0.45 5.5 5.0 3.9 3.6 9.7 8.7 Livent Corporation LTHM US Alexandre Falcao Buy 22.00 12.59 1,838 USD 3.50 2.84 9.5 7.9 8.2 6.5 12.4 10.2 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Source: HSBC estimates, share price as on 4 February 2019 **Price as of 05 February 2019
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Regional outlook
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China
2018 was a challenging year for China automakers, with regulatory and political headwinds playing a major role Sector growth remains weak in 2019-20e: we forecast 2-3%, below IHS estimates of 4-6% Despite slowing industry growth, consolidation should allow top tier brands under each price class to continue to grow in a moderating environment
Wei Sim* 2019-20 outlook Analyst, Autos The Hongkong and Shanghai Banking Corporation Limited The weak market is the result of multiple factors. Feedback from on the ground visits suggest [email protected] that much of the weakness has been driven by pricing uncertainty around the lowering of import +852 2996 6602 tariffs as well as the continuing US-China trade war. However, we think poor performance of the Tracy Li*, CFA Analyst A-share and real estate markets is also a contributing factor. We see poor sentiment carrying The Hongkong and Shanghai over into 2019 and our revised growth forecasts are below IHS estimates. We think IHS was Banking Corporation Limited [email protected] slow to adjust its forecasts for 2018; similarly, for 2019-20e, we view its forecasts of 3.9% in +852 2996 6751 2019e and 5.6% in 2020e as too high given the current industry outlook.
* Employed by a non-US affiliate of HSBC Despite the poor sentiment, we still forecast growth reverting to positive territory in 2019, as Securities (USA) Inc, and is not registered/ China’s vehicle penetration is still very low: while we recognise auto trends are changing and qualified pursuant to FINRA regulations that with increasing environmental standards, license plate restrictions and future vehicle
autonomy, China’s penetration rate is unlikely to reach the likes of US, Japan, UK or Germany, at 160 parc density per 1,000 we think there is still room to grow. We forecast annual new PV sales topping out at ~30m per annum (currently 24-25m) over the longer term, but with the growth rates to reach that figure moderating from historical double-digit growth rates. Longer- term, we forecast 2-3% growth rates over the coming 5-10 years.
HSBC PV new car sales forecasts vs. IHS Total light-vehicle parc density (vehicles per '000)
8.0% United States 5.6% Japan 6.0% United Kingdom 3.9% Germany 4.0% 2.6% 3.0% South Korea 2.0% Malaysia Russia - Thailand Brazil -2.0% China -4.0% -2.6% Indonesia India -6.0% -4.3% - 200 400 600 800 1,000 2018 2019 2020 IHS HSBC estimates
Source: IHS, HSBC estimates Source: IHS
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China auto market: Historical growth trend and forecasts
60% 53% 50% 38% 40% 33% 33% 30% 30% 22% 17% 16% 20% 14% 14% 13% 14% 15% 2.6% 3.0% 10% 10% 7% 5% 7% 7% 3% 2% -
-10.0% -4.3% 98A 99A 00A 01A 02A 03A 04A 05A 06A 07A 08A 09A 10A 11A 12A 13A 14A 15A 16A 17A 18E* 19E 20E Passenger Vehicle Passenger & Commercial Vehicles HSBC PV forecast
Source: CAAM, HSBC estimates
Sector risks
Beyond the company-specific risks, we list below the risks at the industry level:
Political/geopolitical risk: The biggest uncertainty facing the sector is the political risk related to the US-China trade war. This has impacted the underlying pricing of imported vehicles, with a secondary impact on locally produced models, as well as overall sentiment.
Stock market: The A-share market has underperformed this year, hurting sentiment as well as household wealth. Further under-performance in 2019 could result in fewer auto purchases, which would pose downside risks to our current forecasts.
Real estate: Similar to the stock market, real estate has faced headwinds, which, if they persist throughout 2019, would have a negative wealth effect and could pose downside risks to our sales growth forecasts.
Margin risk in transition to NEV: The transition towards NEVs could put margin pressure on Transition towards NEVs could put margin pressure on OEMs as the component costs are still high relative to traditional internal combustion engines OEMs as the component (ICE). The combination of a greater contribution from NEVs and low utilisation levels could put costs are still high relative to pressure on margins (this would also depend on changes in component prices and battery traditional internal pricing trends). combustion engines Policy risk Purchase tax cut incentives for vehicles with smaller engines ended at the beginning of 2018. A reintroduction of purchase tax cut incentives or any other type of policy stimulus could result in a boost to auto sales and could pose an upside risk to our current forecasts.
NEV subsidies aim to stimulate consumer demand for these cars. However, the government is pushing OEMs to produce increasing numbers of NEVs while purchasing incentives are being reduced or removed. It is not clear what changes will be made to the NEV subsidy policy in 2019. Subsidies being reduced more than expected could lower demand further for these vehicles.
China VI emission standards are being rolled out between now and 2022. The introduction of China VI emission standards are being rolled out between Euro VI and WLTP standards had a negative impact on the European auto market, so the roll now and 2022 out of China VI could have a similar effect. Certain cities have already started to implement the standards, as early as 1 January 2019, which could impact sales at the local level.
21 EQUITIES ● AUTOS 7 February 2019
Increased stringency of the dual credit scheme – whereby OEMs need to meet NEV targets based on fuel efficiency and percentage of NEVs produced – which could result in lower auto sales. As highlighted in our survey results (see China Autos: Our 2019 dashcam published 29 November 2019) sentiment about buying NEVs has declined, which may dampen demand for these vehicles. At the same time, OEMs are required to produce more NEVs, so the mismatch between supply and demand could result in a downside risk to sales.
Sector catalysts
The previous round of policy stimulus concluded at the end of 2017. The government used a similar approach in 2008 during the global financial crisis, and again in 2015. The goal was to stimulate sales of small PVs by cutting the purchase taxes on cars with engine displacement of 1.6L or below from the standard 10%, to 5%.
What would be the impact of another purchase tax cut? The purchase tax incentive was first introduced in January 2009 and lasted a year. In 2010, the tax was raised to 7.5% for 12 months and then reverted to the standard 10%. In October 2015 the tax was cut to 5% before being raised to 7.5% in 2017 and 10% in 2018.
Our analysis shows that each time the government cuts the tax, the impact on growth is more Each time the government cuts the tax, the impact on muted. The previous rounds of stimulus had a five-year gap between the end of stimulus growth is more muted (January 2011) and the beginning of the new stimulus (October 2015). With the latest round of stimulus having concluded in 2017, we think another round of tax cuts would have a limited impact on demand.
China PV sales y-o-y trend during different purchase tax levels
100%
80%
60%
40%
20%
- 06 07 08 09 10 11 12 13 14 15 16 17 18 -20% 5% tax 7.5% tax 10% tax
Source: CAAM, HSBC Research The table above illustrates both y-o-y and absolute growth in vehicle sales during each period of purchase tax incentives.
Historical new car sales growth pre and post stimulus 2009-11 2015-17 Current Growth one year pre-stimulus (10% tax) 7% 4% 0.2% 5% tax 53% 16% ? 7.5% tax 33% 2% ? Source: HSBC Research
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Other potential stimulus measures Listed below are the other measures we think the government could use instead of another round of purchase tax cuts:
Licence plate restrictions in more cities: During our recent visit to (see China Autos: Our An increasing number of second-tier cities are facing 2019 dashcam, 29 November 2019), dealers highlighted the m-o-m increase in PV sales in traffic congestion and an October, particularly in the plug-in hybrid electric vehicle (PHEV) category. They said a key announcement about licence factor was the potential implementation of a stricter definition for NEVs that would dictate plate restrictions would which cars would be eligible for an NEV licence plate, which are exempt from tax. An create a short-term sales increasing number of second-tier cities are facing traffic congestion and an announcement boost, in our view about licence plate restrictions would create a short-term sales boost. Lower purchase tax for 2.0L and below: A similar approach to that used before but expanding the scope to include cars with larger engines – 2.0L and below, up from 1.6L. This would increase the number of vehicles covered to more than 50% of the market. The right-hand side graph below illustrates the percentage of sales of cars with 1.6L and 2.0L for companies (including JVs) based on 2018 YTD sales.
2018 YTD new PV sales breakdown by Company sale of 1.6L and 2.0L engine displacement displacement engines as % of total sales
98% 98% 95% 97% 99% 100% 100% 90% 86% 86% 90% 79% 80% 70% 62% 60% 60% 1.6L 60% 54% 51% 38% 50% 1.6-2.0L 44% 40% Other 30% 22% 18% 20% 10% - Changan SAIC GWM DFM Geely GAC BAIC Brilliance
1.6L and below 2.0L and below
Source: Thinkercar, HSBC Research Source: Thinkercar, HSBC Research
NEV subsidies: The government, concerned about pollution, wants to encourage people to buy NEVs. In our view it would make sense for any new stimulus to focus in this category rather than the broader auto market. The difficulty is that NEVs are already exempt from purchase tax so to make the cost of purchasing an NEV even cheaper, the government would need to spend money.
We have listed the policies in order of the likelihood of them being implemented, in our view. All have implications for government revenues. Licence plate restrictions would not cost the government anything. If a bidding system similar to Shanghai was used – vs. the lottery system of Beijing – it would help generate incremental revenues for the government. Cutting purchase tax would imply lower revenues, whereas NEV subsidies would imply a cost to government.
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Europe
2018 was a challenging year for European automakers and suppliers, with regulatory and political headwinds playing a major role Despite the positive re-rating witnessed so far in 2019, major risks remain and we are conservative despite low valuations Political uncertainties and regulatory challenges should continue to weigh on sentiment in 2019
Horst Schneider* 2018, a tough year for European autos Global Head of Automotive Research HSBC Trinkaus & Burkhardt AG 2018 was a challenging year for the European automotive sector both from a share price and [email protected] earnings perspective. Carmakers’ profit warnings were closely followed by virtually all suppliers +49 211 910 3285 in what became a sector-wide issue. The sector de-rated 30% over the course of 2018 and the Giulio Pescatore*, CFA Analyst European auto index lost 29% of its value. Negative earnings revisions followed the de-rating, HSBC Trinkaus & Burkhardt AG with earnings expectations in the sector today at the same level as 12 months ago. Regulatory [email protected] +49 211 910 3018 headwinds, trade tensions and a softer underlying economy in the largest automotive markets
Henning Cosman* globally (China and Europe) were the main drivers of this weakness. In particular auto sales in Analyst 2018 were deeply affected by the introduction of WLTP (Worldwide Harmonised Light Vehicle HSBC Bank plc [email protected] Test Procedure) for vehicle emissions testing. The new procedure became mandatory for all +44 20 7991 0369 new vehicles on 1 September, affecting car demand from August to October 2018. This was the
largest single distortion in the intermonth European passenger car market on record, and much * Employed by a non-US affiliate of HSBC greater than the Lehman Brothers-led slump a decade ago. Due to the weak end to the year, Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations 2018 car sales in the EU region were up only 0.8% y-o-y.
Tough year for the sector in 2018; we see a trough in earnings downgrades but it is difficult to see significant re-rating
9.5x 78.0 De-rating was met by 9.0x earnings downgrades in Q4 77.0 8.5x 8.0x 76.0 7.5x
75.0 P/E 7.0x EPS 6.5x 74.0 6.0x 73.0 5.5x Earnings expectations in the sector are back to the level of January 2018 5.0x 72.0 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19
P/E 1yr fwd. (LHS) EPS 1yr fwd. (RHS)
Source: Factset 04/02/2019
24 EQUITIES ● AUTOS 7 February 2019
2019 off to a strong start, but we struggle to get more excited
Major factors to watch in 2019 After the challenges of 2018, this year in auto kicked-off with a constructive sentiment. The European auto index has re-rated 14% so far, turning auto stocks into the second-best performers in the region. This positive uplift materialised despite the persistence of negative earnings revisions. We find it difficult to become incrementally more excited about a further re- rating, given the regulatory and political risks still looming (see below). Nevertheless, we do see potential for earnings revisions to have bottomed, providing some support to share prices in the short term. From a sales perspective we do not expect a catch-up effect in 2019 after the WLTP related issues of 2018. The base of comparison will not be easy until September 2019, increasing the risk of a small decline y-o-y in 2019. We are therefore more negative than IHS on the European outlook: HSBC 2019e: -1.5% y-o-y, HSBC 2020e: -3.3% y-o-y vs. IHS 2019e - 0.1% y-o-y, IHS 2020e -1.0% y-o-y.
Regulatory changes and political risks Regulation to remain a constant burden in 2019 and After the WLTP-related problems in 2018, regulation is set to remain a constant burden. The beyond next regulation deadline in Europe is September 2019, when all new vehicles will be required to comply with the Euro 6d-Temp requirements. This is a change in the drive cycle for testing NOx emissions for petrol and diesel cars. We expect diesel vehicles to be most affected by this regulation as it introduces new NOx limits that require the use of SCR catalytic converters (costs: cEUR1,000 per car; HSBCe). See “Theme 6” in our recent Top ten themes for 2019 report (29 November 2018) for more detail.
The political environment remains uncertain Brexit, protectionism and elections remain risks in 2019 The three main risks for European car demand in 2019 are: i) Brexit: Every 10% decline in light vehicle sales in the UK drags down EU28 light vehicle sales growth by c1.5%. We have run extensive scenario analysis (link to request the data below) to estimate the impact of Brexit on European OEMs. 2) Protectionism remains a prominent source of concern. While the threat of tariffs between the US and EU seems to have diminished, it is hard to predict the final outcome of ongoing negotiations. iii) Upcoming elections are a potential concern from a consumption perspective.
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Premium and luxury model launch activity should pick up in 2019
Model launch activity 25% of unit sales of German car makers to come from new Model launch activity is generally set to pick up in 2019. One of the driving forces behind this models in 2019 acceleration is the will of car makers to reduce average CO2 and NOx emissions in order to comply with tightening emission limits. We think 2019 is likely to be the last year in which car makers push sales of vehicles with pure combustion engines. We expect competition among car makers to spike in 2019, with more launches making it increasingly difficult to differentiate and maintain market share. An example of this is Renault and PSA launching their B-segment blockbuster models (Clio/208) at the same time in Q2 2019.
Premium and luxury market In the luxury segment, while SUVs should remain the major source of growth in the medium Competition heating up in the GT space with the launch of term, we expect 2019 to be the year of Grand Turismo (GT). Bentley has recently launched its the new Continental GT and new Continental GT, one of the market leaders in the segment, and Ferrari is ramping up its Ferrari Portofino Portofino, which is experiencing demand above expectations. While we expect Bentley and Ferrari to gain market share, other players like Aston Martin could suffer from the increased competition and a lack of new models.
25 EQUITIES ● AUTOS 7 February 2019
India
2018 started strongly, then saw growth moderating across segments in 2HCY18 led by weak sentiment, unexpected regulations and liquidity tightening We expect demand trends to remain soft in 1H2019, picking up in 2H due to pre-buying and a softer base effect Consumer confidence depends strongly on election outcome in 2019. Regulatory issues and weak monsoons can add to near-term volatility
Yogesh Aggarwal* Indian car market 2019-20 outlook Head of Research, India HSBC Securities and Capital Markets (India) Private Limited The 4W industry slowed sharply through the year, albeit this was expected. As we discussed in 1Q [email protected] strength vs impending headwinds, 5 July 2018 and Creditworthy margin resilience, 26 October +91 22 2268 1246 2018, there was a visible increase in inventory levels through 2018. Hot selling models such as the Vivek Gedda* Analyst, IT Services & Autos Baleno and Brezza also saw moderation in demand, while the benefit of the seventh pay HSBC Securities and Capital commission normalised. We believe the 4W industry is seeing structural issues as discussed in our Markets (India) Private Limited [email protected] report (26 Oct 2018). Apart from the popular Baleno and Brezza models, the industry has seen +91 22 6164 0693 limited growth for the past five-six years, despite robust rural demand and seventh pay commission
benefits. This leaves us concerned for 2019. Customer propensity to spend on a vehicle is limited to * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ INR25-30K and there is limited appetite to make big-ticket commitments. qualified pursuant to FINRA regulations Organised large white-collar sectors such as IT and banking continue to see weaker job
creation and wage growth, albeit there have been some green shoots in IT in recent months (the charts below show employment growth in IT and banking, and wage growth at Infosys as a proxy for IT industry wage growth). There are also signs of saturation in large car markets (Mumbai, Bangalore, and Delhi). Many dealers are seeing a rise in “service revenues” as
The passenger vehicle market excluding Maruti has been almost flat over the past six years
Source: SIAM, HSBC Research
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Weaker white-collar customers look to maintain existing cars rather than buy new ones. This may lead to pent-up employment growth and demand at some stage, but near term, it is a headwind for new car demand. In larger cities, saturation in larger towns there is the impact of the sharing economy (Ola/Uber) on household demand for second cars; impacts 4W growth add to this stagnation in white-collar jobs, wage inflation, and deteriorating traffic/parking conditions, and it is little wonder the car market has weakened in recent months.
Job creation has been weak for white- …and IT services – a sector that has seen collar sectors such as banking… a moderation in hiring as well as wage increases
10.0% 8.8% 9.0% 40% 35% 8.0% 6.5% 30% 25% 6.0% 4.9% 4.5% 20% 3.7% 3.2% 3.3% 4.0% 2.5% 15% 1.5% 10% 2.0% 5%
0.0% 0%
3Q09 3Q11 1Q16 1Q18 1Q08 3Q08 1Q09 1Q10 3Q10 1Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 3Q16 1Q17 3Q17 3Q18 1Q19
FY12 FY17 FY09 FY10 FY11 FY13 FY14 FY15 FY16 FY18 Top banks employee growth y/y Top 4 IT companies' employee growth y/y Source: HSBC, Company data Source: HSBC, Company data
Rural demand indicators are mixed, but momentum remains strong
Rural markets continue to drive growth in sales for passenger vehicles (PVs) and two-wheelers (2Ws), while urban markets have been relatively muted. We think PVs are likely to see double-digit growth in rural (rural + public sector sales) in FY19e compared to a 3-5% decline in urban markets.
Government spending in rural areas a key driver: We expect an increase in rural focused schemes and policies from central government ahead of the 2019 general elections (as evident in the recently concluded Budget) and newly formed state governments. As seen in the chart below, a pick-up in spending on schemes like MNREGA, rural housing and rural infra (roads) has helped drive the rural economy in the past.
Domestic tractor long-term growth trends vs historical loan waivers across key states National loan National loan UP, AP waiver waiver MH, TN 50.0% 41% 37% 40.0% 32%
30.0% 21% 20% 20% 22% 15% 16% 19% 18% 20.0% 12% 8% 9% 11% 5% 10.0% 1% -4% -2% 0.0% -9% -10% -3% - Strong pick up -13% -17% -10.0% in MNREGA, Punjab, Start of -20.0% Rural housing, KA, MP, -23% MNREGA
-30.0% PMGSYK Raj
FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18
All India tractor volume growth y-o-y
Source: TMA, Reserve Bank of India (RBI), Economic Times, HSBC
27 EQUITIES ● AUTOS 7 February 2019
Standalone farm loan waivers and tractor sales show limited correlation, but loan waivers along with other rural-driven schemes (investments in infrastructure, access to agri credit, subsidies / incentives) have historically lifted rural household financial conditions and benefited tractor sales and NBFCs. With general elections in 2019, we expect government to focus on the rural economy – which should help 2W growth in these markets in 2019 as well.
Gradual recovery in SME sector a key catalyst
The SME (small and medium enterprises) segment accounts for nearly one-third of overall PV demand and a significant portion of 2W demand. It has been crippled over the past two years, led by demonetisation in 2016 and more so due to implementation of the GST in 2017. To add to its woes, liquidity tightening at NBFCs in late 2018 had the most adverse impact on SMEs. Post the appointment of a new RBI governor, the Street expects an easing of liquidity in the coming months. Further, as GST processes are gradually ironed out, we expect the business environment to improve for SMEs. We factor in nearly 1-2% incremental growth in FY20 for PVs from the SME segment compared to a ~1-2% decline in FY19. Effectively we expect a 3-4% delta in industry growth contribution from the segment led by recovery in sentiment and pre- buying before implementation of BS VI emission norms, and hence see it as a key catalyst over the next 18 months. Separately, we expect pre-buying across consumer segments before the likely price hike in vehicle costs as the models get upgraded to BSVI norms.
PV growth expectations across consumer segments Share of total Growth in Contribution Share of total Growth in Contribution industry FY19e to industry industry FY20e to industry growth growth Public sector ~10% 15.0% 1-2% ~ 11-12% 10-12% 1-2% Rural* ~25% 12.0% 2-3% ~ 25% 13-15% 3-4% White-collar service** ~20% -2.0% ~ 0 to -1% ~20% 8-10% ~1-2% SME/Self-employed ~30% -2.0% ~ -1% ~28-30% 5.0% ~1-2% Commercial*** ~6-8% -20.0% ~ -2% 6-7% 10-12% ~1% Corporates and Others ~10% 7.0% ~ +1% ~10% 10-12% ~ +1% TOTAL 2-3% 9-11% Source: HSBC estimates * Rural and public sector has overlap. This is net of overlap ** White collar includes ITeS, BFSI etc. *** Commercial includes taxis, OLA, UBER
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Korea
Rising portion of SUVs and new models should defend market share of local brands in Korea but OEMs forecast negative growth in 2019 Sector growth remains weak in 2019-20; we forecast 1-2%, in line with IHS’s forecast of 1% in 2019 NEV sales in Korea are increasing and the government targets a boost to the FCEV market
Paul Choi* 2019 outlook – solid 1H and weak 2H Analyst The Hongkong and Shanghai Banking Corporation Limited, Seoul The Korea auto market grew c1% in 2018 on the back of 1) new volume model launches such Securities Branch as HMC’s Santa Fe, and Kia’s K3, and 2) the government’s consumption tax cut. Some [email protected] +82 2 3706 8758 negative impacts on sales volume in 2018 were from the shutdown of GM Korea’s plant, the
Yushin Park* BMW recall issue and a delay of new model launches due to WLTP-related issues. Associate The Hongkong and Shanghai We expect the Korea automobile market show solid sales in 1H19 as 1) the government Banking Corporation Limited, Seoul Securities Branch extended the consumption tax cut of 30% to 30 June 2019, and 2) HMC/Kia launch volume [email protected] models (Sonata) and SUVs. We expect slowing sales for 2H19 as most of the model launches +82 2 3706 8756 are scheduled in the 1H. Similar to other markets, Korea’s preference for SUVs is increasing (20.3% in 2015 to 27.7% in 2018) and we expect the proportion to continue to increase as major * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ OEMs introduce full-sized and entry-level SUVs. qualified pursuant to FINRA regulations
Key risks for the sector include increasing interest rate and slowing Korea economic growth negatively impacting consumer spending.
Korea market volume and growth trend (+1% growth in 19e and -1% growth in 20e)
(units) (y-o-y)
1,850,000 5.0%
1,800,000 3.0% 1,750,000
1,700,000 1.0%
1,650,000 -1.0% 1,600,000 -3.0% 1,550,000
1,500,000 -5.0% 2016 2017 2018 2019e 2020e Korea growth (RHS)
Source: IHS forecast, HSBC
29 EQUITIES ● AUTOS 7 February 2019
The government’s push for FCEV The current government is pushing for fuel cell or electric vehicle (FCEV) growth. The target is Korean government aggressively pushing for to increase the supply of FCEV vehicles from 1,800 (893 domestic) units currently to 81,000 higher FCEV penetration (67,000 domestic) units by 2022, 1,800,000 (850,000 domestic) units by 2030, and 6,200,000 (2,900,000 domestic) units by 2040. Korea’s target is quite aggressive: bigger auto markets such as China and Japan are targeting 1,000,000 FCEVs and 800,000 FCEVs respectively by 2030. Accordingly, the government plans to increase the number of FCEV charging stations from the 14 currently to 660 by 2030 and 1,200 by 2040.
In 2019 the government will subsidise 4,000 FCEVs (total sales up to 2018 stand at 893 units). Due to high FCEV costs, these subsidies are an important driver of sales. For example, the Hyundai’s FCEV “Nexo” is priced at cKRW70m (USD63k) which is far above its gasoline peers at cKRW30m (USD27k). The central and local government’s subsidy of cKRW35m brings the price to cKRW35m, making it affordable. In 2019, the government will also build 86 new charging stations, bringing the total to 100.
Korea’s FCEV road map – cumulative FCEV vehicles sold by Korean OEMs (units) 2018 2022 2040 Cars 1,800 79,000 (65,000) 5,900,000 (2,750,000) Taxi 120,000 (80,000) Bus 2 2,000 60,000 (40,000) Truck 120,000 (30,000) Total FCEV 1,800 (938) 81,000 (67,000) 6,200,000 (2,900,000) Charging stations 14 310 1,200 Source: Ministry of Trade, Industry and Energy Numbers in brackets are for the Korean domestic market sales
Hyundai Motor Group also announced 2030 FCEV roadmap in December 2018. The company will invest KRW7.6trn (USD6.8bn) and plans to increase capex to reach cumulative sales of 500,000 FCEVs by 2030. Hyundai’s current FCEV production capacity is at 3,000 units and the company will first invest cKRW300bn (USD270m) to increase capacity to 11,000 units by 2020.
Increasing NEVs In 2018 NEV sales increased 26.4% reaching 123,602 units with the government’s subsidy and introduction of new EVs leading the growth. In 2018, 28,000 EVs received subsidy and the government plans to give subsidy for 42,000 EVs in 2019. HEV subsidy will stop from 2019.
2013-18 Korea NEV sales trend (units) 140,000
120,000
100,000
80,000
60,000
40,000
20,000
0 2013 2014 2015 2016 2017 2018 HEV EV PHEV FCEV
Source: KAMA, KAIDA, HSBC
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Turkey
2018 was one of the most difficult years for Turkish autos with new vehicle sales down by 35%, the sharpest decline in the last 17 years Consumer confidence, affordability, fleet demand remain the main headwinds: we project another 20% fall in sales in 2019e Our scenario is a recovery cycle that kicks in from 2020e (+20% 2020e, +15% 2021e)
2018: the worst since 2001 Cenk Orcan* Analyst, Co-Head of Turkey Equity Research Turkish new vehicle sales (all segments) hovered around a new plateau of 1m units during HSBC Yatirim Menkul Degerler A.S. [email protected] 2015-17, but came down sharply in 2018 as a result of the macro volatility led by a sharp TRY +90 212 376 46 14 depreciation. Sales were down 35% last year, marking the sharpest decline since 2001 (-70%).
The major TRY devaluation last year caused a surge in interest and auto loan rates and a sharp * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ deterioration in consumer sentiment (propensity to save as per rising deposit rates) dragging qualified pursuant to FINRA regulations down new vehicle sales visibly from second quarter of the year. The high share of imports and fleet sales hit PC demand while commercial vehicles got their share from a downturn in general economic conditions. Tax incentives introduced at the beginning of November (SCT and VAT cuts in new vehicle purchases) had limited positive impact on demand, pushing decline rates from around 70% to c40% levels in the last two months. The majority of stocks in the sector underperformed the BIST100 index last year. A differentiating factor was exports. Companies with strong and growing exports (such as Ford Otosan) managed to outperform in such a difficult year for the domestic industry. Total industry exports were down slightly, by 1% in 2018 (PCs -5%, LCVs +6%). In contrast, the used vehicle market is reportedly up by around 5% last year; an indication that affordability has caused a shift in demand.
Turkey – GDP growth vs LV sales growth 150% 15.0%
100% 10.0%
50% 5.0%
0% 0.0%
-50% -5.0%
-100% -10.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2019e 2020e
LV market gr yoy (LHS) Turkey GDP gr (RHS)
Source: Turkstat, OSD (Turkish Vehicle Manufacturers’ Association)
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A further contraction looks likely in 2019e
Recovery will take time Expectations remain quite cautious and pessimistic for 2019 Turkish vehicle sales. Industry participants, including associations (such as ODD – Auto Distributors’ Association), manufacturers and importers anticipate a total vehicle market of 400-500k, which implies a further decline of 20-35%. This is despite tax support continuing until the end of March when Turkey has local (municipal) elections. Beyond March, macro conditions (such as FX and interest rates and consumer confidence) play a key role in shaping demand for vehicles.).
Demand shift may continue towards the more affordable used cars market Used cars remain more affordable in Turkey Historical data show periods of two and even three consecutive years of contraction in new vehicle sales in Turkey (eg 1998-99, 2001-02 and 2006-08) but fundamentally, the notable weakening in fleet sales (particularly long-term leasing), unattractive borrowing conditions (bank auto loan rates in the 25-30% range p.a.), and affordability (as a result of FX- and inflation- driven price hikes last year of around c40%) stand against a rapid recovery in demand. Price adjustments for used vehicles come with a delay to new vehicles. Therefore, a demand shift from new vehicles towards the used car market will likely continue in 2019e.
LCV market may perform better vs PC in 2019e due to leasing regulation change We expect new vehicle sales to decline a further 20% in We project a total vehicle market of 513k in 2019e, down a further 20% y-o-y. Our scenario is a 2019e recovery cycle that kicks in from 2020e: +20% to 616k in 2020e, and +15% to 708k in 2021e. We apply the same decline and growth rate across PCs and commercial vehicles. Yet, a recent regulatory change in Turkey could potentially differentiate segmental performance. It was a legislation change in early 2019 that has opened the way for leasing of commercial vehicles, which had been largely restricted since 2009 (due to complexity caused by ownership of leased vehicles – the leasing company – vs the necessity for users to obtain certain road documents, such as K2, C2 to register these vehicles). LCV sales, once representing c40% of total LV sales in Turkey, were down to 22% at the end of 2018, steadily losing relative momentum (vs PCs) over the past ten years. Leasing could gradually change that over time.
Turkey remains a diesel vehicle market – an EV market is as yet non-existent Small engine diesel and automatic cars sell the most Among the basic trends/characteristics of the Turkish vehicle market are: 1) a still high share of in Turkey imported vehicles (66% of PCs, 50% of LCVs, 63% of total LVs); 2) very high share of small engine cars (96% of total PCs sold), a consequence of a taxation regime that favours cars with small engines, particularly below 1.6 litres; 3) one of the highest taxations for passenger cars (53- 207% of the wholesale price); 4) dominance of diesel car sales in the market (58% in 2018 from 61% in 2017); 5) rising demand for automatic cars vs manual (65% from 61%); 6) an almost non- existent electric vehicles market (only 155 EVs and 3,899 hybrid vehicles were sold in 2018).
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Company Profiles
33 EQUITIES ● AUTOS 7 February 2019
Brilliance
After last year’s sharp de-rating from JV restructure announcement with BMW, timing magnitude and pricing is known – the bad news is out and we do not see this as a risk in 2019 2019 share price performance likely to be driven by Brilliance-BMW sales and turnaround of Renault-Brilliance JV Our HKD8.5 TP implies 9.0% upside
JV restructure in the price; 2019 share price likely to be driven by Wei Sim* Analyst, Autos underlying operating performance The Hongkong and Shanghai Banking Corporation Limited [email protected] Brilliance-BMW should continue outperformance in 2019 +852 2996 6602 Brilliance-BMW posted 27% y-o-y sales volume growth in 2H18 vs. the overall industry trend of
double-digit decline. BMW looks well positioned: our 2019 outlook proprietary survey China * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ Autos: Our 2019 dashcam - After going in reverse, growth set to shift into first gear, 29 Nov qualified pursuant to FINRA regulations 2018, showed BMW ranking second only to Mercedes Benz in terms of consumer preference within the luxury price class segment. We think: (1) luxury will continue to gain market share in 2019 at the expense of premium and mass; and 2) top-rated brands within each price class will continue to gain market share at the expense of lower rated brands. BMW is favourably exposed to both of the above industry trends. Furthermore growth in 2019 will be driven by a full-year contribution of the domestically produced X3 as well as launch of a domestic X2 in 2H 2019. We forecast 10% FY17-20e sales volume CAGR for Brilliance-BMW.
Renault-Brilliance JV should see turnaround sooner than company guidance Renault-Brilliance saw declining sales in 2018 due to the restructuring of its domestic Jinbei brand into a JV structure with Renault. Management guided for one new model in 2019 under the JV brand with a target to breakeven by 2020. Thus we were pleasantly surprised at the Guangzhou Autoshow (November 2018) to see already two new models under the new JV announced, both of which are targeted to be launched in April 2019. Both models are visually attractive relative to the competition (pricing TBC) and are a vast improvement vs. the 2018 model year Jinbei products, whose technology was very dated. We think RBJAC could reach breakeven in 2019 instead of 2020, which would be ahead of management guidance and would be a positive catalyst for the company.
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Brilliance – Company overview
Historical profit by marque (RMBm) Company description Brilliance is engaged in the manufacture and sale of automobiles and 6,000 automotive components, and the provision of auto finance service in 5,000 China through its subsidiaries and major joint ventures. RBJAC: Brilliance reached agreement at the end of 2017 to 4,000 bring in Renault as a shareholder and joint venture partner in the 3,000 minibus operating subsidiary. The company has been renamed Renault Brilliance Jinbei Automotive Co., Ltd. (“RBJAC”). The 2,000 cooperation with Renault is an important strategic move that should help turn around the existing minibus operation, and help 1,000 the light commercial vehicle (“LCV”) market in China by utilising - the joint knowhow of the two shareholders. BBA: BMW Brilliance joint venture (“BBA”) has been working to -1,000 roll out new production capacity and launch new pipeline -2,000 models. X3 was localised in 2018 and the X2 is targeted to be FY13A FY14A FY15A FY16A FY17A made domestically from 2H 2019. BMW-Brilliance Renault-Brilliance
Source: Company data
Historical 1-yr fwd PER trading bands Sales volume by brand (2017a)
20
15
14% 10
5 86%
- 15 16 17 18 19 1-yr fw rolling PE -1 s.d. average +1 s.d. BMW-Brilliance Renault-Brilliance TP implied FY19 Source: Company data, HSBC estimates Source: Company data
Fig 1: Brilliance new model launches and outlook Brand Nameplate Sales segment Sales sub-segment Estimated launch date BMW X3 D Mid-Size SUV 2Q18 BMW X2 C Compact SUV 3Q19 BMW X5 E Full-Size SUV 2022 BMW i3 B Subcompact Car 3Q23 BMW i4 D Mid-Size Car 1Q24 RBJAC Guan Jing 2019 RBJAC Ling Kun EV 2019 Huasong D-SUV D Mid-Size SUV 3Q19 Renault Master LCV Light Bus 4Q20 Renault Trafic LCV Light Bus 2Q22 Source: IHS, HSBC Research
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Brilliance – Investment case in six charts/pictures
Sales volume trend (units) FY17A-20E sales volume CAGR by brand
600,000 12% 10% 10% 8% 9% 500,000 8% 7% 5% 400,000 6% 4% 300,000 2% - 200,000 -2% 100,000 -4% -6% - -8% FY16A FY17A FY18E FY19E FY20E -6% Brilliance-BMW Brilliance-Renault Total Brilliance-BMW Brilliance-Renault IHS HSBC
Source: Company data, HSBC estimates Source: Company data, IHS, HSBC estimates
BMW 5-series has an impressive looking BMW X2: A localised version is expected interior which will differentiate European in 2H19 luxury brands from other offerings
Source: HSBC research. Picture taken at Guangzhou Auto Show, Nov 2018 Source: Autohome.com
RBJAC Guan Jing 观境 interior features a RBJAC Ling Kun EV 领坤 EV MPV targeted visually appealing minimalist finish; a vast for launch in April 2019 improvement over 2018 model
Source: HSBC Research; Picture taken at Guangzhou Auto Show, Nov 2018 Source: HSBC Research; Picture taken at Guangzhou Auto Show, Nov 2018
36 EQUITIES ● AUTOS 7 February 2019
No changes to estimates
We make no changes to our earnings in this report. We previously adjusted our earnings for the 2019 outlook in China Autos: Our 2019 dashcam, 29 Nov 2018.
HSBC vs. consensus
Our FY18-19e estimates are 2-12% ahead of consensus, where we forecast a stronger model cycle and faster than guided recovery for the RBJAC JV. Our FY20 estimates are below consensus as we assume X5 localisation only from 2023e.
HSBC vs. Eikon Consensus estimates ______HSBC ______Consensus ______HSBC vs. Consensus ______2018e 2019e 2020e 2018e 2019e 2020e 2018e 2019e 2020e Revenue 5,731 6,541 6,672 5,122 5,463 6,113 12% 20% 9% Gross Profit 426 807 890 263 331 476 62% 144% 87% EBITDA (310) 71 291 (348) (287) (176) 11% 125% 266% EBIT (510) (139) 73 (606) (527) (419) 16% 74% 117% Reported NPAT 7,075 7,723 8,400 6,530 7,844 9,071 8% -2% -7% Adjusted NPAT 7,075 7,723 8,400 6,488 7,730 8,874 9% -0% -5% Reported EPS 1.40 1.53 1.67 1.29 1.53 1.76 9% -0% -5% Adjusted EPS 1.40 1.53 1.66 1.25 1.50 1.74 12% 2% -4% DPS 0.09 0.19 0.21 0.14 0.17 0.19 -32% 11% 13% BVPS 6.64 7.95 9.40 6.42 7.74 9.25 3% 3% 2% GP margin 7% 12% 13% 5% 6% 8% 2% 6% 6% EBITDA margin -5% 1% 4% -7% -5% -3% 1% 6% 7% EBIT margin -9% -2% 1% -12% -10% -7% 3% 8% 8% Adj NPAT margin 123% 118% 126% 127% 141% 145% -3% -23% -19% Source: HSBC, Refinitiv Eikon
37 EQUITIES ● AUTOS 7 February 2019
Minth Group
We expect earnings growth to pick up in 2019e backed by a strong backlog – a recovery from a weak 2018 Popularity of aluminium and expansion of Japanese OEMs’ market share should drive long-term structural growth Minth is our preferred Buy among China auto component names. Our HKD35.1 TP implies 19.2% upside
Tracy Li*, CFA Investment case: Growth momentum to pick up in 2019e Analyst The Hongkong and Shanghai Banking Corporation Limited Hit by overall weak auto industry and pressure on margin [email protected] Minth’s share price is down 43% from its one year high in February 2018 and now trades below its +852 2996 6751 historical average. The China auto industry saw its first negative growth rate of 4% in 2018 over the two decades, and Minth suffered given more than half its top line is generated within China. What’s * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ more, lower production led to a lower utilisation rate, dragging on margin and US-Sino trade tension qualified pursuant to FINRA regulations also hurt sentiment as c7% of Minth’s revenue is from China exports to the US.
Our call: Growth momentum should pick up in 2019e While the outlook for the China auto industry in 2019 remains challenging, we expect Minth to regain growth momentum in 2019e backed by a strong backlog. We see margins expanding slightly driven by multiple positive factors: 1) a larger contribution from high-margin aluminium products; 2) margin pick-up at its Mexico plants; and 3) stabilised raw material prices.
Long-term structural story from popularity of aluminium and expansion of Japanese OEMs’ market share in China Minth is a major beneficiary of the increasing popularity of aluminium. We expect aluminium Minth is a major beneficiary of the increasing popularity parts to lead the next round of growth of dollar content per vehicle (CPV). The ASP of an of aluminium aluminium part order Minth secured recently is much higher than the current CPV of RMB380 according to the company. In 2017, c25% of the company’s revenue came from aluminium products while in its backlog, aluminium products account for 35% of total. Japanese OEMs are its largest clients, making up 40-50% of Minth’s China revenue. Despite the recent slowdown in growth in China’s auto market, Nissan and Toyota have announced plans to expand their respective production capacities of 40% and 20% in China. We expect Minth to continue to benefit from the capacity expansion and market share gains of Japanese brands in China and make further inroads into the global purchasing system of Japanese brands.
38 EQUITIES ● AUTOS 7 February 2019
Minth – Company overview
Revenue by segment (2017-20e) Company description Minth is a leading supplier of auto exterior parts with 10% global 120% market share for its core products. It has more than 40 plants globally, located in China, US, Mexico, Thailand and Germany. Major products 100% the company offers include: 7% 7% 10% 12% 12% 80% Trim parts (33% of sales): Applied on car bodies, strip type products for decoration and sealing purposes. Made through 60% pure extrusion, co-extrusion, rolling and punching; Decorative Parts (30% of sales): Decorative parts on car bodies 40% produced mainly by plastic injection and surface treatment technology; 20% 37% 34% 33% 36% 37% Body Structural Parts (22% of sales): Usually inside the car 0% bodies, these are part of the support that structures the car, 2016 2017 2018e 2019e 2020e made by rolling moulding and pressing moulding; Trims Decorative parts Other (15% of sales): Includes roof racks for carrying bulky Body structural parts Seat frame system items or decoration, mainly made of aluminium through extrusion Roof of rack Others and anodizing. Source: Company data, HSBC estimates
Revenue split by customer base (2017) Revenue split by region (2017)
China
Asia pacific exclude Japanese China 9%2% US local production European 3% 14% 1% 35% American US revenue from 7% 24% Korean China export 7% Mexico 5% 62% Chinese 5% 27% Others Europe Others
Source: Company data Source: Company data
Major product offering
Source: Company data
39 EQUITIES ● AUTOS 7 February 2019
Minth – Investment case in six charts
Yuan CPV continues to rise Gross profit margin assumption
410 36% 390 2021e 36% 370 2017 35% 350 35% 330 2015 34% 310 34% 290 2014
Value per Value car,RMB 33% 270 33% 250 2016 2017 2018e 2019e 2020e 15 25 35 45 55 Model coverage, m units Gross profit margin
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
Aluminium products: revenue contribution Aluminium products in the backlog (2017)
100%
80%
60% Aluminium products 35%
40% Others 65% 20% 38% 30% 35% 20% 25% 0% 2016 2017 2018e 2019e 2020e Contribution from other products
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
DFL (Nissan) sales target in China, m units Toyota capacity expansion in China, m units
2.8 1.5 2.6 20% increase in capacity 1.4 2.4 2.2 12% sales CAGR 1.3 2.0 1.2 1.8 1.6 1.1 1.4 1.0 1.2 0.9 1.0 0.8 0.8 2017 2022e 2018e 2019e DFL sales volume Toyota China Capacity
Source: Company data, HSBC estimates Source: Refinitiv Datastream, HSBC estimates
40 EQUITIES ● AUTOS 7 February 2019
No changes in estimates
We make no changes to our earnings in this report. For details on the company’s earnings forecasts, please refer to the report “Going Global: the overseas roadmap for China's parts suppliers”
HSBC vs. consensus
We are 4% below 2018e earnings consensus and expect consensus to adjust down given the weak 4Q18. Looking into 2019 and 2020, our earnings forecasts are 5-6% ahead of consensus, primarily driven by a positive outlook on top line growth and margin recovery. We think consensus underestimates the benefit of increasing aluminium products offering on margin and revenue growth support from Japanese OEMs.
HSBC vs. Eikon Consensus estimates ______HSBC ______Consensus ______HSBC vs. Consensus ______2018e 2019e 2020e 2018e 2019e 2020e 2018e 2019e 2020e Revenue 12,601 15,636 17,669 12,912 14,967 17,337 -2% 4% 2% Gross Profit 4,241 5,418 6,299 4,364 5,162 6,078 -3% 5% 4% EBITDA 3,154 3,940 4,556 3,087 3,616 4,159 2% 9% 10% EBIT 2,531 3,226 3,783 2,515 2,951 3,417 1% 9% 11% Reported NPAT 2,013 2,560 3,021 2,110 2,463 2,887 -5% 4% 5% Adjusted NPAT 2,013 2,560 3,021 2,101 2,459 2,902 -4% 4% 4% Reported EPS 1.76 2.24 2.64 1.83 2.13 2.49 -4% 5% 6% Adjusted EPS 1.76 2.24 2.64 1.83 2.13 2.51 -4% 5% 5% DPS 0.70 0.89 1.06 0.75 0.86 1.02 -7% 3% 4% BVPS 11.71 13.24 14.98 11.68 13.13 14.81 0% 1% 1% GP margin 34% 35% 36% 34% 34% 35% -0% 0% 1% EBITDA margin 25% 25% 26% 24% 24% 24% 1% 1% 2% EBIT margin 20% 21% 21% 19% 20% 20% 1% 1% 2% Adj NPAT margin 16% 16% 17% 16% 16% 17% -0% -0% 0% Source: HSBC, Refinitiv Eikon
41 EQUITIES ● AUTOS 7 February 2019
Ferrari
We expect positive mix, volume growth, FX tailwinds and lower sales to Maserati to lead to margin improvement in 2019e Operating profit growth should then re-accelerate in 2020e with the ramp-up of the Monza SP1/2 and the new hybrid vehicles Pace and quality of growth justifies premium valuation, in our view. Raise TP to EUR130 (from EUR125), implying 17.8% upside
Giulio Pescatore*, CFA Investment case: potential for margin expansion underestimated Analyst HSBC Trinkaus & Burkhardt AG [email protected] We expect margin expansion and strong FCF to surprise to the upside in 2019 +49 211 910 3018 Ferrari presented its 2018 results and its 2019 guidance on 31 January. While Ferrari’s
guidance for 2019 was mostly in line with consensus expectations, commentary around model * Employed by a non-US affiliate of HSBC launches, mix and orderbook sent the stock 12% higher intraday, with Ferrari’s share price now Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations up 27.5% ytd. What surprised the most was not the guidance, but what is embedded in it. Management explained that its 2019 guidance does not account for sales of the new V12 Sport supercar that Ferrari is expected to launch during the summer, and includes only few units of the Monza SP1&2 cars. Bringing forward to 2020 the ramp-up of these two models that feature an exceptional level of profitability, and we expect to see positive 2020e earnings revisions in the near term. We are 4% ahead of consensus on adj. EBIT for both 2019e and 2020e.
Despite the pace of volume growth with Ferrari approaching 10k units in 2019e, management Positive mix will be key to margin expansion in 2019e confirmed that it expects to see positive mix. After a difficult first half due to tough comps and higher sales of Portofino, H2 should benefit from the sales of the first few units of the 499 Monza SP1&2, which was presented in September. In addition to the Monza we see three other tailwinds for margin in 2019e. We expect: (i) the positive effect the Pista cars phase-in will have on margins as they replace the 488; (ii) the launch of a new hybrid car, possibly the successor of the 488, that we expect to see in Geneva in March; and (iii) the relatively easier comps in H2, given the substantial number of Portofino already delivered in H2 2018.
We continue to like the long-term story: next catalyst could be the launch of the first hybrid model in March We continue to consider Ferrari the most resilient company in our Global autos coverage. We believe the investments it is undertaking in its 2022 plan will allow it to continue to grow, particularly from a profitability and cash generation perspective, well beyond that time horizon. The next catalyst for the share price could be the launch of the first new generation hybrid vehicle, which we expect to see in March at the Geneva Motor Show. The introduction of hybrid powertrains at Ferrari is a significant opportunity to increase pricing, in our view. We expect to see the price of the new vehicle considerably above that of its ICE predecessor, highlighting the potential for price increases as Ferrari electrifies its line-up – the company expects 60% of its portfolio vehicles to be electrified by 2022.
42 EQUITIES ● AUTOS 7 February 2019
Ferrari – Company overview
Revenue by segment and margin development Company description Ferrari NV is an Italian luxury carmaker with a 25% global market share in the luxury segment. In 2017 it generated revenue of 5.0 35.0% EUR3.4bn and adj. EBIT margin of 24.3%. Shipments in 2017 reached 8,398 vehicles, with the US the largest single market with around 30% 30.0% 4.0 of shipments, followed by UK (10%) and Germany (8%). Ferrari 25.0% operates in four business lines: 3.0 20.0% Cars and Spare parts (72% of sales): includes revenue generated from shipments of vehicles including personalisation 15.0% 2.0 and spare parts; 10.0% Engines (11% of sales): Includes revenue generated from the Revenue (EURbn)Revenue 1.0 5.0% sale of engines to Maserati and from the rental of engines to other Formula 1 racing teams; 0.0 0.0%
Sponsorship commercial and brand (14% of sales): Includes
2013 2018 2012 2014 2015 2016 2017
2020e 2021e 2022e 2019e sponsorship revenue earned by the Formula 1 team, share of F1 Cars & spare parts Engines commercial revenues and net revenues generated through Spons. comm. & brand Other merchandising, licensing and royalty income. Adj. EBIT (%, RHS) Other (3% of sales): Interest income generated from financial services activities and revenue from Mugello racetrack.
Source: Company data, HSBC estimates
Revenue split by segment (2017) Revenue split by region (2017)
Sponsorship Other commercial 3% Rest of EMEA and brand APAC 15% 44% 14% United Kingdom
Greater 10% Germany China 8% 7% Switzerland Engines 4% 11% 5% Italy 4% 4% France 9% Cars and Middle East spare parts Americas 72% Rest of EMEA 34%
Source: Company data Source: Company data
Shipments by type Operating FCF, capex and ROCE
12,000 1,200 50%
10,000 1,000 45% 40% 8,000 800 35% 6,000 600 30% 4,000 400 25%
2,000 200 20%
1,112
280 328 407 476 577 652
- 0 15%
2013 2016 2012 2014 2015 2017 2018
2016 2017 2018
2021e 2019e 2020e 2022e
2019e 2020e 2021e 2022e Sport GT Specials Limited Editions Total FCF (HSBCe) Capex ROCE %
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
43 EQUITIES ● AUTOS 7 February 2019
Ferrari – Investment case in six charts
Adj. EBIT bridge to 2022e Specials will make up a significant portion of shipments, and support margins in 2019/20e
2,400 29.1% 13 15% 12 +674 000 10.7% 2,000 11 10.2% 1,451 10 8.5% 10% 1,600 9 7.1% +528 22.7% (343) (129) 8 4.8% (27) ' Shipments 7 1,200 5% 775 6 800 5 4 - 400 3 (3.1%) 2 - 1 Adj. Vol. Mix. Ind. SG&A Other Adj. - (5%) EBIT Costs / EBIT 2017 2018e 2019e 2020e 2021e 2022e 2017 R&D 2022e Range Specials Limited Editions Shipments growth % (RHS)
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
Cash returns, EURm We have not yet seen positive consensus revisions ytd 112% 825 900 120% 4.40 800 91% 100% 4.20 700 84% 74% 551 600 71% 80% 4.00 481 471 500 3.80 60% 43% 400 3.60 235 300 40% 3.40 200 121 20% 3.20 100 - 0% 3.00 2017 2018e 2019e 2020e 2021e 2022e Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Dividends Buybacks % of FCF EPS 2018e EPS 2019e
Source: Company data, HSBC estimates Source: Factset 04/02/2019
Discount to Hermès at high-end of historical HSBC vs. consensus 12-months range, but we expect positive earnings revisions
-8% 110% 107% 105% -12% 104% 104% 105% 104% 102% 101% -16% 99% 100% 99% -20% 95% -24% 90% -28% Sales Adj. EPS Sales Adj. EPS Sales Adj. EPS -32% EBIT EBIT EBIT Feb-18 May-18 Aug-18 Nov-18 Feb-19 2019e 2020e 2021e Discount to Hermès 1st quartile HSBCe vs. Consensus Consensus = 100%
3rd quartile Source: Factset 14/01/2019, HSBC estimates Source: Company data, HSBC estimates, Factset consensus at 04/02/2019
44 EQUITIES ● AUTOS 7 February 2019
Summary of estimates changes Group (EURm) New 2019e Old 2019e Change New 2020e Old 2020e Change New 2021e Old 2021e Change new/old % new/old % new/old % Group revenue 3,622 3,613 0.2% 3,951 4,035 (2.1%) 4,343 4,345 (0.1%) growth y-o-y (%) 5.9% 5.4% 9.1% 11.7% 9.9% 7.7% Adj. EBITDA 1,256 1,267 (0.9%) 1,442 1,460 (1.3%) 1,640 1,636 0.3% as % of sales 34.7% 35.1% 36.5% 36.2% 37.8% 37.6% Adj. EBIT 906 917 (1.2%) 1,033 1,048 (1.5%) 1,140 1,120 1.8% as % of sales 25.0% 25.4% 26.1% 26.0% 26.3% 25.8% Net profit 708 717 (1.2%) 748 762 (1.8%) 828 814 1.8% as % of sales 19.6% 19.8% 18.9% 18.9% 19.1% 18.7% EPS reported (basic) (EUR) 3.73 3.78 (1.2%) 3.95 4.02 (1.8%) 4.37 4.29 1.8% Capex 754 802 (6.0%) 696 763 (8.7%) 682 710 (3.9%) as % of sales 20.8% 22.2% 17.6% 18.9% 15.7% 16.3% Industrial FCF 476 692 (31.2%) 577 307 87.6% 652 531 22.9% Source: HSBC estimates
Estimate changes
We change our estimates slightly to reflect the recent FY results and the indication that certain models, such as the V12 sport Supercar, will go on sale later than we originally expected. We make small negative revisions in 2019e and 2020e on all operating metrics. We raise 2021e by on average 2% on adj. EBIT and adj. EBITDA to reflect the continued ramp-up of models with very high profitability expected in that year. We cut our capex forecast in line with management indications on the FY conference call. Finally, we reduce our Ind. FCF forecast for 2019e to reflect guidance and the lower than expected Monza deposits intake.
HSBC vs. consensus
While we are only slightly ahead of consensus on adj. EBIT and EBITDA for 2019e (2.1% and 3.6% respectively), we are significantly above on margins. We believe positive mix and continued weakness in the engine segment will positively affect margins. We see more upside to consensus on 2020e and 2021e, where we are on average 4% ahead on operating profit thanks to the benefit of the ramp-up of the supercars. We still think consensus somewhat underestimates the joint benefit of the roll-out of the Monza models and the phase-in of the two 488 Pista models.
HSBC vs. consensus Group (EURm) 2019 2019e HSBCe vs. Guidance 2020 2020e HSBCe vs. Guidance 2021 2021e HSBCe vs. HSBCe Cons. Cons. HSBCe Cons. Cons. HSBCe Cons. Cons. Shipments 9,912 9,604 10,425 growth y-o-y (%) 7.1% (3.1%) 8.5% Revenue 3,622 3,670 (1.3%) >3,500 3,951 3,995 (1.1%) >3,800 4,343 4,286 1.3% growth y-o-y (%) 5.9% 7.3% 9.1% 8.8% 9.9% 7.3% Adj. EBITDA 1,256 1,230 2.1% 1.2 - 1.25 1,442 1,395 3.4% >1,300 1,640 1,574 4.2% Adj. EBITDA margin (%) 34.7% 33.5% +115bps ~34% 36.5% 34.9% +158bps 37.8% 36.7% +105bps Adj. EBIT 906 875 3.6% 0.85 - 0.9 1,033 989 4.4% >900 1,140 1,097 3.9% Adj. EBIT margin (%) 25.0% 23.8% +118bps ~24.5% 26.1% 24.8% +138bps 26.3% 25.6% +65bps Adj. Pre-tax profit 885 881 0.5% 1,011 983 2.9% 1,119 1,070 4.6% Adj. Net Profit 708 673 5.2% 748 732 2.2% 828 781 6.0% EPS (basic) 3.75 3.52 6.5% 3.96 3.89 1.8% 4.39 4.26 2.9% Adj. EPS (EUR) 3.73 3.52 6.0% 3.50 - 3.70 3.95 3.89 1.4% >3.40 4.37 4.16 5.0% Industrial Free cash flow 476 384.3 23.9% ~450 577 439.6 31.2% >400 652 623.7 4.5% Capex 754 720.4 4.7% 696 677.3 2.8% 682 540.6 26.1% Source: HSBC estimates, Factset consensus at 04/02/2019
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Michelin
Share price dropped c15% in October 2018 although FY18 guidance “refinement” only implied 5% downside to pre-Q3 consensus Straightforward bridge to 2020e EBIT – excessively discounted on execution risk concerns, in our view HSBCe 4-8% above 2019/20e EBIT consensus and c9/12% 2019/20e FCF yield. Our EUR115 TP implies 22.4% upside
Equity case in brief: 2020e EBIT excessively discounted Henning Cosman* Analyst HSBC Bank plc Communication misfire created additional value in the stock: Michelin surprised the market on [email protected] +44 20 7991 0369 18 October with a Q3 release that was originally due on 22 October leading to a 15% share price drop, from which the shares still have not recovered. The release included a “refinement” of guidance * Employed by a non-US affiliate of HSBC (there was no hard guidance before) to put in place a new “solid floor” of EUR2,660m FY18 adj. Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations EBIT, which at the time implied c5% downside to pre-results FY18 consensus. Indeed, we still expect
Michelin to deliver and do a bit better than this solid floor guided at the time, but the significance is that only five weeks before the release, Michelin issued a press release specifically to confirm guidance “after reviewing the main external factors”. With that, and the fact that Michelin was a very crowded trade in our view going into Q3 results, it may be unsurprising that the shares dropped a lot. However, the stock is now attractively valued, if investors are prepared to look through the recent communication issues and give Michelin some benefit of the doubt for executing a relatively straightforward route to its ~EUR3.325bn 2020 adj. EBIT and ≥1,600m 2020 FCF guidance (implying 10% FCF yield). The recent acquisition of Multistrada is not yet included in our financial estimates; but we view the transaction as positive – not least as a signal that Michelin will pursue volume growth and therefore needs more capacity.
If considering 2019e FX (at Execution risks understandable, but otherwise compelling 2018-20e bridge: With cEUR200m current spot) rather than just incremental EBIT from the Camso and Fenner acquisitions, EUR100m net efficiencies, cEUR200m the negative FX of 2017/18, mix, cEUR300m volume drop-through (c150m EBIT on 2ppt group volume growth in 2019 and 2020, guidance is cEUR3.4bn – c8% above consensus respectively) and cEUR70m positive FX at current spot rates compared to the EUR2,660m FY18 “solid EBIT floor”, Michelin’s 2020 EBIT guidance of ~EUR3,325m appears well supported. The c2ppt annual volume growth is undemanding in our view, supported by continued solid growth in Specialty Tyres and versus an easy 2018 comp base – so that Michelin should also be able to continue to afford offsetting raw material inflation with pricing at the same time.
Buy – TP EUR115: Like all suppliers and tyremakers, we value Michelin on a combination of a peer- multiple-based SOTP (80% weight; EUR110) and a DCF (20% weight; EUR133). Our EUR115 TP implies 2019/20 target PE multiples of 11.0x and 9.5x on our 4% and 8% above consensus 2019/20e EPS estimates. Our EUR1.9bn 2020e FCF corresponds to c12% FCF yield on current levels and even Michelin’s own 2020 FCF guidance of ≥EUR1,600m – which is by its own admission (even) more conservative than its EBIT guidance – still corresponds to c10% FCF yield, which is highly attractive in our view.
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Michelin – Company overview
Revenue and margin development Company description:
30 18% Michelin is the world’s 2nd largest tyre manufacturer (behind 3.6% 2017-20e group Bridgestone), with c20% market share in car and heavy truck 25 3.3% 2008-17 group revenue CAGR 15% tyres in the EU and NAFTA, respectively, and near 50% market revenue CAGR 20 12% share in specialty tyres globally.
15 9% Michelin has a c30% exposure to the important premium car tyre segment (high-growth, high-profit ≥18 inch rim size) which grows 10 6% at c10% CAGR over 2018-20e vs a flattish market for the 5 3% standard segment (≤17 inch).
0 0% Michelin benefits from one of the strongest brands, best
technology and highest ASPs globally, but its productivity lags
2012 2013 2008 2009 2010 2011 2014 2015 2016 2017
2019e 2020e 2018e behind the industry benchmark due to an EU/France-heavy Specialty tyres (EUR bn) Truck Tyres (EUR bn) legacy production footprint – also an opportunity as it should PCLT tyres (EUR bn) Group adj. EBIT margin (%, RHS) over time close some of that productivity gap.
Source: Company data, HSBC estimates Source: Company data, HSBC
Revenue split by segment (2017) EBIT split by segment (2017) Specialty tyres Specialty 15% tyres 25%
Truck tyres PCLT tyres PCLT tyres 28% 57% 57% Truck tyres 18%
Source: Company data Source: Company data
Revenue split by region (2017) FY2018e adj. EBIT margin in SR1 (car tyres) already near mid-point of mid-term target. SR2 (truck) and SR3 (specialty) still have upside
old: new: 20-24% 17-24% Others 24% 18% 20%
Russia new: Europe 16% 1% 11-15% new: 39% old: 9-13% China 10-12% 5% 12% old: 7-9% 8% 12.1% 19.5% 8.6% 4% North America 0% 37% SR1 SR2 SR3
Source: Company data Source: Company data, HSBC estimates; SR1 = Passenger Car and light truck tyres, SR2 = Truck tyres and SR3 = Other activities including Specialty tyres
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Michelin – Investment case in six charts
Adj. EBIT by division (EURm): High-margin SR3 2020 adj. EBIT guidance raised to >EUR3.7bn share in 2020e forecast still below 2012 peak (or cEUR3.4bn at current FX) – still too low in (even incl. recent M&A) – maybe too our view – as is consensus which is even lower conservative but bodes well for perceived value at EUR3.165bn… 4,000 3,417 price vs RM Efficiencies vs inflation: 3,500 3,110 costs: neutral +EUR50m 3,000 2,709 p.a. 2,692 2,742 34% 2,423 34% >EUR3,700m 2,500 20% 23% 22% 2,000 1,695 39% 18% 22% 19% 18% >EUR2,692m 19% 1,500 25% 15% 18% 1,000 59% 49% 58% D&A
48% 2016 59% Price
500 60% 43% 2020e
Inflation
Services Efficiencies
0 Acquisitions Volume & Mix & Volume
2010 2012 2016 2017 2018e 2019e 2020e materials Raw 2020e (exc. FX) (exc. 2020e
SR1 SR2 SR3 rates FX current At
Source: Company data, HSBC estimates; SR1 = Passenger Car and light truck tyres, SR2 = Source: Company data, HSBC Research Truck tyres and SR3 = Other activities including Specialty tyres
… while we forecast EUR3.4bn 2020e adj. EBIT … and while ML guides 2020 FCF of >EUR1.6bn as shown below – although excluding any this still appears too low – with the deviation to synergies on M&A and below-guidance our FCF estimate almost 2x the deviation to our competitiveness gains EBIT estimate (EURm)
EURm 6,000 1,586 3,600 5,000 118 3,400 0 198 10 4,000 3,398 3,200 329 245 217 3,000 1,795 300 1,894 3,000 139 2,000 1,600 8 120 833 38 124 2,800 200 3,417 1,000 0 3,110 2,600 234 0 2,742
2,400 2,709
D&A
NWC
Taxes Capex
2,200 Others
Finance costs Finance
2018e 2017a 2019e 2020e
2020e guidance 2020e
Others Others Others
2020 FCF target FCF 2020
Volume Volume Volume
Pension cash out cash Pension
Price mix Price mix Price mix Price
2020 Adj. EBIT target EBIT Adj. 2020
Raw materials Raw materials Raw Raw materials Raw Source: Company data, HSBC estimates; Others includes FX, D&A and competitiveness vs Source: Company data, HSBC Research inflation
Michelin sees solid car tyre market growth in …with higher market growth in ≥18” (10% 17- 2019-21 – with a general ambition to outgrow 21e CAGR), which represents c30% of Michelin the market despite a strict pricing policy… volume
110 170 160 108 160 CAGR 3% 106 150 141 140 104 144 130 122 102 CAGR 1% 136 120 110 123 100 110 100 98 100 112 96 90 100 80 94 2017 2018e 2019e 2020e 2021e 2017 2018e 2019e 2020e 2021e PC worldwide tyre market OE RT
Source: Michelin, base 100 in 2017 in tonnes Source: Michelin, base 100 in 2017 in tonnes
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Michelin sees itself well positioned for a …and especially in the highly-profitable ≥ strong re-acceleration in overall Chinese 18” segment thanks to its strong local replacement tyre market from 2020… brand recognition
140 220 129 195 200 CAGR 17- 130 179 21: 18% 117 CAGR 17- 180 196 120 21: 5% 160 147 165 110 104 140 100 100 112 123 100 108 120 100 134 100 99 100 90 100 115 80 100 80 2017 2018e 2019e 2020e 2021e 2017 2018e 2019e 2020e 2021e OE RT OE RT
Source: Michelin, base 100 in 2017 in tonnes Source: Michelin, base 100 in 2017 in tonnes
Latest comments from company
Update: In its latest investor Most recently, Michelin has been vocal about its mid-term market potential in China. While it only presentation Michelin started expects market recovery to +4% growth in the overall Chinese replacement tyre market in 2019 to push China strongly – (after 0% in 2018e, but +7% to +8% in each year since 2013), it expects very strong growth in the namely ≥18” tyres highly-profitable ≥18” tyre segment in China in 2019-21e, where it sees itself as well positioned. According to its own data, Michelin has outperformed the global ≥18” tyre market volumes in 2015- 18e and says its brand power score1 is almost 4x higher than the runner-up’s in China.
HSBC vs. consensus
We are in line with consensus for 2018e adjusted EBIT, as both consensus and our estimates orientate around the EUR2.66bn “solid floor” guided with the Q3 results. Nevertheless, we are 4% and 8% above consensus for 2019e and 2020e adjusted EBIT. While current 2020e adj. EBIT consensus is only at EUR3,154m (even Michelin’s conservative guidance is 3,325m), we forecast EUR3,417m (8% above consensus) despite our cautious assumptions on competitiveness saving (further EUR30-35m upside possible) and also cautious assumptions on the synergies from Michelin’s recent acquisitions, assuming them to be backend loaded.
HSBC versus consensus EURm 2018 2018 cons HSBCe vs 2019 2019 cons HSBCe vs 2020 2020 cons HSBCe vs HSBCe cons (%) HSBCe cons (%) HSBCe cons (%) Sales 21,701 21,725 0% 23,689 23,042 3% 24,393 23,605 3% Adjusted EBIT 2,709 2,692 1% 3,110 2,989 4% 3,417 3,154 8% Margin (%) 12.5% 12.4% 13.1% 13.0% 14.0% 13.4% Basic EPS (EUR) 9.42 9.70 -3% 10.52 10.81 -3% 12.11 11.57 5% Source: HSBC estimates, consensus collated by Michelin IR dated 28 November 2018
1 Michelin shows in its investor presentation a BCM study conducted by market research institute Millward Brown, based on a reduced brand list of Kumho, Hankook, Continental, Pirelli, Dunlop, Goodyear, Bridgestone and Michelin where it scores 42.2%, far ahead of 2nd placed Bridgestone at 11.8%
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Renault
Carlos Ghosn’s resignation paves the way for a better relationship with Nissan and should reduce the holding discount Be aware that FY18 results (due on 14 Feb) should be rather negative; hence, we focus more on H2 19e and thereafter With 2019e PE around 4.0x PE, we consider the stock as cheap and reiterate our Buy rating. Our EUR73 TP implies 21.4% upside
Horst Schneider* Investment case Equity Analyst HSBC Trinkaus & Burkhardt AG Management changes and potential impact on the RNO-Nissan alliance: While in jail in [email protected] +49 211 910 3285 Japan, Carlos Ghosn finally filed his resignation as CEO and chairman of Renault (23 Jan 2019, source: Bloomberg). In our view, this paves the way for a better relationship with Renault’s * Employed by a non-US affiliate of HSBC alliance partner Nissan (Nissan; 7201 JP; JPY905, not rated). French politicians as well as Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Renault and Nissan stated again in the past few weeks that the stability of the alliance is crucial
(Source: Nikkei Asian Review, 24 Jan 2019). New Renault CEO Thierry Bolloré (formerly COO) knows the company already for years and knows what has to be done operationally to improve results, while new chairman Jean-Dominique Senard is known for his stakeholder approach and good relationship with the French government.
Valuation is very low and bad news is priced in, in our view Renault shares are down by 10% since the arrest of Carlos Ghosn in Japan on 19 November Any improvement in the RNO-Nissan relationship can 2018 (Comparison: MSCI Europe Autos +1% since then). Since the end of Q1 2018 (when reduce Renault’s holding there were Bloomberg reports that Renault and Nissan were discussing a merger) Renault discount, in our view shares are down c40% (vs EU auto sector c-20%). 12m forward (Factset) consensus EPS for Renault has come down by c5% in that time frame, whereas 35% of the share price decline comes from a de-rating (source: Factset, HSBCe). 12m forward consensus PE stands at 3.9x for Renault and 6.2x for the EU auto sector (as at 24 January 2019; source: Factset). At the current Renault share price, the Nissan stake is valued at around a 60% holding discount (assuming the rest of Renault’s assets are valued in line with our SOTP assumptions). We think the positive governance news and a subsequent improvement in the Renault-Nissan relationship could reduce this discount.
But be aware that FY18 results could disappoint We think these governance changes alleviate some investors’ concerns on the stability of the We are 4% below sales and clean EBIT consensus for H2 Renault-Nissan alliance, but we still warn that upcoming FY18 results (due 14 February) should 18 figures not be a positive catalyst. Unit sales ex Avtovaz, China and Iran (= Renault Core) are down by 11% in Q4 18a (source: Renault) driven by weak emerging market sales but also by 14% lower sales in Europe (also due to a supply shortage at gasoline engines). We only expect a group clean EBIT of around EUR1.58bn (=4% below consensus) and an automotive operational FCF of around zero for H2 18.
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Renault – Company overview
Group sales and Clean EBIT margin Company description Renault is a French mass market carmaker. It is the third largest 70 8.0% carmaker in the EU (behind VW and PSA). The French state with its c15% stake is its largest shareholder but due to its double voting 60 7.0% rights, enjoys considerable influence over the automaker. 50 6.0% Unlike other European carmakers Renault has a very limited 5.0% presence in China. However, due to its acquisition of AvtoVaz in 40 Russia it has considerable exposure to that region. Also by 4.0% virtue of its small car business, Renault has sizeable exposure to 30 3.0% the Indian and Brazilian markets too.
20 2.0% Through cross shareholding Renault and Nissan became strategic partners in 1999, and after Nissan’s acquisition of 10 1.0% Mitsubishi, it too became part of it alliance. It is one of the more 0 0.0% successful strategic partnerships in a sector which has seen its
fair share of failed M&A and alliances.
2014 2017 2012 2013 2015 2016
2020e 2019e 2021e 2018e Renault has recently seen top management churn (after the Carlos Group sales (EURbn) Ghosn scandal) and is now led by Thierry Bolloré (CEO, previously Group Clean EBIT (%), rhs COO) and Jean Dominique Senard (Chairman, ex. Michelin CEO). Previously both the CEO and Chairman roles were held by Mr Ghosn who was also the Chairman of Nissan and Mitsubishi. Source: company data, HSBC estimates
Revenue contribution by business (2018e) Clean EBIT contribution by business (2018e)
6% 5% 34%
60% 6% 89%
Renault Automotive AvtoVaz RCI Banque Renault Automotive AvtoVaz RCI Banque
Source: HSBC estimates Source: HSBC estimates
Unit sales exposure by region (2018e) Renault-Nissan Alliance structure
20%3%% French 12% State 1% 15.0% 43.4% 21% 61% Renault 15.0% Nissan 34.0% Mitsubishi
3.1% 3.3% 1.54% 1.54%
Daimler West + Central Europe East Europe North America South America Greater China ASEAN Source: HSBC estimates Source: Bloomberg
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Renault – Investment case in six charts
Renault has underperformed other car makers Renault’s stub value stands now at around significantly since April 2018 EUR-3.5bn (implying >50% negative discount to the market value of the Nissan stake) 130 120 7,500 110 5,000 100 2,500 90 0 -2,500 80 70 -5,000 60 -7,500 50 -10,000
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Oct-15 Oct-16 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Apr-16 Apr-17 Oct-17 Apr-18 Oct-18
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 RNO Stub (EURm) RNO (price) PSA (price) Sector (price)
Source: FactSet Source: HSBC estimates, Factset; Renault Stub = Market Cap Renault – Market value of Associates - RNO Automotive Cash + Pensions- BV of RCI
Good cost savings expected on the back of the Group clean EBIT will grow again as of 2019e; launch of the CMF-B platform in 2019 significant acceleration as of 2020e 3000 800
4,500 7.3% 7.2% 7.4% 2500 700 7.1% 7.2% 2000 600 7.0% 4,000 2022 clean EBIT target: 7% 1500 6.7% 6.8% 6.6% 500 6.6% 1000 3,500 6.4% 500 400 6.2% 6.2%
0 300 3,000 6.0% 2018e 2019e 2020e 2021e 2022e 2017 2018e 2019e 2020e 2021e 2022e CMF-B platform volumes (000 units) Group clean EBIT (EURm) Monozukuri cost savings (EURm) Group clean EBIT margin (%), rhs
Source: HSBC estimates; Monozukuri = manufacturing cost saving programme Source: company data, HSBC estimates
Renault is under less pressure to reduce CO2 We are below consensus on revenue but ahead emissions than its peers on earnings for 2019-20e
130 115% 111% 125 105% 120 105% 98% 98% 97% 97% 115 95%
110 85% 105 Sales Clean Sales Clean Sales Clean EBIT EBIT EBIT 100 2018e 2019e 2020e 95 HSBC Estimates vs. Consensus Renault PSA group VW group BMW MBC consensus = 100% CO2 emissions by carmaker (g/km) in EU, 2017a
Source: ICCT; Renault average emissions calculated by taking weighted average of Renault Source: HSBC estimates, FactSet for consensus and Dacia brands in EU
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HSBC estimates versus IR consensus EURm 2018e RNO IR 2018e HSBC HSBC vs. 2019e RNO IR 2019e HSBC HSBC vs. 2020e RNO IR 2020e HSBC HSBC vs. cons Cons cons Cons cons Cons Sales 57,521 56,448 -2% 58,187 56,569 -3% 59,567 57,560 -3% Clean EBIT 3,563 3,492 -2% 3,608 3,753 4% 3,704 4,083 10% EBIT 3,402 3,297 -3% 3,498 3,696 6% 3,610 4,026 12% Net income (after minorities) 3,909 3,809 -3% 4,026 4,142 3% 4,119 4,508 9% Automotive net cash 2,891 2,916 1% 2,887 3,401 18% 3,109 4,367 40% DPS 3.81 3.70 -3% 3.94 4.10 4% 4.12 4.31 5% Source: HSBC estimates, consensus collated by Renault IR
Our bull story: significant cost savings from 2020-22e Renault’s 2022 plan (presented in October 2017) is the main reason we like the stock. While CMF-B platform (launch in 2019e) will cover >40% of most EU car makers talk about the increasing cost of more content for the reduction of CO2 group production by 2022 emissions and the consequent burden on earnings (particularly for German car makers), and will lead to accelerated Renault guides for accelerated earnings growth as of 2020e due to synergies from the cost savings implementation of the CMF-B platform, on which the Clio and Captur as well as the whole Logan range will be built (as of 2021). The platform will account for 20% of group production in 2020e, c35% in 2021e and c45% in 2022e. We expect total platform volumes to amount to c2m units in 2022e, double the size of the CMF C/D platform launched in 2015. Since we expect Monozukuri cost savings to accelerate as of 2020, we are 10% ahead of clean EBIT consensus for 2020e. In contrast to consensus, we expect earnings growth momentum to return.
No estimate changes, still ahead of EBIT consensus for 2019/20e
We updated our estimates on 28 January 2019 (Buy: Update on catalysts post Ghosn’s resignation). We are 4% ahead of clean EBIT consensus for 2019e and 11% ahead for 2020e. We do not assume the management changes will trigger any change in our forecast or in Renault’s 2022 mid-term plan.
How we derive our EBIT estimate for the automotive segment (ex-AvtoVAZ) EURm 2016 H1 17 H2 17 2017 H1 18 H2 18e 2018e 2019e 2020e 2021e Recurring operating income from year ago 1,535 1,096 1,231 2,327 1,292 1,408 2,630 2,085 2,310 2,654 Revenues 48,995 26,995 26,535 53,530 26,867 23,417 50,284 50,302 51,095 51,405 Volume-based revenue change y-o-y 3,816 1,046 539 1,585 839 -1,695 -856 516 667 66 Volume-based operating leverage 1,036 346 147 493 160 -323 -163 28 150 63 Monozukuri + G&A cost changes 72 160 378 538 198 137 335 475 650 700 Price/Mix/Enrichment 115 -180 -50 -230 184 168 352 151 -255 -514 Foreign exchange rates -702 -95 -208 -303 -368 -382 -750 -329 0 0 Raw material Prices 331 -132 -262 -394 -192 -138 -330 -100 0 0 Others -60 27 172 199 11 0 11 0 -200 -200 Recurring operating income 2,327 1,222 1,408 2,630 1,215 870 2,085 2,310 2,654 2,704 as% of sales 4.7% 4.5% 5.3% 4.9% 4.5% 3.7% 4.1% 4.6% 5.2% 5.3% Source: Company data, HSBC estimates
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Bajaj Auto
Bajaj saw strong improvement in domestic 2W market share in 2018, led by new products and aggressive pricing Near-term uptick in rural markets (domestic), decent exports outlook and undemanding valuations provide support to our positive thesis Bajaj is the most diversified 2W player in India. Our INR3,200 TP implies 18.1% upside
Investment case: Well poised to benefit across Domestic and Yogesh Aggarwal* Head of Research, India Exports growth opportunity HSBC Securities and Capital Markets (India) Private Limited [email protected] A strong show in 2018: Volume growth (up 30% y-o-y in 2018) remains strong across +91 22 2268 1246 domestic (~60% of volumes) and export (~40%) markets for Bajaj. The company managed to
raise its domestic motorcycle (MC) market share from 14% in 1Q18 to nearly 20% in 3Q19, a * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ significant achievement. Recent launches and pricing action has helped growth in the domestic qualified pursuant to FINRA regulations market, while exports have risen on the back of stable macro and exchange rates in key overseas markets.
Market share gains likely to continue in the near term: We were positively surprised that despite industry headwinds (see Hit by Insurance, 2 October 2018 and Brace for a volatile 2019, 10 January 2019), the company reported 38% growth in 2W volumes for 3Q19 and 25% y-o-y volumes in January 2019, compared with low single digit volume growth for the industry. It continues to see strong demand for its entry level bikes CT100/Platina in the near term. Recent Pulsar launches, the imminent introduction of an electric scooter and the launch of the Husqvarna brand should provide additional near-term support. We expect Bajaj to continue to outperform the market in 4Q19 and subsequently see growth converging with the industry.
Focus on rural markets helps domestic industry demand: Notwithstanding the near-term impact of safety norms, we expect domestic 2W and 3W demand to be helped by measures taken by the government ahead of the General elections in mid-2019. The recent interim Budget announced a direct benefit scheme for farmers and income tax exemptions for a portion of the middle class, which in our view should help industry demand.
Valuations are relatively undemanding: Bajaj has a relatively well-diversified business portfolio, with presence across two wheelers, three wheelers and relatively high exposure to export markets, which makes the stock more defensive. However, it currently trades at 14x FY20e earnings (ex of KTM valuation), at a significant discount to its 5-year average of ~17x. Valuations are therefore undemanding, given the higher growth (relative to peers) and margins bottoming out in FY19e.
Risks in the near term: Crude prices have corrected significantly – more than 30% since the September 2018 peak. In the domestic market, while 3Ws continue to see robust sales, the base from the previous year has become tough. Bajaj is also likely to see a relatively higher blended pricing increase for its 2Ws portfolio as safety norms become effective from April 2019.
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Change in estimates
We marginally reduce our FY20/21e earnings by 3-4% to factor in lower margins. The company has increased investments in marketing (recently launched the “World’s Favourite India” campaign). Our lower margin also factors in the impact of upcoming safety regulations.
Change in estimates ______Old Estimates ______New Estimates ______Variance ______INRm FY19e FY20e FY21e FY19e FY20e FY21e FY19e FY20e FY21e Revenue(INRb) 301 337 365 298 333 360 -1.0% -1.1% -1.1% EBITDA(INRb) 52 61 67 50 59 65 -3.8% -3.9% -3.8% EBITDA Margin 17.2% 18.1% 18.4% 16.7% 17.6% 17.9% -49 bps -50 bps -50 bps EPS(INR) 154.9 182.7 200.9 155.7 176.9 193.8 0.5% -3.2% -3.5% Source: HSBC estimates
55 EQUITIES ● AUTOS 7 February 2019
Bajaj Auto – Company overview
Volume growth segmentation (FY18) Company Description
Export Bajaj Auto is the largest two wheeler / three wheeler company by 3Ws market capitalisation (> USD10bn) in India. It primarily 7% manufactures motorcycles in the entry level segment (Platina, CT100) and in the premium segment (Pulsar, Avenger, KTM) Exports Domestic The company has a strong exports presence in Africa (~50% of 2W 2Ws 2W exports), Latin America (~15%), South Asia and Middle East 35% 51% (~20-25% of 2W exports). It has a leading market share in many key export markets (eg Nigeria). Domestic Bajaj Auto has an experienced in-house R&D capability which is an 3Ws advantage over peers like HMCL (HMCL IN, INR2,855, Buy) The 7% company also owns nearly a 48% share in KTM AG (not listed)
Source: Company data, HSBC Source: Company data
Bajaj holds nearly a 48%stake in KTM AG and has Bajaj Auto has strong return ratios despite helped ramp up domestic sales for the brand significant cash on its balance sheet (USD ~2.5bn nearly 25% of market cap)
50000 120% 36% 105% 31.8% 100% 31% 27.7% 40000 26.1% 26% 80% 22.5% 22.5% 23.2% 30000 49% 60% 21% 20000 34% 32% 40% 16% 15% 11% 10000 20% 6% 0 0% FY15 FY16 FY17 FY18 FY19e FY20e FY13 FY14 FY15 FY16 FY17 FY18 Domestic KTM sales y-o-y (LHS) ROE
Source: Company data Source: Company data, HSBC estimates
Exports contribute nearly 40% of total revenues 600,000 29% 31% 31% 33% 40% Exports growth has seen a sustained 25% 550,000 22% recovery in the past 4 quarters. Pent 23% 30% 16% 500,000 12% up demand built up in past 3-4 years 20% 9% 8% 6% 450,000 10% 0% -3% 10% 400,000 -6% 0% -11% 350,000 -16% -17% -10% -22% 300,000 -27% -20% 250,000 -30%
200,000 -40%
4Q15 3Q14 4Q14 1Q15 2Q15 3Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 Export volumes(units) y/y growth(RHS)
Source: Company data
56 EQUITIES ● AUTOS 7 February 2019
Bajaj Auto – Investment case in six charts
Both domestic and export markets have picked … across both 2W and 3W segments, which up in the recent quarters… continue to do well 30% 25.6% 50% 42.9% 25% 17.8% 24.0% 40% 20% 14.0% 15% 8.7% 30% 21.7% 10% 25.2% 2.4% 7.4% 16.0% 5% 8.9% 20% -2.1% 4.7% 4.0% 8.6% 0% -3.7% -2.9% 10% 3.1% -5% 4.6% 8.9% 2.0% -10% 0% -6.8% -6.7% -12.3% -2.0% -3.8% -4.1% -15% -18.9% -15.0% -10% -8.9% -16.7% -20% -25% -20% FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e
Domestic y-o-y Exports y-o-y 2W y-o-y 3W y-o-y Source: Company data, HSBC estimates Source: Company data, HSBC estimates
Bajaj products are focused on the economy Margins are likely to bottom out in FY19 helped and premium segments, which have been by lower incentives on entry bikes, better gaining share within motorcycles exchange rates and lower commodity costs 100% 22% 21% 21.1% 80% 20.4% 20.3% 20% 60% 19% 19.0% 19.0% 18.1% 18% 18.2% 40% 17% 20% 16% 16.7% 15% 0% FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 Economy Executive Premium EBITDA margins
Source: Company data, HSBC Source: Company data, HSBC estimates
Net cash accounts for nearly 25% of the current Valuations have become undemanding as well market cap in our view 22 26% 24.5% 24% 21.6% 20 22% 20% 17.0% 18 18% 16% 14.4% 16 14% 12.9% 12.9% 10.9% 12% 14 10% 8% 12 6%
FY13 FY14 FY15 FY16 FY17 FY18 FY19e
Jul-16 Jul-18 Jul-14 Jul-15 Jul-17
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Net Cash as a % of Marketcap Bajaj - 12 mnth forward PE Avg- 5 yrs
Source: Company data, HSBC estimates Source: Refinitiv Datastream, HSBC
57 EQUITIES ● AUTOS 7 February 2019
Escorts Limited
Dealer inventory levels are lower than the previous year and provide room for normalised dispatches in the coming months Escorts is likely to be a key beneficiary of pre- and post-election impetus in rural and infra investments Our INR980 TP implies 42.2% upside
Vivek Gedda* Investment case: Market share gains likely to continue in 2019 Analyst, IT Services & Autos HSBC Securities and Capital Markets (India) Private Limited We expect Escorts to significantly outperform the industry in FY19e: The lower than [email protected] expected inventory levels (22-30 days) as we enter 4Q19 provide a decent cushion to our +91 22 6164 0693 growth expectations (5% y-o-y) for the quarter. However, our expectation factors in moderation in growth on a higher base from the previous year, which was led by a shift in the auspicious * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ buying season (Navaratri) to March (in 2018) compared to April (in 2019) this year. Overall, we qualified pursuant to FINRA regulations expect Escorts to significantly outperform industry growth with ~20% y-o-y in FY19 compared to guidance of ~12% y-o-y for TIV (total industry volume) from M&M and Escorts.
FY20 outlook seems better than Street expectations: Post three consecutive years of double digit growth, the Street is factoring in a significant decline in industry volume for FY20. With a pre- election focus on the rural economy and post-election, with the new government making quick announcements to start on a positive note (as seen in the case of recent state elections), there is a potential upside risk to current expectations in our view. Rural wages have started to trend up in recent months, while tighter execution on passing on MSP (minimum support price) price to farmers should help as well. We see limited correlation between farm loan waivers and tractor sales; however, any such announcements should help improve sentiment in the near term.
Low-hanging growth opportunities in non-tractor businesses; incrementally positive for earnings and valuations
Escorts remains focused on its FY22 targets to grow revenues 2.5x (compared to FY17), improve EBITDA margins to 13-14% (from c11% in FY18) and expand return ratios. The increased focus on exports, spares, implements and the engines business should help reduce exposure to tractor demand volatility. Assuming the company achieves all its targets, this implies an earnings CAGR of c25-30% for FY18-22e, which is significantly above the Street’s and our expectations.
Escorts has also seen significant scaling up in its ability to introduce new products over the past three years. New products launched in that time now account for nearly two-thirds of total tractor sales. New wet land tractors (paddy etc) should help gradually improve reach in Southern markets, where Escorts still has relatively low exposure.
58 EQUITIES ● AUTOS 7 February 2019
Escorts – Company overview
Revenue by segment (FY18) Company description Escorts is one of India’s oldest tractor manufacturers. The company now has three core businesses – tractors (80% of FY18 sales), construction equipment (15%), and railway equipment (5%). Escorts Railways has a strong presence in Northern and Central India, but sales are Construction 6% weak in the south and west of the country, offering significant growth 15% opportunities. The company has an annual production capacity of 100,000 tractors at its plant in Faridabad: Tractors (80% of sales): Manufactures mainly 20-60Hp tractors under three brands – Farmtrac, Powertrac and Steeltrac; Tractors Construction Equipment (15% of sales): Present mainly in backhoe 79% loaders and cranes – mainly supplying to infrastructure sector; Railway Equipment (5% of sales): Key supplier of braking system, suspension and couplers
Source: Company data,
Operating profits contribution (FY18) Operating margins by business
Construction 15.0% 13.5% Margins 13.9% 2% Railways 7% 10.0%
5.0% 1.9% Tractors 91% 0.0% Tractors Construction Railways FY18
Source: Company data Source: Company data
Escorts gained share in c60% of Indian states in FY18; significant room to grow in the south
Source: Company data, HSBC
59 EQUITIES ● AUTOS 7 February 2019
Escorts – Investment case in six charts
Margins set to improve across segments and Return on capital employed is trending up and key to improving operating metrics should help valuation re-rating
20.0% 28% Margins 18.0% 30% 27% 24% 14.0% 25% 15.0% 13.5% 13.9% 20%
10.0% 15% 12%
6.0% 10% 6% 5.0% 5% 1.9% 0% 0.0% FY16 FY17 FY18 FY19e FY20e Tractors Construction Railways RoCE FY18 FY21e
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
Escorts has gained the most share of the Railway order book has grown 4-5x in last 2-3 domestic tractor market in YTD FY19 years – supporting near to medium term growth YTD volume growth (FY19) 5000 30.0% 27.1% 24.4% 25.0% 4000 4500 18.6% 19.5% 4000 20.0% 15.5% 3000 3500 15.0% 3300 9.6% 4.5x 3000 10.0% 7.6% 2000 5.0% 1750 0.0% 15501500 1000 1300
10001100
TAFE Total
M&M 0 Escorts
1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 John Deere John
Tractors Ltd Tractors Railway order book (INRm) New Holland New International Source: Crisil, HSBC Source: Company data, HSBC Research
Construction Equipment segment volumes Further, in order to diversify, the company have grown 2x in last two years targets to grow exports to 3x in 3 years
1700 12 K 10 K 1500 10 K 1541 1300 1413 8 K 2x 13451331 1100 6 K 1,087 900 1,037 972 4 K 3 K 886 2 K 700 815 2 K 1 K 739 724 500 0 K 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 FY17 FY18 FY19e FY22t Escorts construction equipment volume Exports
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
60 EQUITIES ● AUTOS 7 February 2019
Hyundai Mobis
Mobis should benefit from rising EV trend within HMG as the sole supplier of EV parts (motors, battery packs, inverters and converters) Strong non-captive orders (global OEMs) continue and management now expects another 25% growth in 2019 Mobis is our preferred pick in the Korea sector. Our KRW250,000 TP implies 11.6% upside
Paul Choi* Investment case: non-captive growth strategy Analyst The Hongkong and Shanghai Banking Corporation Limited, Seoul Well positioned to enjoy higher growth Securities Branch 1. ADAS (Advanced Driver Assistance Systems): Mobis plans to spend KRW1.5trn on ADAS [email protected] +82 2 3706 8758 R&D and capex in 2019 and targets its R&D spending to equate to 10% of core parts revenue. Mobis already supplies ‘Level 2’ ADAS technology and aims to complete ‘Level 3’ * Employed by a non-US affiliate of HSBC technology by 2020. The company plans to internalise all the ADAS technologies, Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations especially sensing technology (camera and radar, etc.), and supply full ADAS technology
by 2021. The CFO also mentioned (at the Q3 2018 earnings call) that Mobis will seek M&A opportunities in the ADAS space if necessary.
2. EV transition within HMG (Hyundai Motor Group): As sole supplier of motors and battery packs to HMG, Mobis expects stronger revenue growth, due to both higher ASPs and volumes, given HMC/Kia’s plan to increase its NEV (New Energy Vehicles) line-up to 28 models by 2020. Currently, all HMG EV models are variants of ICE (Internal Combustion Engine) models; however Mobis expects strong volume growth once the pure EV platform is introduced in 2020, which will deliver both greater scale and cost reduction to Mobis due to platform modulisation.
3. Non-captive growth strategy: Mobis continues to focus on customer diversification as it plans to increase its supply to non-captive customers in China/EU/US. Although Mobis won a new module (front/rear chassis) contract from a premium automakers, it was not able to reveal the new order amount due to a non-disclosure agreement with a new customer. Mobis achieved an order intake of USD1.66bn on parts (+37% y-o-y) in 2018 as it won MDPS orders from an EV maker in the EU and an EPB order from a local OE in China according to the company.
Long-term growth remains intact While short-term earnings will be exposed to volatility in production in China by Korean OEMs, we forecast long-term structural improvement in earnings, backed by: (1) earnings stability in the A/S business; (2) an increasing portion of ADAS and NEVs; and (3) potential customer diversification in the US and EU.
61 EQUITIES ● AUTOS 7 February 2019
Hyundai Mobis – Company overview
Revenue trend and estimates Company description Hyundai Mobis is a Korea-based company that focuses on (KRWbn) Module After-market manufacturing of automobile components. The company’s business 50,000 divisions are Module (80% for 2018 Sales) and A/S (20% of 2018 Sales). Core parts sales (c33% of 2018 Module division sales) is 40,000 included in the Module division.
30,000 The Module and Part division is mainly engaged in manufacturing of automobile modules including chassis, cockpit 20,000 and front end modules. The company also produces automobile parts including electronic stability control systems, air 10,000 suspension systems, steering parts, brakes and others.
0 The A/S division manufactures automobile parts used for repair
and maintenance. After-sales division optimizes cost reduction
2012 2011 2013 2014 2015 2016 2017 2018
2010 through logistics and distributions. 2020e 2019e Source: Company data, HSBC estimates; 2018 data based on prelim results
Revenue split by segment (2018) Revenue split by region (2018)
After- ROW market Europe 6% 20% 15% Korea 42%
USA 21% Module 80% China 16%
Source: Company data; based on 2018 prelim results Source: Company data; based on 2018 prelim results
Hyundai Mobis R&D employees (2018) A/S (after-sales) division margin trend (KRWbn) (employees) 1,900 30.0% 5,000 1,800 25.0% 4,000 1,700 1,600 20.0% 1,500 3,000 15.0% 1,400
2,000 1,300 10.0% 1,200 5.0% 1,000 1,100 1,000 0.0%
0
1Q15 3Q18 3Q13 1Q14 3Q14 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 2014 2015 2016 2017 2018 1Q13 Domestic Overseas Sales Operating Margin
Source: Company data, HSBC; ; 2018 data based on prelim results Source: Company data, HSBC
62 EQUITIES ● AUTOS 7 February 2019
Hyundai Mobis – Investment case in six charts
HEV/PHEV/BEV sales forecasts Autonomous driving development road map (K units)
25,000 Full-HEV (LHS) 16.0% Phase Objective PHEV (LHS) 14.0% Phase I Establish full ADAS Sensor Portfolio 20,000 BEV (LHS) 12.0% (2018-2021) - internalize key technologies through PHEV/BEV penetration rate (RHS) 15,000 10.0% partnerships with specilaized companies 8.0% Phase II Secure global competitiveness in AD 10,000 6.0% (2022-2025) - centralize sensor signal processing 4.0% - mass production of Lv3, Lv4 AD tech 5,000 2.0% - Optimization of Radar/Camera systems - Technology applied AD platform 0 0.0% 2009 2013 2017 2021e 2025e
Source: IHS, HSBC estimates Source: Company data, HSBC
Increase in non-captive market orders Hyundai Mobis PB band chart trend (KRW) 500,000
400,000 2018 300,000
200,000
2017 100,000
(USDmn) 0 '11 '12 '13 '14 '15 '16 '17 '18 '19 0 500 1000 1500 2000 Mobis x 0.4 x 0.7 China EV Makers Others x 1.0 x 1.3 x 1.6
Source: Company data, HSBC Source: company data, HSBC estimates
Revisions to consensus HSBC vs. consensus
(KRWbn) 120% 117% 3,500 115% 111% 3,000 110% 105% 105% 106% 105% 2,500 101% 100% 2,000 95% 90% 1,500 2019e 2020e Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Sales Operating Profit Net Profit Net Profit Net Profit
Source: Quantiwise, HSBC estimates Source: Company data, HSBC estimates * HSBC vs Consensus, consensus = 100%
63 EQUITIES ● AUTOS 7 February 2019
Hyundai Mobis’s mid- to long-term vision
The company’s mid- to long-term vision is to become a future technology expert in the industry based on core parts manufacturing and system integration capabilities, especially on autonomous driving platform and connectivity systems.
The company’s future growth will be driven by: 1) future tech. business at 12% CAGR (Camera/ Radar/Lidar sensors, ECU); 2) core parts business at 8% CAGR (brake/steering/safety/lamp/ auto electronics); and 3) overseas module and A/S at 7% CAGR. Mobis has a strong plan to expand the non-captive customer base (40% of total revenue) by achieving USD10bn global OE orders (vs. USD0.5bn in 2015 and USD6bn in 2017).
To achieve the vision, Mobis will focus on forming alliances and partnerships with global peers. We think Mobis will be able to transform into a more tech-driven company focusing on both S/W and H/W of future cars.
Mid-long term vision – 8% CAGR to achieve KRW44trn revenue by 2025
Source: Company data
Mid-long term vision – Expanding non-captive customer base to 40%
[ Global OE orders (as-is) ] [ Global OE orders (plan) ]
10 bil. USD
MOBIS Plants PSA DAIMLER VW IKCO FAW SUBARU MAZDA GMMC Slovakia Czech (lamp) GAC-FCA MMC FCA (brake, steering) GM KARMA OPEL Korea (all parts) China (all parts) Mexico India (brake, safety, lamp) (airbag, auto-elec.) 6 bil. USD
0.5 bil. USD
2015 2017 2022(E)
Source: Company data, HSBC
64 EQUITIES ● AUTOS 7 February 2019
Livent
LTHM shares fell on an overreaction to a competitor’s announcement of lithium price weakness Low-cost operations, premium product focus, and long-term contracts should drive EBITDA growth with strong margins Our USD22.00 TP implies 74.6% upside
The integrated lithium pure play Alexandre Falcao Global Ag/EV Materials & LatAm Industrials Analyst End of year lithium price warning spooked the whole market HSBC Securities (USA) Inc. [email protected] Lithium peer Orocobre (ORE AU, not rated) rattled investors at the end of December when it +1 212 525 4449 cited softer than expected pricing in 4Q18 in a sales update call. Virtually all lithium stocks, Livent included, fell on the announcement. While we too expect average LCE (lithium carbonate
equivalent) prices to be down around 5% y-o-y in 2019e (from an average USD15.5k/ton in
2018e), Livent should largely be isolated from this, in our view. Firstly, the company sells primarily lithium hydroxide (and other specialty chemicals) which carries a premium and did not seen the weakness last year that spot carbonate did. Secondly, Livent deals in longer-term contracts (typically 2-5 years), and we expect their pricing to be fairly stable sequentially with some inflationary price increases. Together with rising demand and its low cost operations, we forecast a c30% CAGR for adj. EBITDA with steady 40%-plus margins for the company.
An established pure-play lithium producer poised to benefit from EV fuelled demand Livent is an integrated producer of only lithium as it has no other chemical segment, offering investors a cleaner option to gain exposure to the sector. While we expect EV demand to be the main catalyst for volume growth for Livent’s lithium hydroxide output, the company’s other products – butyllithium lithium and lithium metal – also address specialty niche demand in the pharmaceutical, polymer and aerospace sectors. To meet the expected increase in lithium demand from EV growth, the company has detailed a five-year USD1bn phased expansion plan to increase both its carbonate production and hydroxide conversion capacity. By end-2025, Livent expects to reach capacities of at least 60k tonnes of carbonate and 55k tonnes of hydroxide (most of the carbonate produced is used as feedstock for hydroxide). It expects to fund the expansion from available cash, cash generation and access to a USD400m revolving credit facility. Importantly, most of the added production capacity is already contracted out.
We rate Livent Buy with a target price of USD22.00 Although smaller than SQM (SQM US, Buy, USD42.49) and ALB (ALB US, Buy, USD81.30) in terms of production capacity, Livent is nonetheless an established lithium producer with its products qualified with various customers. Combined with the company’s position in the Salar del Hombre Muerto in Argentina, from which it operates one of the lowest cost (if not the lowest cost) lithium production operation globally, Livent looks well-positioned to continue benefitting from the lithium demand super-cycle. (See our report, Global EV Battery materials: Brighter tomorrow starts today, 2 December 2018.)
65 EQUITIES ● AUTOS 7 February 2019
Livent – Company overview
Revenue and margin development Company description
700 50% Livent is one of the world’s leading vertically integrated 600 producers of high-performance lithium products. The company 45% has over 20 years of experience operating its low-cost brine 500 resource in the Salar del Hombre Muerto in Argentina. 40% 400 Livent uses the majority of the lithium carbonate and lithium 35% chloride it produces as feedstock for lithium hydroxide and other 300 specialty compounds, produced in its plants in the US and 30% China. Livent’s technical expertise and reputation with long- 200 standing customers allows it to secure multi-year contracts. 25% 100 Livent previously operated as part of FMC Lithium, but was spun off in October 2018 to become the only lithium pure-play. FMC 0 20% retains a c86% stake in Livent but has stated that it will divest its 2016 2017 2018e 2019e 2020e Livent holdings through a pro-rata distribution on 1 March 2019. Net revenue, USD m % adj. EBITDA margin, right Source: Company data, HSBC Research estimates
Revenue by product (2017) Revenue by application (2017)
Lithium hydroxide Energy storage Lithium carbonate and Greases chloride Polymers Butyllithium 17% 19% Synthesis Other specialty 35% Other 45% 9% 26%
20% 12% 17%
Source: Company data, HSBC Research Source: Company data, HSBC Research
Revenue by region (2017) Lithium producers market share (2018e)
Asia Pacific Albemarle SQM North America Tianqi 1% Others EMEA 17% Livent 18% Albemarle 34% Latin America Others Livent 9% 23% 59% Tianqi 16% SQM 23%
Source: Company data, HSBC Research Source: Company data, HSBC Research estimates
66 EQUITIES ● AUTOS 7 February 2019
Livent – Investment case in six charts
The only established lithium pure-play (2017) 30% CAGR for Adj. EBITDA with 40%+ margins
Lithium hydroxide 300 50%
Lithium carbonate and 250 45% chloride 200 40% Butyllithium 17% 150 35% Other specialty
45% 100 30% 26% 50 25%
12% 0 20% 2016 2017 2018e 2019e 2020e Adj. EBITDA, USD m % adj. EBITDA margin, right Source: Company data, HSBC Research estimates Source: Company data, HSBC Research estimates
EVs will fuel significant lithium demand Livent among the lowest cost of production (USD/ton)
500,000 10,000
8,000 400,000 Livent 6,000 300,000 4,000
200,000 2,000
100,000 0
0 2015 2017e 2019e 2021e 2023e 2025e LCE tons for EVs
Source: Company data, HSBC Research estimates Source: Company data, HSBC Research estimates
Investing USD1bn to triple production capacity Livent's long-term contracts should isolate it from spot volatility
70 20,000
60 15,000 50
40 10,000 30
20 5,000 10 0 0 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May-18 2017 2018e2019e2020e2021e2022e2023e2024e2025e Europe Lithium Hydroxide Hydroxide capacity Carbonate capacity N America Lithium Hydroxide Source: Company data, HSBC Research estimates Source: Bloomberg, HSBC Research
67 EQUITIES ● AUTOS 7 February 2019
Ford Otosan
Provides c70% of CVs sold by parent Ford Motor in Europe; a market seeing benefits of growing e-commerce Potential production agreement with VW AG to manufacture certain VW LCV models in Turkey Our new TP of TRY68.8 (from TRY70.5 on weaker volumes) implies 22.9%; attractive 2018e dividend yield of 7.2%
Investment case: long-term sustainable export growth story Cenk Orcan* Analyst, Co-Head of Turkey Equity Research We see Ford Otosan as a long-term sustainable export growth story, catering to Europe’s HSBC Yatirim Menkul Degerler A.S. [email protected] commercial vehicle segment which is driven by e-commerce (on line shopping). The recent pull- +90 212 376 46 14 back in the shares (due in part to Brexit worries and in part to weak domestic demand) is an
opportunity to build positions in a quality business in our view. The company’s exposure to * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ Turkey is limited in terms of sales volumes thanks to exports comprising more than 80% of its qualified pursuant to FINRA regulations total sales. Ford Otosan provides more than 70% of the CVs sold by parent Ford Motor in Europe, indirectly benefiting from more competitively priced vehicles in the market driven by a weaker TRY (exports are based on a EUR based cost plus an absolute mark-up scheme with procurements in Turkey representing c50% of total costs). One concern that has been built into the share price lately has been a hard Brexit scenario given the company’s exposure to the UK Brexit worries in the price but market (c30% of total exports in 9M18). While our base case assumption behind our investment potential VW contract not view does not incorporate a hard Brexit outcome, we now think this is in the price to some extent and is mitigated by strong market share gains of Ford brand in the UK CV market (thanks to competitively priced vehicles sourced from Turkey).
We like Ford Otosan in terms of its capex cycle (an up cycle in investments for new generation vehicles to start from 2020e) and dividend visibility. We expect DPS of TRY4.1 (from 2018e profits, to be paid in 2019e), equating to a 2018e yield of 7.2%. Our lower TP is driven by downward forecast revisions for sales volumes and in part new FX assumptions (stronger TRY) vs previously impacting export revenues negatively. A potential positive catalyst is a production agreement with VW AG to manufacture certain VW LCV models in Turkey (such as Crafter and Transporter) as per talks between Ford and VW AG for jointly developing and manufacturing vehicles.
68 EQUITIES ● AUTOS 7 February 2019
Ford Otosan – Company overview
Revenue by segment and margin development Company description Ford Otosan is an equal 41/41 JV between Ford Motor Company and Koc Group, engaged in commercial vehicle and engine production and 50.0 9.0% importation and distribution of Ford brand vehicles. The company operates three plants with total production capacity of 440k p.a. Main 45.0 8.5% 40.0 products are; Transit (MVC), Transit Custom (MVC), Transit Courier 8.0% 35.0 (LCV) and Cargo (truck). 30.0 7.5% As an importer of Ford brand passenger cars the company commands 25.0 7.0% a c5% market share in the PC segment but is the leader of the overall 20.0 6.5% LCV segment with c31% share. Company ranks the second in truck 15.0 6.0% market with 29.5% share. 10.0 Ford Otosan represents 22% of Turkey’s total automotive production, 5.5% 5.0 30% of commercial vehicle sales, 67% of commercial vehicle 0.0 5.0% production and 72% of commercial vehicle exports. The company is
the global design and development centres for Ford Trucks. It is the
2012 2013 2014 2015 2016 2017
2019e 2020e 2018e lead manufacturing plant of Ford Transit globally, and single source for Revenue (TRYm) EBITDA margin Custom and Courier models. Ford Otosan exports c88% of its total production with major end markets being UK (30%), Germany (18%) and France (9%). Source: Company data, HSBC estimates
Sales volume split by products (9M18) Export volume split by country (9M18)
1% UK 1% Custom Germany 6% 5% 10% 30% Transit 16% France
Courier 42% Italy 16%
PCs Spain 5% Cargo W.Europe 6% 18% 35% Others E.Europe 9% Other
Source: Company data Source: Company data
Breakdown of shipments (x000 vehicles) Production capacity and capacity utilisation rate (CUR)
500 CAGR 2012-17: 5.5% CAGR 2012-20e: 3.1% 500 140% 450 120% 400 400 350 100% 300 300 80% 250 200 60% 200 40% 150 100 100 20% 50 0 0%
0
2005 2006 2007 2017
2018e 2019e 2020e
2008-13 2014-16
2013 2012 2014 2015 2016 2017
2020e 2018e 2019e Capacity (x000 units) CUR Domestic Exports
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
69 EQUITIES ● AUTOS 7 February 2019
Ford Otosan – Investment case in six charts
Export revenues (USDbn) Ford's European CV market share
7.0 18.0% 6.0 #1 #1 5.8 16.0% #1 #1 6.0 5.7 13.5% 14.0% 14.0% #3 12.6% 13.2% 4.9 #6 5.0 11.5% 12.0% #7 10.0% 3.8 3.9 3.8 4.0 3.3 3.5 10.0% 8.5% 8.0% 3.0 6.0% 2.0 4.0% 1.0 2.0% 0.0% 0.0 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018e 2019e 2020e
Source: Company data, HSBC estimates Source: Company data, HSBC Research
Capex and FCF (USDm) Dividends (USDm) 800 350 600 300 400 250
200 200
0 150
-200 100 50 -400
0
2012 2013 2014 2015 2016 2017
2018e 2019e 2020e
2012 2013 2014 2015 2016 2017
2019e 2020e Capex FCF 2018e
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
ROE FROTO – BIST100 relative share performance 200% 50% 180% 45% 160% 40% 140% 35% 30% 120% 25% 100% 20% 80% 15% 60% 10% 40% 5% 20% 0%
0%
2015 2012 2013 2014 2016 2017
2020e 2018e 2019e
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Apr-15 Apr-14 Oct-14 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18
Jan-17 Jan-16 Jan-18 Jan-19 Jan-15 Source: Company data, HSBC estimates Source: Refinitiv Datastream
70 EQUITIES ● AUTOS 7 February 2019
Summary forecast changes TRYm ______2018e ______2019e ______2020e ______9M18 9M17 chg old new new / old yoy chg. old new new / old yoy chg. old new new / old yoy chg. yoy Revenue 33,745 33,429 -1% 32% 38,279 38,113 0% 14% 45,752 44,291 -3% 16% 23,244 17,138 36% EBITDA 2,919 2,875 -2% 44% 3,254 3,240 0% 13% 4,026 3,898 -3% 20% 2,022 1,405 44% margin 8.7% 8.6% 0% 0.7% 8.5% 8.5% 0% -0.1% 8.8% 8.8% 0% 0.3% 8.7% 8.2% 0.5% Net profit 1,832 1,757 -4% 18% 2,019 1,989 -1% 13% 2,508 2,473 -1% 24% 1,272 980 30% Unit sales (000) 400 398 0% -4% 398 384 -4% -4% 420 404 -4% 5% 291 286 2% Domestic 70 70 -1% -40% 58 57 -1% -18% 70 68 -3% 18% 52 74 -29% Export 330 329 0% 10% 340 326 -4% -1% 350 336 -4% 3% 238 212 13% Export share 82% 82% 0% 10% 85% 85% 0% 3% 83% 83% 0% -2% 82% 74% 8% Source: Company data, HSBC estimates
Estimate changes
We have made slight revisions in our estimates driven by weaker Turkish demand assumptions and a more sluggish export volume outlook for Europe in 2019. We also incorporate HSBC’s revised macro estimates (see Global Economics Quarterly: Trading down, 3 Jan 2019) since our previous update (FX rates, inflation and growth). Weaker 2019e volumes are largely offset by stronger pricing so that we have minor revision (net profit) in our 2019e estimates. We expect pricing to be less of a focus in 2020e and hence our revenue estimate effectively reflect the new sales volume assumption.
71 EQUITIES ● AUTOS 7 February 2019
Valuation and risks
Valuation Risks
Current price: We value Brilliance using a PE-based methodology. We set Downside risks: 1.) Model cycle: A weaker-than-expected Brilliance HKD7.8 Brilliance’s FY19e target PE multiple at 5.0x, which implies 2.1 premium vehicle segment in China; weaker-than- forecast
1114 HK Target price: standard deviations below its historical 1-year forward PE sales growth on the X3 launch or a faster-than-forecast multiples. We use a historical range from 2016 onwards, as the decline in 3-series growth; and a weaker-than-expected HKD8.50 potential for change in the JV structure is a recent development. reception of new models. 2.) RBJAC: The JV with Renault
Buy Up/downside: That, in conjunction with increased risk from the US-China trade may fail to turn around Brilliance’s minibus and LCV 9.0% war, leads us to believe that the historical PE prior to this period is business, which would also lower the future earnings growth
a less relevant reflection of future valuation for the stock. Our profile of the company. 3.) Policy risk: Any changes in the target price of HKD8.50 implies a 9.0% upside to the current share company’s JV holding structure(s) are a risk to business price. We have a Buy rating on Brilliance as we see a sooner than continuity and an uncertainty to earnings. The earliest risk is
guided turnaround in the JV with Renault and continuing strong 2022 but as all of Brilliance’s profits are currently derived performance for the BMW JV. from JVs the risk is material. Uncertainties remain over timing magnitude and pricing of any change in JV structure as well as future use of proceeds Wei Sim* | [email protected] | +852 29966602
Current price: We derive our target price from DCF valuation given the strong Downside risks: Increase in the raw material cost and Minth HKD29.5 cash flow. We use a WACC of 9% (3.0% risk-free rate, a 5.0% aluminium price hike; RMB appreciation; further slowdown 425 HK Target price: equity risk premium, a beta of 0.8) and a terminal growth rate of of the auto industry; potential negative impact from US-
HKD35.10 2%. Our DCF based target price is HKD35.10, implying PE of 18x China trade war; pricing pressures from OEMs; and and 14x in 2018e and 2019e. We use 2% as the long-term growth potential change in key management personnel. Buy Up/downside: rate for the three suppliers as we believe their growth rate will be in 19.2% line with GDP growth. With 19.2% upside, we rate the stock Buy as we expect earnings growth to pick up in 2019e backed by a strong
backlog. Tracy Li*, CFA | [email protected] | +852 29966751
Current price: We use a DCF and multiples-based approach to valuation. We apply Downside risks: : (i) Ferrari not being able to successfully Ferrari NV EUR110.4 a 50% weight to the DCF analysis and 50% to the multiples. Our introduce hybridisation in its product offering; (ii) tougher RACE IM Target price: DCF implies a fair value of EUR144 (from EUR141). Our emission CO2 regulations across Ferrari’s major markets;
EUR130.00 assumptions incorporate a WACC of 7.7% (unchanged), comprising (iii) a move to autonomous driving happening faster than we a risk-free rate of 3%, an equity premium of 5%, a sector beta of 1.20 currently expect, leading major cities to limit or prohibit Buy Up/downside: (unchanged), and a specific beta of 0.8. We use a 10% discount to driving; and (iv) the launch of an SUV model (which we 17.8% Hermès’ market multiples to reach a multiples based fair value of expect in 2021) disappoints. EUR116 (from EUR108). Our resulting EUR130 TP (from EUR125
earlier on the back of higher estimates and market implied multiples) implies upside of 17.8%. We rate the stock Buy given our above consensus estimates and our expectation of a strong H2 2019e. Giulio Pescatore* | [email protected] | +49 211 9103018
Current price: We value Michelin using the average of DCF, and four multiples Downside risks: Main downside risks include (a) sharp Michelin EUR94.0 methodologies on the average of our 2018-20 estimates, to arrive at deterioration in global (OE) tyre markets, (b) a potential
ML FP Target price: our EUR115 target price. margin squeeze from a sharp increase in raw material costs
EUR115.00 SOTP (based on peer multiples): EV/sales (1.00x; fair value of (although unlikely with uncertain global economy) without EUR82), EV/EBIT (8.4x; fair value of EUR106), PE (10.5x; fair value the simultaneous ability to pass on the higher costs to
Buy Up/downside: of EUR114), and FCF yield (7.1%; fair value of EUR139) and apply consumers, (c) execution risks in relation to narrowing the 22.4% that to our 2018-20 estimates. The average of these metrics profitability gab to competitors and (d) setbacks to the produces our fair value of EUR110. recovery in the Specialty Tyre segment (eg due to lower Discounted cash flow (DCF): DCF yields EUR133 (assumptions: Mining and Infrastructure sector Capex). WACC of 7.3%; RFR of 3.0%, ERP of 5.0%, beta of 1.1, terminal growth rate: 2.0% and terminal margin: 9.5%). Our EUR115 target price implies 22.4% upside to the current share price and we have a Buy rating on the stock Henning Cosman* | [email protected] | +44 207 9910369
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Priced at 04 Feb 2019 Source: HSBC estimates
72 EQUITIES ● AUTOS 7 February 2019
Valuation and risks
Valuation Risks
Current price: We value Renault using a multiples-driven, sum-of-the-parts model, Downside risks: (1) The main downside risks are macro- Renault EUR60.1 which we base on the average of our 2019-21 estimates. The most related and include any unexpected negative movements in RNO FP Target price: important value drivers for Renault in our SOTP model are Nissan volumes, prices or raw material prices that could have a
EUR73.00 and other associates (cEUR33 per share, post holding discount), significant effect on the company’s earnings and cash Renault’s own automotive business (cEUR16 per share), financial outlook. (2) Volumes vs earnings: If Renault puts a higher
Buy Up/downside: services (cEUR15.4 per share) and the net cash (post pensions and emphasis on its top-line growth target than on profitability, 21.4% minorities, EUR3.7 per share). our forecast from 2020-22e may prove too optimistic. (3) FX Renault Automotive: We use multiples of 10% EV/sales and 0.75x rates: We assume in our forecast that emerging market FX EV/EBITDA, This reflects, in addition to the sector wide de-rating rates do not depreciate further. If that were to happen, there also the concerns surrounding Renault’s own performance and would be downside risks to our earnings forecast for 2019- more importantly the ongoing uncertainty around the future of the 22e. (4) Nissan: Similar to the upside risk, any sharp Renault-Nissan Alliance following the indictment of Carlos Ghosn: negative movement in Nissan’s share price and/or the value
We value AvtoVAZ in line with Renault's core business. The de- of the yen could have a negative impact on Renault shares. rating of that business feeds through to AvtoVAZ. (5) Renault-Nissan alliance: Any statements that Nissan Stake in Nissan and other associates: We value Renault’s stake wants to terminate the alliance with Renault would be taken
in Nissan and Daimler at their current market value and apply a (very) negative by investors, in our view. In contrast, we holding discount of 35%. think a reduction of Renault’s stake in Nissan from 43% to Net Industrial Cash Debt and Financial Services: We value 25% would be positive for Renault’s share price, in our view. Renault’s net industrial cash (RNO Automotive +AvtoVaz) at EUR12.2 per share. We value Financial services at 0.8x the book value of 2019-21e. We have a target price of EUR73.0 per share implying 21.4% upside, and we rate the stock Buy. We are above consensus estimates for 2019e/20e and expect re-rating of Renault’s multiples Horst Schneider* | [email protected] | +49 211 9103285
Current price: We value the company at 18x 12m forward earnings which is at a Downside risks: 1) Lower-than-expected government Escorts INR689 premium to its three-year average multiple of 15x – largely driven subsidies are a risk to rural demand and could materially impact ESCO IN Target price: by strong execution in the past two years and an improved our growth expectations; 2) increase in competitive intensity
INR980 earnings growth outlook. Our target price of INR980 implies 42.2% from peers which have been losing market share remains a upside from the current share price. We maintain our Buy rating risk; 3) cost reduction initiatives not having the desired impact Buy Up/downside: on margin expansion; and 4) lack of desired penetration in 42.2% exports market could impact our estimates as well.
Vivek Gedda* | [email protected] | +91 22 61640693
Current price: We value the core business based on DCF methodology. In line Downside risks: The unsuccessful launch of new products; Bajaj Auto INR2,710.6 with HSBC’s methodology, our DCF based valuation factors in a increasing competition in the premium segment; further volatility
BJAUT IN Target price: country risk-free rate of 3% and a market risk premium of 6% for in export markets; and higher-than-expected earnings India. We arrive at a WACC of 10.1% (unchanged). We also include deterioration due to pricing strategy. Every 1% depreciation in INR3,200 Bajaj’s stake (48%) in KTM AG, valuing it at INR130 per share INR can lead to nearly 30bps impact to our earnings.
Buy Up/downside: (based on 17x CY17 earnings, in line with KTM’s peers, and a 25% 18.1% holding company discount). We maintain a TP of INR3,200 which implies upside of 18.1% and we rate the stock Buy: we see the
risk/reward as favourable given the stock is trading at an undemanding valuation (c14x FY20e earnings) even as the company continues to gain market share. Yogesh Aggarwal* | [email protected] | +91 22 2268 1246
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Priced at 4 February 2019 Source: HSBC estimates
73 EQUITIES ● AUTOS 7 February 2019
Valuation and risks
Valuation Risks
Current price: We use a PB-ROE based valuation methodology. We derive our Downside risks: 1) slower-than-expected growth in overall Hyundai Mobis KRW224,000 target price by applying a target multiple of multiple of 0.72x PB to automobile demand; 2) larger-than-expected inventories at the 012330 KS Target price: our 2019e BVPS of KRW351,964, using the Gordon growth model. China operation; 3) potential regulations imposed by the
KRW250,000 Our assumptions include a 2019e ROE of 8.6% and COE of 11.9% government on intra-group trade within HMG; 4) pricing pressure (both unchanged). With our rounded target price implying 11.6% from captive customers resulting from lower-than-expected
Buy Up/downside: upside, we rate the stock Buy because of: 1) its A/S business utilisation rates; and 5) FX headwinds for the A/S division. 11.6% generates earnings stability; 2) increasing portion of ADAS & new energy vehicles; and 3) potential customer diversification in the US and EU - delivering both defensive and long-term growth. Mobis remains our preferred pick in the sector. Paul Choi* | [email protected] | +82 2 37068758
Current price: We value LTHM on a FCFE DCF methodology, assuming an Downside risks: Lower lithium prices if too much supply Livent USD12.6 average cost of equity of 8.8%, based on a risk-free rate of 3.0%, comes online or if demand falls below expectations. Delays LTHM US Target price: country risk of 1.0%, unlevered beta of 0.9, and an average or issues with its capacity expansion plans could impact its debt/equity near 10/90 (all unchanged). With these cost of capital ability to maintain its share in the market. USD22.0 assumptions, we derive our fair value target price of USD22.00 Buy Up/downside: (unchanged). Our target price implies upside of c74.6%. We rate the 74.6% stock Buy as we believe the company is well-positioned to continue benefitting from the lithium demand super-cycle. Alexandre Falcao | [email protected] | +1 212 525 4449
Current price: We value Ford Otosan based on a DCF model with the following key Downside risks: (i) weaker-than-expected domestic and Ford Otosan TRY56.0 parameters: 13% risk-free rate (in line with the rest of our Turkey export demand, especially for LCVs; (ii) tougher pricing and
FROTO TI Target price: coverage, unchanged) 5.5% equity risk premium, (unchanged), 6% market share competition in Turkey than anticipated, putting
TRY68.80 terminal growth rate (unchanged), 0.87 company beta (from 0.85 pressure on domestic margins; (iii) lower-than-expected reflecting latest Bloomberg adjusted beta), and cost of debt of 17% cash dividend distribution; (iv) higher than expected raw
Buy Up/downside: (unchanged), overall resulting in a WACC of 15.24% (from 15.19). Our material prices, putting pressure on domestic margins; (v) 22.8% slight forecast revisions and a minor rise in the WACC result in our sharp currency changes; and (vi) any tax hikes on auto new TP of TRY68.80 (from TRY70.5). Our new target price implies sales that affect company sales negatively. 22.8% upside. We have a Buy rating on the stock given its attractive dividend yield and sustainable export growth story. Cenk Orcan* | [email protected] | +90 212 3764614
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Priced at 4 February 2019 Source: HSBC estimates
74 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Brilliance Auto Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (CNYm) EV/sales 1.9 0.8 -0.3 -1.4 Revenue 5,305 5,731 6,541 6,672 EV/EBITDA -30.6 -31.7 EBITDA -1,193 -310 71 291 EV/IC 27.4 7.9 -3.5 -9.5 Depreciation & amortisation -219 -200 -210 -218 PE* 7.0 4.8 4.4 4.0 Operating profit/EBIT -1,413 -510 -139 73 PB 1.3 1.0 0.8 0.7 Net interest -138 -151 -181 -184 FCF yield (%) -9.7 -16.3 367.7 7.1 PBT 3,900 6,855 7,606 8,357 Dividend yield (%) 1.5 1.4 2.8 3.1 HSBC PBT 3,900 6,855 7,606 8,357 * Based on HSBC EPS (diluted) Taxation -34 -40 -19 -7 Net profit 4,376 7,075 7,723 8,400 HSBC net profit 4,866 7,075 7,723 8,400 ESG metrics Cash flow summary (CNYm) Environmental Indicators 12/2017a Governance Indicators 12/2017a Cash flow from operations -2,547 -390 158 198 GHG emission intensity* NA No. of board members 7 Capex -624 -447 -495 -537 Energy intensity* 227.1 Average board tenure (years) NA Cash flow from investment 1,278 2,062 1,803 1,884 CO2 reduction policy Yes Female board members (%) 0 Dividends -277 -468 -942 -1,056 Social Indicators 12/2017a Board members independence (%) 43 Change in net debt 407 -311 -1,019 -1,027 FCF equity -1,031 -876 -415 -435 Employee costs as % of revenues 13.9 Balance sheet summary (CNYm) Employee turnover (%) 7.9 Diversity policy Yes Intangible fixed assets 696 684 669 654 Tangible fixed assets 3,446 3,695 3,994 4,356 Source: Company data, HSBC Current assets 5,982 8,090 9,408 10,471 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 3,551 5,509 6,528 7,555 Total assets 33,552 41,434 48,664 56,121 Operating liabilities 6,211 6,408 6,915 6,953 Issuer information Gross debt 2,810 4,456 4,456 4,456 Share price (HKD) 7.80 Free float 100% Net debt -741 -1,053 -2,072 -3,099 Target price (HKD) 8.50 Sector Autos Shareholders' funds 26,523 33,443 40,030 47,371 RIC (Equity) 1114.HK Country China Invested capital 362 551 628 972 Bloomberg (Equity) 1114 HK Analyst Wei Sim
Market cap (USDm) 5,015 Contact +852 2996 6602 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change Revenue 3.5 8.0 14.1 2.0 EBITDA 306.9 22.90 22.90 Operating profit PBT 13.9 75.8 11.0 9.9 17.90 17.90 HSBC EPS 32.0 45.4 9.2 8.8 Ratios (%) 12.90 12.90 Revenue/IC (x) 5.6 12.6 11.1 8.3 7.90 7.90 ROIC -146.8 -111.0 -23.5 9.1 ROE 19.6 23.6 21.0 19.2 2.90 2.90 ROA 12.8 18.6 17.2 16.3 2017 2018 2019 EBITDA margin -22.5 -5.4 1.1 4.4 Brilliance Auto Rel to HSCEI Operating profit margin -26.6 -8.9 -2.1 1.1 EBITDA/net interest (x) 0.4 1.6 Source: HSBC Net debt/equity -2.8 -3.1 -5.1 -6.5 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) 0.6 3.4 -29.0 -10.7 CF from operations/net debt Per share data (CNY) EPS Rep (diluted) 0.87 1.40 1.53 1.66 HSBC EPS (diluted) 0.96 1.40 1.53 1.66 DPS 0.10 0.09 0.19 0.21 Book value 5.26 6.64 7.95 9.40
75 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Minth Group Limited Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (CNYm) EV/sales 2.4 2.2 1.8 1.5 Revenue 11,384 12,601 15,636 17,669 EV/EBITDA 9.1 8.9 7.1 5.9 EBITDA 2,971 3,154 3,940 4,556 EV/IC 2.7 2.3 2.0 1.8 Depreciation & amortisation -507 -623 -714 -773 PE* 14.3 14.4 11.3 9.6 Operating profit/EBIT 2,464 2,531 3,226 3,783 PB 2.4 2.2 1.9 1.7 Net interest -95 -149 -164 -164 FCF yield (%) -0.2 -0.2 3.2 6.8 PBT 2,488 2,481 3,153 3,721 Dividend yield (%) 2.8 2.8 3.5 4.2 HSBC PBT 2,488 2,481 3,153 3,721 * Based on HSBC EPS (diluted) Taxation -396 -401 -509 -601 Net profit 2,025 2,013 2,560 3,021 HSBC net profit 2,025 2,013 2,560 3,021 ESG metrics Cash flow summary (CNYm) Environmental Indicators 12/2017a Governance Indicators 12/2017a Cash flow from operations 1,875 1,751 2,669 3,403 GHG emission intensity* 196.0 No. of board members 9 Capex -2,009 -2,000 -1,600 -1,280 Energy intensity* 349.8 Average board tenure (years) 4.8 Cash flow from investment -1,428 -1,883 -1,513 -1,182 CO2 reduction policy Yes Female board members (%) 33.3 Dividends -676 -795 -805 -1,024 Social Indicators 12/2017a Board members independence (%) 33.3 Change in net debt 647 983 -186 -1,032 FCF equity -58 -43 900 1,954 Employee costs as % of revenues 19.9 Balance sheet summary (CNYm) Employee turnover (%) NA Diversity policy Yes Intangible fixed assets 878 908 908 908 Tangible fixed assets 6,246 7,730 8,616 9,123 Source: Company data, HSBC Current assets 10,057 11,106 12,602 14,555 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 3,866 4,477 4,664 5,696 Total assets 18,109 20,931 23,313 25,773 Operating liabilities 3,217 3,110 3,652 4,015 Issuer information Gross debt 2,494 4,088 4,088 4,088 Share price (HKD) 29.45 Free float 60% Net debt -1,372 -390 -576 -1,608 Target price (HKD) 35.10 Sector Auto Components Shareholders' funds 12,113 13,410 15,165 17,162 RIC (Equity) 0425.HK Country Hong Kong Invested capital 10,099 12,157 13,810 14,874 Bloomberg (Equity) 425 HK Analyst Tracy Li, CFA
Market cap (USDm) 4,302 Contact +852 2996 6751 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change
Revenue 21.1 10.7 24.1 13.0 51.00 51.00 EBITDA 19.4 6.1 24.9 15.6 46.00 46.00 Operating profit 19.0 2.7 27.5 17.3 PBT 17.5 -0.3 27.1 18.0 41.00 41.00 HSBC EPS 16.8 -1.0 27.2 18.0 36.00 36.00 Ratios (%) 31.00 31.00 Revenue/IC (x) 1.2 1.1 1.2 1.2 26.00 26.00 ROIC 22.5 19.1 20.8 22.1 21.00 21.00 ROE 17.8 15.8 17.9 18.7 16.00 16.00 ROA 12.6 10.7 12.0 12.7 2017 2018 2019 EBITDA margin 26.1 25.0 25.2 25.8 Minth Group Limited Rel to HANG SENG INDEX Operating profit margin 21.6 20.1 20.6 21.4 EBITDA/net interest (x) 31.3 21.1 24.0 27.7 Source: HSBC Net debt/equity -11.1 -2.8 -3.7 -9.1 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) -0.5 -0.1 -0.1 -0.4 CF from operations/net debt Per share data (CNY) EPS Rep (diluted) 1.78 1.76 2.24 2.64 HSBC EPS (diluted) 1.78 1.76 2.24 2.64 DPS 0.71 0.70 0.89 1.06 Book value 10.62 11.71 13.24 14.98
76 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Ferrari NV Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (EURm) EV/sales 6.4 6.4 6.1 5.5 Revenue 3416.9 3420.0 3621.6 3951.4 EV/EBITDA 21.2 19.6 17.5 15.2 EBITDA 1036.0 1115.5 1255.7 1441.7 EV/IC 10.4 8.6 7.8 7.2 Depreciation & amortisation -260.6 -289.5 -349.3 -408.7 PE* 39.0 28.0 29.4 27.9 Operating profit/EBIT 775.4 826.0 906.4 1033.0 PB 26.8 16.1 13.7 11.6 Net interest -29.3 -22.6 -21.0 -22.0 FCF yield (%) 1.1 1.4 2.0 2.2 PBT 746.2 803.4 885.4 1011.0 Dividend yield (%) 0.6 1.1 1.0 1.1 HSBC PBT 745.7 804.4 885.4 1011.0 * Based on HSBC EPS (diluted) Taxation -208.8 -57.8 -177.1 -262.9 Net profit 535.4 742.7 705.6 745.3 HSBC net profit 537.4 745.5 708.3 748.1 ESG metrics Cash flow summary (EURm) Environmental Indicators 12/2017a Governance Indicators 12/2018a Cash flow from operations 662.8 961.3 1183.8 1215.3 GHG emission intensity* 26.6 No. of board members 12 Capex -391.4 -643.3 -754.0 -696.4 Energy intensity* 117.7 Average board tenure (years) 2.9 Cash flow from investment -379.4 -643.3 -754.0 -696.4 CO2 reduction policy Yes Female board members (%) 33.3 Dividends -121.2 -134.7 -222.8 -211.7 Social Indicators 12/2017a Board members independence (%) 58.3 Change in net debt -231.8 -83.3 50.9 -47.7 FCF equity 228.7 296.5 414.3 448.3 Employee costs as % of revenues 8.9 Balance sheet summary (EURm) Employee turnover (%) 4.5 Diversity policy Yes Intangible fixed assets 1225.6 1423.9 1633.9 1782.2 Tangible fixed assets 710.3 865.8 1060.4 1199.8 Source: Company data, HSBC Current assets 2081.1 2303.1 2280.1 2283.2 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 647.7 758.1 686.4 714.3 Total assets 4141.1 4716.9 5098.6 5389.4 Operating liabilities 1258.5 1304.3 1486.2 1522.1 Issuer information Gross debt 1806.2 1833.3 1812.4 1792.7 Share price (EUR) 110.35 Free float 67% Net debt 1158.5 1075.2 1126.1 1078.3 Target price (EUR) 130.00 Sector Autos Shareholders' funds 778.7 1286.7 1511.6 1785.9 RIC (Equity) RACE.MI Country Italy Invested capital 2110.8 2530.4 2801.9 3028.8 Bloomberg (Equity) RACE IM Analyst Giulio Pescatore, CFA
Market cap (USDm) 23792.0 Contact +49 211 910 3018 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change Revenue 10.0 0.1 5.9 9.1 EBITDA 22.9 7.7 12.6 14.8 125.00 125.00 Operating profit 30.3 6.5 9.7 14.0 PBT 31.5 7.7 10.2 14.2 105.00 105.00 HSBC EPS 25.9 39.3 -5.0 5.6 Ratios (%) 85.00 85.00 Revenue/IC (x) 1.7 1.5 1.4 1.4 65.00 65.00 ROIC 27.9 38.5 32.1 31.1 ROE 97.4 72.2 50.6 45.4 45.00 45.00 ROA 13.5 16.8 14.4 14.3 2017 2018 2019 EBITDA margin 30.3 32.6 34.7 36.5 Ferrari NV Rel to FTSE EUROTOP 300 INDEX Operating profit margin 22.7 24.2 25.0 26.1 EBITDA/net interest (x) 35.4 49.3 59.8 65.5 Source: HSBC Net debt/equity 147.8 83.0 74.0 59.9 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) 1.1 1.0 0.9 0.7 CF from operations/net debt 57.2 89.4 105.1 112.7 Per share data (EUR) EPS Rep (diluted) 2.82 3.93 3.73 3.95 HSBC EPS (diluted) 2.83 3.95 3.75 3.96 DPS 0.71 1.18 1.12 1.18 Book value 4.12 6.84 8.04 9.49
77 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Michelin Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (EURm) EV/sales 1.0 1.1 1.0 0.9 Revenue 21960.0 21701.2 23689.3 24393.1 EV/EBITDA 5.2 5.8 5.1 4.5 EBITDA 4087.0 4088.7 4626.4 4977.9 EV/IC 1.3 1.2 1.1 1.1 Depreciation & amortisation -1345.0 -1379.4 -1516.1 -1561.2 PE* 10.1 10.0 9.0 7.8 Operating profit/EBIT 2742.0 2709.3 3110.3 3416.7 PB 1.5 1.4 1.2 1.1 Net interest -176.0 -245.6 -300.0 -210.0 FCF yield (%) 8.5 8.4 11.0 13.3 PBT 2354.0 2271.7 2609.5 3003.5 Dividend yield (%) 3.8 3.8 4.5 5.1 HSBC PBT 2354.0 2271.7 2609.5 3003.5 * Based on HSBC EPS (diluted) Taxation -661.0 -590.7 -730.6 -841.0 Net profit 1700.0 1696.1 1893.8 2177.5 HSBC net profit 1700.0 1696.1 1893.8 2177.5 ESG metrics Cash flow summary (EURm) Environmental Indicators 12/2017a Governance Indicators 12/2018a Cash flow from operations 2852.0 3369.7 3391.9 3809.2 GHG emission intensity* 122.7 No. of board members 9 Capex -1771.0 -1753.3 -1710.5 -1761.0 Energy intensity* 465.4 Average board tenure (years) 5.0 Cash flow from investment -2163.0 -5198.7 -1710.5 -1761.0 CO2 reduction policy Yes Female board members (%) 44.4 Dividends -584.0 -637.0 -647.3 -764.2 Social Indicators 12/2017a Board members independence (%) 77.8 Change in net debt -1022.0 3238.5 -530.7 -1177.1 FCF equity 1415.0 1344.9 1763.9 2129.6 Employee costs as % of revenues 26.7 Balance sheet summary (EURm) Employee turnover (%) 4.9 Diversity policy Yes Intangible fixed assets 1877.0 3126.4 3145.8 3165.8 Tangible fixed assets 10883.0 12713.5 12888.5 13068.3 Source: Company data, HSBC Current assets 10972.0 10214.8 11535.3 11343.7 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 1773.0 676.5 1607.2 1284.2 Total assets 25267.0 28354.8 29869.6 29877.9 Operating liabilities 5389.0 5329.7 5598.1 5693.1 Issuer information Gross debt 6828.0 9000.0 9000.0 7500.0 Share price (EUR) 93.98 Free float 98% Net debt 4685.0 7923.5 7392.8 6215.8 Target price (EUR) 115.00 Sector Auto Components Shareholders' funds 11226.0 12219.1 13465.5 14878.8 RIC (Equity) MICP.PA Country France Invested capital 16570.0 20048.6 20364.4 20600.6 Bloomberg (Equity) ML FP Analyst Henning Cosman
Market cap (USDm) 19317.5 Contact +44 20 7991 0369 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change Revenue 5.0 -1.2 9.2 3.0 137.00 137.00 EBITDA 0.1 0.0 13.2 7.6 Operating profit 1.9 -1.2 14.8 9.9 127.00 127.00 PBT -4.5 -3.5 14.9 15.1 117.00 117.00 HSBC EPS 3.5 0.3 11.7 15.1 107.00 107.00 Ratios (%) 97.00 97.00 Revenue/IC (x) 1.3 1.2 1.2 1.2 ROIC 11.8 11.0 11.1 12.0 87.00 87.00 ROE 15.6 14.5 14.7 15.4 77.00 77.00 ROA 7.2 6.9 7.2 7.7 2017 2018 2019 EBITDA margin 18.6 18.8 19.5 20.4 Michelin Rel to SBF-120 Operating profit margin 12.5 12.5 13.1 14.0 EBITDA/net interest (x) 23.2 16.6 15.4 23.7 Source: HSBC Net debt/equity 41.6 64.7 54.8 41.7 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) 1.1 1.9 1.6 1.2 CF from operations/net debt 60.9 42.5 45.9 61.3 Per share data (EUR) EPS Rep (diluted) 9.34 9.37 10.47 12.04 HSBC EPS (diluted) 9.34 9.37 10.47 12.04 DPS 3.55 3.60 4.25 4.75 Book value 62.41 68.31 75.28 83.18
78 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Renault Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (EURm) EV/sales 0.6 0.6 0.5 0.5 Revenue 58770.0 56447.9 56569.1 57560.5 EV/EBITDA 4.8 4.6 4.0 3.4 EBITDA 7014.0 6791.9 7223.0 7696.0 EV/IC 0.7 0.6 0.6 0.5 Depreciation & amortisation -3160.0 -3299.5 -3470.5 -3613.0 PE* 3.1 4.0 3.8 3.4 Operating profit/EBIT 3854.0 3492.4 3752.5 4083.0 PB 0.5 0.5 0.5 0.4 Net interest -369.0 -293.9 -275.3 -268.7 FCF yield (%) -65.3 -47.8 -45.2 -48.5 PBT 6101.0 4691.0 5161.1 5666.7 Dividend yield (%) 5.9 6.2 6.8 7.2 HSBC PBT 6149.0 4886.1 5217.7 5723.3 * Based on HSBC EPS (diluted) Taxation -891.0 -740.5 -819.1 -904.6 Net profit 5114.0 3808.5 4142.2 4508.2 HSBC net profit 5245.0 4098.2 4384.9 4804.9 ESG metrics Cash flow summary (EURm) Environmental Indicators 12/2017a Governance Indicators 12/2018a Cash flow from operations 6913.0 6204.1 6674.9 6913.0 GHG emission intensity* 19.4 No. of board members 19 Capex -3601.0 -3998.6 -4133.2 -3766.7 Energy intensity* 89.2 Average board tenure (years) 6.1 Cash flow from investment -3632.0 -3998.6 -4133.2 -3766.7 CO2 reduction policy Yes Female board members (%) 36.8 Dividends -1090.0 -999.9 -1042.1 -1154.2 Social Indicators 12/2017a Board members independence (%) 52.6 Change in net debt 4152.0 -1205.7 -1499.5 -1992.0 FCF equity 2041.0 1851.2 2107.5 2682.3 Employee costs as % of revenues 11.1 Balance sheet summary (EURm) Employee turnover (%) NA Diversity policy Yes Intangible fixed assets 5240.0 5820.2 6363.7 6707.3 Tangible fixed assets 13582.0 14262.2 15001.8 15472.2 Source: Company data, HSBC Current assets 67509.0 67922.1 69548.6 71776.4 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 14057.0 15262.7 16762.2 18754.3 Total assets 109943.0 112285.3 115943.8 119839.2 Operating liabilities 21669.0 20968.6 21207.6 21369.6 Issuer information Gross debt 50588.0 50588.0 50588.0 50588.0 Share price (EUR) 60.14 Free float 67% Net debt 36531.0 35325.3 33825.8 31833.7 Target price (EUR) 73.00 Sector Autos Shareholders' funds 33148.0 35956.7 39056.8 42410.8 RIC (Equity) RENA.PA Country France Invested capital 50605.0 51773.2 52944.3 53832.0 Bloomberg (Equity) RNO FP Analyst Horst Schneider
Market cap (USDm) 20326.3 Contact +49 211 910 3285 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change
Revenue 14.7 -4.0 0.2 1.8 106.00 106.00 EBITDA 12.1 -3.2 6.3 6.5 Operating profit 17.4 -9.4 7.4 8.8 96.00 96.00 PBT 32.7 -23.1 10.0 9.8 86.00 86.00 HSBC EPS 48.4 -21.9 7.0 9.6 76.00 76.00 Ratios (%) 66.00 66.00 Revenue/IC (x) 1.2 1.1 1.1 1.1 ROIC 8.9 7.9 8.2 8.7 56.00 56.00 ROE 16.4 11.9 11.7 11.8 46.00 46.00 ROA 5.3 3.8 4.1 4.3 2017 2018 2019 EBITDA margin 11.9 12.0 12.8 13.4 Renault Rel to SBF-120 Operating profit margin 6.6 6.2 6.6 7.1 EBITDA/net interest (x) 19.0 23.1 26.2 28.6 Source: HSBC Net debt/equity 109.2 97.1 85.2 73.5 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) 5.2 5.2 4.7 4.1 CF from operations/net debt 18.9 17.6 19.7 21.7 Per share data (EUR) EPS Rep (diluted) 18.68 13.91 15.13 16.47 HSBC EPS (diluted) 19.16 14.97 16.02 17.55 DPS 3.55 3.70 4.10 4.31 Book value 112.09 121.59 132.07 143.41
79 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Escorts Limited Buy
Financial statements Valuation data Year to 03/2018a 03/2019e 03/2020e 12/2021e Year to 03/2018a 03/2019e 03/2020e 12/2021e Profit & loss summary (INRm) EV/sales 1.4 1.2 1.1 1.0 Revenue 49,951 58,207 60,563 65,576 EV/EBITDA 12.7 10.0 9.1 7.8 EBITDA 5,572 6,931 7,245 7,983 EV/IC 5.1 4.2 3.9 3.5 Depreciation & amortisation -725 -931 -969 -1,049 PE* 16.3 12.9 12.2 11.0 Operating profit/EBIT 4,847 5,999 6,276 6,934 PB 2.2 2.0 1.7 1.5 Net interest -286 -80 -50 -50 FCF yield (%) 4.5 1.7 4.5 4.7 PBT 5,156 6,602 6,977 7,710 Dividend yield (%) 0.3 0.7 1.3 1.5 HSBC PBT 5,156 6,602 6,977 7,710 * Based on HSBC EPS (diluted) Taxation -1,641 -2,080 -2,198 -2,428 Net profit 3,447 4,523 4,779 5,282 HSBC net profit 3,493 4,523 4,779 5,282 ESG metrics Cash flow summary (INRm) Environmental Indicators Governance Indicators 03/2018a Cash flow from operations 4,722 3,850 6,198 5,582 GHG emission intensity* NA No. of board members 9 Capex -1,147 -2,500 -2,700 -2,000 Energy intensity* NA Average board tenure (years) NA Cash flow from investment -6,088 -2,137 -2,700 -2,000 CO2 reduction policy Yes Female board members (%) 22 Dividends -198 -506 -911 -1,012 Social Indicators Board members independence (%) 44 Change in net debt -7,569 -844 -2,587 -2,570 FCF equity 3,514 1,350 3,498 3,583 Employee costs as % of revenues 8.6 Balance sheet summary (INRm) Employee turnover (%) NA Diversity policy Yes Intangible fixed assets 531 531 531 531 Tangible fixed assets 15,220 16,788 18,519 19,470 Source: Company data, HSBC Current assets 21,055 23,734 26,243 29,888 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 7,968 9,175 11,762 14,332 Total assets 42,090 47,021 52,013 57,436 Operating liabilities 14,991 15,542 16,666 17,819 Issuer information Gross debt 137 500 500 500 Share price (INR) 678.55 Free float 57% Net debt -7,831 -8,675 -11,262 -13,832 Target price (INR) 980.00 Sector Machinery Shareholders' funds 25,481 29,497 33,366 37,635 RIC (Equity) ESCO.BO Country India Invested capital 13,847 16,337 16,867 17,739 Bloomberg (Equity) ESC IN Analyst Vivek Gedda
Market cap (USDm) 1,160 Contact +91 22 6164 0693 Ratio, growth and per share analysis
Year to 03/2018a 03/2019e 03/2020e 12/2021e Price relative Y-o-y % change Revenue 20.5 16.5 4.0 8.3 1030.00 1030.00 EBITDA 80.0 24.4 4.5 10.2 930.00 930.00 Operating profit 96.9 23.8 4.6 10.5 830.00 830.00 PBT 97.1 28.1 5.7 10.5 730.00 730.00 HSBC EPS 102.6 26.7 5.7 10.5 630.00 630.00 Ratios (%) 530.00 530.00 Revenue/IC (x) 3.5 3.9 3.6 3.8 430.00 430.00 ROIC 23.4 27.2 25.9 27.5 330.00 330.00 ROE 16.8 16.5 15.2 14.9 230.00 230.00 ROA 9.8 10.3 9.7 9.7 2017 2018 2019 EBITDA margin 11.2 11.9 12.0 12.2 Escorts Limited Rel to BOMBAY SE SENSITIVE INDEX Operating profit margin 9.7 10.3 10.4 10.6 EBITDA/net interest (x) 19.5 86.6 144.9 159.7 Source: HSBC Net debt/equity -30.7 -29.4 -33.8 -36.8 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) -1.4 -1.3 -1.6 -1.7 CF from operations/net debt Per share data (INR) EPS Rep (diluted) 41.04 52.71 55.70 61.56 HSBC EPS (diluted) 41.59 52.71 55.70 61.56 DPS 2.00 5.00 9.00 10.00 Book value 303.35 343.79 388.88 438.64
80 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Bajaj Auto Buy
Financial statements Valuation data Year to 03/2018a 03/2019e 03/2020e 03/2021e Year to 03/2018a 03/2019e 03/2020e 03/2021e Profit & loss summary (INRm) EV/sales 2.5 2.1 1.8 1.6 Revenue 251,649 298,398 332,883 360,492 EV/EBITDA 13.4 12.5 10.2 8.8 EBITDA 47,834 49,746 58,696 64,645 EV/IC 10.7 10.2 9.9 9.5 Depreciation & amortisation -3,148 -2,751 -3,329 -3,605 PE* 18.6 17.0 14.9 13.6 Operating profit/EBIT 44,686 46,995 55,367 61,040 PB 4.0 3.6 3.3 3.0 Net interest 13,459 17,488 17,768 19,081 FCF yield (%) 7.2 6.8 8.0 8.7 PBT 57,826 64,483 73,135 80,121 Dividend yield (%) 2.5 2.8 3.2 3.2 HSBC PBT 58,146 64,483 73,135 80,121 * Based on HSBC EPS (diluted) Taxation -17,145 -19,440 -21,940 -24,036 Net profit 40,681 45,043 51,194 56,085 HSBC net profit 41,001 45,043 51,194 56,085 ESG metrics Cash flow summary (INRm) Environmental Indicators NA Governance Indicators 03/2018a Cash flow from operations 42,608 29,967 37,558 41,379 GHG emission intensity* NA No. of board members 16 Capex -1,964 -3,507 -3,916 -4,241 Energy intensity* NA Average board tenure (years) 8.1 Cash flow from investment -19,180 14,022 13,852 14,840 CO2 reduction policy Yes Female board members (%) 6.2 Dividends -18,848 -26,022 -29,491 -29,491 Social Indicators Board members independence (%) 50 Change in net debt -5,141 -17,926 -21,918 -26,728 FCF equity 46,743 43,948 51,409 56,220 Employee costs as % of revenues NA Balance sheet summary (INRm) Employee turnover (%) NA Diversity policy Yes Intangible fixed assets 0 0 0 0 Tangible fixed assets 18,783 19,540 20,127 20,763 Source: Company data, HSBC Current assets 92,356 112,240 136,853 165,778 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 7,780 25,706 47,624 74,353 Total assets 238,195 258,834 284,036 313,596 Operating liabilities 43,571 45,189 48,687 51,655 Issuer information Gross debt 0 0 0 0 Share price (INR) 2642.50 Free float 45% Net debt -7,780 -25,706 -47,624 -74,353 Target price (INR) 3200.00 Sector Autos Shareholders' funds 191,039 210,060 231,763 258,356 RIC (Equity) BAJA.BO Country India Invested capital 59,789 60,884 60,669 60,534 Bloomberg (Equity) BJAUT IN Analyst Yogesh Aggarwal
Market cap (USDm) 10,665 Contact +91 22 2268 1246 Ratio, growth and per share analysis
Year to 03/2018a 03/2019e 03/2020e 03/2021e Price relative Y-o-y % change Revenue 15.6 18.6 11.6 8.3 3600.00 3600.00 EBITDA 8.2 4.0 18.0 10.1 Operating profit 8.6 5.2 17.8 10.2 3100.00 3100.00 PBT 8.4 11.5 13.4 9.6 HSBC EPS 7.1 9.9 13.7 9.6 2600.00 2600.00 Ratios (%) Revenue/IC (x) 3.6 4.9 5.5 5.9 2100.00 2100.00 ROIC 45.4 54.4 63.8 70.5 ROE 22.7 22.5 23.2 22.9 1600.00 1600.00 ROA 18.2 18.1 18.9 18.8 2017 2018 2019 EBITDA margin 19.0 16.7 17.6 17.9 Bajaj Auto Rel to BOMBAY SE SENSITIVE INDEX Operating profit margin 17.8 15.7 16.6 16.9 EBITDA/net interest (x) Source: HSBC Net debt/equity -4.1 -12.2 -20.5 -28.8 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) -0.2 -0.5 -0.8 -1.2 CF from operations/net debt Per share data (INR) EPS Rep (diluted) 140.6 155.7 176.9 193.8 HSBC EPS (diluted) 141.7 155.7 176.9 193.8 DPS 65.0 75.0 85.0 85.0 Book value 660.2 725.9 800.9 892.8
81 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Hyundai Mobis Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (KRWb) EV/sales 0.0 0.0 0.0 -0.1 Revenue 35,145 35,149 37,894 39,459 EV/EBITDA 0.6 0.3 -0.3 -0.7 EBITDA 2,735 2,786 3,158 3,273 EV/IC 0.1 0.1 -0.1 -0.2 Depreciation & amortisation -710 -733 -761 -793 PE* 13.5 11.2 7.7 7.5 Operating profit/EBIT 2,025 2,025 2,397 2,480 PB 0.7 0.7 0.6 0.6 Net interest 95 118 129 139 FCF yield (%) 6.1 12.4 19.9 14.4 PBT 2,734 2,475 3,525 3,650 Dividend yield (%) 1.6 1.6 1.6 1.6 HSBC PBT 2,734 2,475 3,525 3,650 * Based on HSBC EPS (diluted) Taxation -1,177 -587 -793 -821 Net profit 1,568 1,890 2,743 2,840 HSBC net profit 1,568 1,890 2,743 2,840 ESG metrics Cash flow summary (KRWb) Environmental Indicators 12/2017a Governance Indicators 12/2018a Cash flow from operations 1,514 1,369 1,542 1,217 GHG emission intensity* 11.3 No. of board members 9 Capex -724 -1,200 -1,200 -1,400 Energy intensity* 63.6 Average board tenure (years) NA Cash flow from investment -1,066 -1,540 -1,557 -1,775 CO2 reduction policy Yes Female board members (%) 0 Dividends -331 -331 -331 -331 Social Indicators 12/2017a Board members independence (%) 55.6 Change in net debt -1,382 -314 -834 -332 FCF equity 466 901 1,264 777 Employee costs as % of revenues NA Balance sheet summary (KRWb) Employee turnover (%) NA Diversity policy Yes Intangible fixed assets 957 906 859 819 Tangible fixed assets 8,206 8,623 9,008 9,553 Source: Company data, HSBC Current assets 18,218 18,426 19,648 20,362 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 9,135 9,383 10,115 10,350 Total assets 41,737 43,189 45,760 48,244 Operating liabilities 5,816 5,774 6,006 6,067 Issuer information Gross debt 3,067 3,000 2,899 2,802 Share price (KRW) 224000.00 Free float 68% Net debt -6,068 -6,382 -7,217 -7,549 Target price (KRW) 250000.00 Sector Auto Components Shareholders' funds 29,295 30,858 33,274 35,786 RIC (Equity) 012330.KS Country Korea Invested capital 12,430 12,798 13,393 14,316 Bloomberg (Equity) 012330 KS Analyst Paul Choi
Market cap (USDm) 19,478 Contact +82 2 3706 8758 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change Revenue -8.1 0.0 7.8 4.1 300000.00 300000.00 EBITDA -23.0 1.9 13.4 3.7 280000.00 280000.00 Operating profit -30.3 0.0 18.4 3.4 260000.00 260000.00 PBT -33.5 -9.5 42.4 3.5 240000.00 240000.00 HSBC EPS -48.4 20.5 45.1 3.5 220000.00 220000.00 Ratios (%) 200000.00 200000.00 Revenue/IC (x) 2.8 2.8 2.9 2.8 180000.00 180000.00 ROIC 9.5 12.9 14.6 14.2 160000.00 160000.00 ROE 5.4 6.3 8.6 8.2 140000.00 140000.00 ROA 3.8 4.5 6.2 6.1 2017 2018 2019 EBITDA margin 7.8 7.9 8.3 8.3 Hyundai Mobis Rel to KOSPI INDEX Operating profit margin 5.8 5.8 6.3 6.3 EBITDA/net interest (x) Source: HSBC Net debt/equity -20.7 -20.7 -21.7 -21.1 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) -2.2 -2.3 -2.3 -2.3 CF from operations/net debt Per share data (KRW) EPS Rep (diluted) 16587.64 19993.02 29014.03 30038.89 HSBC EPS (diluted) 16587.64 19993.02 29014.03 30038.89 DPS 3500.00 3500.00 3500.00 3500.00 Book value 309881.69 326412.12 351963.55 378539.84
82 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Livent Corporation Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (USDm) EV/sales 5.1 3.7 3.5 2.8 Revenue 347 448 504 622 EV/EBITDA 14.0 9.0 8.2 6.5 EBITDA 126 186 214 273 EV/IC 5.6 3.9 2.6 2.1 Depreciation & amortisation -16 -20 -26 -46 PE* 36.7 14.0 12.4 10.2 Operating profit/EBIT 102 164 185 223 PB 4.0 3.0 2.4 2.0 Net interest 0 0 0 0 FCF yield (%) 0.3 0.8 -5.4 -1.3 PBT 70 163 184 222 Dividend yield (%) 0.0 0.0 0.0 0.0 HSBC PBT 70 163 184 222 * Based on HSBC EPS (diluted) Taxation -28 -34 -39 -47 Net profit 42 129 145 176 HSBC net profit 42 129 145 176 ESG metrics Cash flow summary (USDm) Environmental Indicators 12/2017a Governance Indicators 12/2018a Cash flow from operations 16 100 151 174 GHG emission intensity* 331.0 No. of board members 7 Capex -52 -90 -250 -200 Energy intensity* 1,439.3 Average board tenure (years) 0.3 Cash flow from investment -51 -90 -250 -200 CO2 reduction policy Yes Female board members (%) 14.3 Dividends 0 0 0 0 Social Indicators 12/2017a Board members independence (%) 85.7 Change in net debt 3 -93 99 26 FCF equity 5 14 -95 -22 Employee costs as % of revenues NA Balance sheet summary (USDm) Employee turnover (%) NA Diversity policy Yes Intangible fixed assets 0 0 0 0 Tangible fixed assets 221 291 515 668 Source: Company data, HSBC Current assets 206 351 670 694 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 1 94 395 369 Total assets 496 714 1,266 1,462 Operating liabilities 111 118 124 145 Issuer information Gross debt 0 0 400 400 Share price (USD) 12.59 Free float 0% Net debt -1 -94 5 31 Target price (USD) 22.00 Sector Chemicals Shareholders' funds 385 596 742 917 RIC (Equity) LTHM.N Country United States Invested capital 315 431 666 849 Bloomberg (Equity) LTHM US Analyst Alexandre Falcao
Market cap (USDm) 1,838 Contact +1 212 525 4449 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change Revenue 31.5 29.0 12.4 23.6 21.00 21.00 EBITDA 68.6 47.5 14.9 27.7 19.00 19.00 Operating profit 72.0 61.3 12.9 20.8 PBT 28.6 132.2 13.0 20.9 17.00 17.00 HSBC EPS -10.4 162.0 13.0 20.9 Ratios (%) 15.00 15.00 Revenue/IC (x) 1.2 1.2 0.9 0.8 13.00 13.00 ROIC 23.6 35.2 27.0 23.6 ROE 12.1 26.2 21.7 21.2 11.00 11.00 ROA 9.7 21.2 14.7 12.9 2017 2018 2019 EBITDA margin 36.3 41.5 42.4 43.8 Livent Corporation Rel to S&P 500 Operating profit margin 29.2 36.5 36.7 35.9 EBITDA/net interest (x) Source: HSBC Net debt/equity -0.3 -15.8 0.6 3.4 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) 0.0 -0.5 0.0 0.1 CF from operations/net debt 3244.4 558.6 Per share data (USD) EPS Rep (diluted) 0.34 0.90 1.02 1.23 HSBC EPS (diluted) 0.34 0.90 1.02 1.23 DPS 0.00 0.00 0.00 0.00 Book value 3.13 4.17 5.19 6.41
83 EQUITIES ● AUTOS 7 February 2019
Financials & valuation: Ford Otosan Buy
Financial statements Valuation data Year to 12/2017a 12/2018e 12/2019e 12/2020e Year to 12/2017a 12/2018e 12/2019e 12/2020e Profit & loss summary (TRYm) EV/sales 0.9 0.7 0.6 0.6 Revenue 25,341 33,429 38,113 44,291 EV/EBITDA 10.9 8.0 7.2 6.3 EBITDA 2,000 2,875 3,240 3,898 EV/IC 3.7 3.0 2.7 2.3 Depreciation & amortisation -292 -391 -502 -661 PE* 13.4 11.4 10.0 8.1 Operating profit/EBIT 1,708 2,484 2,737 3,237 PB 5.4 4.7 4.2 3.5 Net interest -227 -574 -643 -549 FCF yield (%) 3.2 -0.7 5.0 3.5 PBT 1,481 1,910 2,094 2,688 Dividend yield (%) 6.0 7.2 7.9 9.9 HSBC PBT 1,481 1,910 2,094 2,688 * Based on HSBC EPS (diluted) Taxation 9 -153 -105 -215 Net profit 1,490 1,757 1,989 2,473 HSBC net profit 1,490 1,757 1,989 2,473 ESG metrics Cash flow summary (TRYm) Environmental Indicators 12/2017a Governance Indicators 12/2018a Cash flow from operations 1,434 983 2,248 2,968 GHG emission intensity* 28.4 No. of board members 14 Capex -806 -1,088 -1,266 -2,243 Energy intensity* 88.5 Average board tenure (years) 10.7 Cash flow from investment -806 -1,088 -1,266 -2,243 CO2 reduction policy Yes Female board members (%) 14.3 Dividends -790 -1,204 -1,439 -1,579 Social Indicators 12/2017a Board members independence (%) 14.3 Change in net debt 135 1,223 492 1,122 FCF equity 634 -146 993 698 Employee costs as % of revenues 4 Balance sheet summary (TRYm) Employee turnover (%) 11.1 Diversity policy Yes Intangible fixed assets 690 792 912 1,212 Tangible fixed assets 4,474 4,993 5,611 7,145 Source: Company data, HSBC Current assets 6,827 8,218 9,755 10,267 * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Cash & others 1,806 1,759 2,487 2,066 Total assets 12,009 14,020 16,296 18,641 Operating liabilities 4,266 4,556 5,140 5,927 Issuer information Gross debt 3,604 4,780 5,999 6,700 Share price (TRY) 56.95 Free float 18% Net debt 1,798 3,021 3,512 4,634 Target price (TRY) 68.80 Sector Autos Shareholders' funds 3,696 4,255 4,811 5,728 RIC (Equity) FROTO.IS Country Turkey Invested capital 5,920 7,688 8,652 10,630 Bloomberg (Equity) FROTO TI Analyst Cenk Orcan
Market cap (USDm) 3,829 Contact +90 212 376 46 14 Ratio, growth and per share analysis
Year to 12/2017a 12/2018e 12/2019e 12/2020e Price relative Y-o-y % change Revenue 38.6 31.9 14.0 16.2 EBITDA 34.6 43.8 12.7 20.3 70.00 70.00 Operating profit 53.7 45.4 10.2 18.2 60.00 60.00 PBT 52.7 29.0 9.6 28.3 50.00 50.00 HSBC EPS 56.0 17.9 13.2 24.3 40.00 40.00 Ratios (%) 30.00 30.00 Revenue/IC (x) 4.6 4.9 4.7 4.6 20.00 20.00 ROIC 27.8 31.2 30.1 30.4 10.00 10.00 ROE 43.4 44.2 43.9 46.9 0.00 0.00 ROA 21.4 24.2 23.3 22.2 2017 2018 2019 EBITDA margin 7.9 8.6 8.5 8.8 Ford Otosan Rel to ISTANBUL COMP Operating profit margin 6.7 7.4 7.2 7.3 EBITDA/net interest (x) 8.8 5.0 5.0 7.1 Source: HSBC Net debt/equity 48.7 71.0 73.0 80.9 Note: Priced at close of 04 Feb 2019 Net debt/EBITDA (x) 0.9 1.1 1.1 1.2 CF from operations/net debt 79.8 32.5 64.0 64.0 Per share data (TRY) EPS Rep (diluted) 4.25 5.01 5.67 7.05 HSBC EPS (diluted) 4.25 5.01 5.67 7.05 DPS 3.43 4.10 4.50 5.64 Book value 10.53 12.13 13.71 16.32
84 EQUITIES ● AUTOS 7 February 2019
Appendix
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Global annual light vehicle sales forecast by region, 2015-22e (000 units) Region 2015 yoy% 2016 yoy% 2017 yoy% 2018e yoy% 2019e yoy% 2020e yoy% 2021e yoy% 2022e yoy% Western Europe 14,875 9.2% 15,835 6.5% 16,251 2.6% 16,248 0.0% 16,000 -1.5% 15,713 -1.8% 15,406 -2.0% 15,288 -0.8%
Germany 3,444 5.5% 3,610 4.8% 3,712 2.8% 3,741 0.8% 3,738 -0.1% 3,562 -4.7% 3,412 -4.2% 3,409 -0.1% ●
UK 3,006 7.4% 3,068 2.1% 2,903 -5.4% 2,724 -6.2% 2,590 -4.9% 2,614 0.9% 2,663 1.9% 2,720 2.1% AUTOS Italy 1,707 15.6% 2,026 18.7% 2,165 6.9% 2,085 -3.7% 2,039 -2.2% 2,077 1.9% 2,054 -1.1% 2,034 -1.0%
France 2,295 5.9% 2,423 5.6% 2,544 5.0% 2,646 4.0% 2,595 -1.9% 2,485 -4.2% 2,411 -3.0% 2,334 -3.2%
Spain 1,189 22.7% 1,319 10.9% 1,434 8.7% 1,542 7.5% 1,568 1.7% 1,582 0.9% 1,561 -1.3% 1,494 -4.3% Eastern Europe 2,797 -22.1% 2,589 -7.4% 2,759 6.6% 2,693 -2.4% 2,767 2.8% 3,136 13.3% 3,504 11.7% 3,752 7.1% Russia 1,601 -35.5% 1,422 -11.2% 1,588 11.7% 1,807 13.8% 1,989 10.1% 2,190 10.1% 2,349 7.3% 2,377 1.2% Turkey 947 25.9% 968 2.2% 940 -2.8% 626 -33.4% 494 -21.1% 595 20.4% 704 18.4% 839 19.1% Central Europe 1,163 12.9% 1,344 15.6% 1,503 11.8% 1,650 9.8% 1,670 1.2% 1,650 -1.2% 1,677 1.7% 1,705 1.7% Hungary 95 13.9% 115 22.0% 136 17.8% 160 17.4% 164 2.5% 164 0.3% 165 0.7% 166 0.6% Poland 408 9.7% 475 16.6% 545 14.7% 602 10.5% 606 0.5% 582 -3.9% 579 -0.4% 587 1.4% North America 19,663 6.3% 19,944 1.4% 19,645 -1.5% 19,487 -0.8% 19,081 -2.1% 18,675 -2.1% 18,481 -1.0% 18,206 -1.5% USA 16,518 5.8% 16,514 0.0% 16,193 -1.9% 16,165 -0.2% 15,777 -2.4% 15,400 -2.4% 15,172 -1.5% 14,871 -2.0% Canada 1,816 3.4% 1,854 2.0% 1,937 4.5% 1,904 -1.7% 1,858 -2.4% 1,799 -3.2% 1,805 0.4% 1,809 0.2% Mexico 1,328 19.4% 1,577 18.8% 1,514 -4.0% 1,418 -6.3% 1,447 2.0% 1,476 2.0% 1,503 1.9% 1,526 1.5% South America 4,353 -18.9% 3,879 -10.9% 4,345 12.0% 4,648 7.0% 4,606 -0.9% 4,777 3.7% 4,964 3.9% 5,151 3.8% Brazil 2,467 -25.6% 1,979 -19.8% 2,166 9.4% 2,451 13.1% 2,669 8.9% 2,786 4.4% 2,883 3.5% 2,981 3.4% Argentina 624 -3.4% 670 7.5% 852 27.1% 772 -9.4% 501 -35.2% 539 7.6% 588 9.1% 638 8.6% Middle East/Africa 4,904 -5.2% 4,696 -4.2% 4,599 -2.0% 4,394 -4.5% 4,336 -1.3% 4,778 10.2% 5,243 9.7% 5,714 9.0% Iran 963 -15.2% 1,232 28.0% 1,561 26.7% 1,307 -16.3% 1,015 -22.4% 1,034 1.9% 1,218 17.8% 1,449 19.0% Greater China 23,584 6.1% 26,799 13.6% 27,138 1.3% 26,177 -3.5% 26,524 1.3% 27,032 1.9% 27,357 1.2% 27,614 0.9% China 23,128 6.2% 26,340 13.9% 26,667 1.2% 25,724 -3.5% 26,049 1.3% 26,551 1.9% 26,884 1.3% 27,159 1.0% ASEAN + India 6,273 2.2% 6,570 4.7% 7,053 7.4% 7,550 7.1% 7,989 5.8% 8,358 4.6% 8,917 6.7% 9,511 6.7% India 3,120 6.9% 3,378 8.3% 3,653 8.1% 3,964 8.5% 4,260 7.5% 4,507 5.8% 4,921 9.2% 5,364 9.0% Indonesia 950 -18.2% 992 4.4% 988 -0.4% 1,039 5.2% 1,079 3.8% 1,133 5.1% 1,191 5.1% 1,247 4.8% Malaysia 651 0.6% 563 -13.6% 561 -0.2% 577 2.7% 591 2.5% 606 2.6% 625 3.1% 641 2.6% Others 7,891 -3.6% 7,801 -1.1% 8,066 3.4% 8,087 0.3% 7,914 -2.1% 7,569 -4.4% 7,492 -1.0% 7,391 -1.4% Japan 4,835 -9.9% 4,729 -2.2% 5,007 5.9% 5,038 0.6% 4,856 -3.6% 4,564 -6.0% 4,497 -1.5% 4,433 -1.4% South Korea 1,801 11.6% 1,783 -1.0% 1,750 -1.9% 1,765 0.9% 1,782 0.9% 1,762 -1.1% 1,732 -1.7% 1,705 -1.6% Global 85,503 2.0% 89,457 4.6% 91,359 2.1% 90,933 -0.5% 90,887 -0.1% 91,688 0.9% 93,041 1.5% 94,332 1.4% - thereof Triad markets 39,372 5.1% 40,508 2.9% 40,903 1.0% 40,773 -0.3% 39,937 -2.0% 38,952 -2.5% 38,383 -1.5% 37,927 -1.2% - thereof non Triad markets 46,131 -0.5% 48,948 6.1% 50,456 3.1% 50,160 -0.6% 50,950 1.6% 52,736 3.5% 54,657 3.6% 56,405 3.2% - thereof BRIC markets 30,773 -0.6% 33,577 9.1% 34,545 2.9% 34,399 -0.4% 35,442 3.0% 36,515 3.0% 37,510 2.7% 38,336 2.2% - thereof EU (West, Central) 16,038 9.5% 17,179 7.1% 17,754 3.3% 17,899 0.8% 17,670 -1.3% 17,363 -1.7% 17,083 -1.6% 16,993 -0.5% Global ex Japan 80,668 2.8% 84,727 5.0% 86,352 1.9% 85,895 -0.5% 86,032 0.2% 87,123 1.3% 88,544 1.6% 89,899 1.5% Global ex China 62,375 0.5% 63,117 1.2% 64,692 2.5% 65,209 0.8% 64,838 -0.6% 65,137 0.5% 66,156 1.6% 67,173 1.5% EU28+EFTA countries 16,003 9.5% 17,137 7.1% 17,708 3.3% 17,848 0.8% 17,612 -1.3% 17,298 -1.8% 17,006 -1.7% 16,910 -0.6% Europe (total) 18,835 3.3% 19,768 5.0% 20,513 3.8% 20,591 0.4% 20,437 -0.7% 20,499 0.3% 20,586 0.4% 20,745 0.8%
Asia Pac ex, China , Japan 9,329 4.1% 9,642 3.4% 10,111 4.9% 10,598 4.8% 11,047 4.2% 11,363 2.9% 11,913 4.8% 12,469 4.7% Source: IHS, HSBC estimates
7 February February 7 2019 EQUITIES
Global quarterly light vehicle sales forecast by region, Q1 2018 to Q4 2019e (000 units) Region Q1 2018e yoy % Q2 2018e yoy % Q3 2018e yoy % Q4 2018e yoy % 2018e yoy % Q1 2019e yoy % Q2 2019e yoy % Q3 2019e yoy % Q4 2019e yoy % 2019e yoy % Western Europe 4,429 0.0% 4,556 4.7% 3,697 -0.2% 3,556 -5.5% 16,238 -0.1% 4,112 -7.2% 4,254 -6.6% 3,732 0.9% 3,861 8.6% 15,974 -1.6%
Germany 943 3.9% 1,033 2.3% 904 1.5% 861 -4.7% 3,741 0.8% 892 -5.4% 1,000 -3.2% 918 1.5% 934 8.4% 3,738 -0.1% ●
France 673 3.5% 755 5.9% 569 10.8% 648 -2.8% 2,646 4.0% 653 -3.0% 693 -8.2% 557 -2.2% 704 8.6% 2,621 -0.9% AUTOS United Kingdom 813 -11.4% 682 2.0% 689 -9.6% 540 -2.6% 2,724 -6.2% 718 -11.7% 617 -9.5% 701 1.7% 557 3.2% 2,590 -4.9%
Italy 619 -1.1% 592 -1.4% 406 -7.2% 457 -8.8% 2,074 -4.2% 561 -9.4% 544 -8.2% 396 -2.4% 480 5.1% 1,985 -4.3%
Spain 393 10.4% 455 10.2% 356 14.3% 338 -4.4% 1,542 7.5% 347 -11.6% 459 0.9% 365 2.4% 409 21.0% 1,568 1.7% Eastern Europe 602 15.9% 713 3.2% 621 -10.2% 731 -14.7% 2,668 -3.3% 601 -0.1% 736 3.2% 730 17.5% 877 19.9% 2,928 9.8% Russia 392 21.9% 455 15.6% 447 9.4% 514 10.6% 1,807 13.8% 430 9.8% 508 11.5% 504 12.7% 555 8.1% 1,989 10.1% Central Europe 404 11.1% 447 11.4% 409 16.6% 390 0.7% 1,650 9.8% 406 0.4% 432 -3.4% 393 -4.1% 440 12.9% 1,670 1.2% Hungary 37 28.1% 45 27.5% 39 21.6% 39 -2.3% 160 17.4% 39 5.3% 43 -4.4% 38 -2.9% 45 13.6% 164 2.5% Poland 155 10.3% 150 10.7% 146 19.2% 150 3.1% 602 10.5% 161 3.6% 148 -1.9% 135 -8.1% 163 8.0% 606 0.5% Czech Republic 72 -0.4% 81 -0.5% 69 4.4% 68 -5.1% 289 -0.5% 66 -8.3% 74 -8.0% 64 -6.6% 71 5.1% 275 -4.8% North America 4,600 1.0% 5,131 0.5% 4,893 -3.2% 4,863 -1.5% 19,487 -0.8% 4,764 3.6% 4,931 -3.9% 4,820 -1.5% 4,875 0.2% 19,081 -2.1% USA 3,876 2.2% 4,221 1.7% 4,037 -3.1% 4,030 -1.4% 16,165 -0.2% 3,952 2.0% 4,058 -3.9% 3,966 -1.8% 4,007 -0.6% 15,777 -2.4% South America 1,118 12.7% 1,155 9.6% 1,150 -0.3% 1,225 7.0% 4,648 7.0% 1,056 -5.6% 1,143 -1.1% 1,229 6.9% 1,246 1.7% 4,650 0.0% Brazil 525 14.6% 588 10.8% 650 12.0% 688 15.2% 2,451 13.1% 581 10.8% 667 13.6% 728 12.0% 740 7.5% 2,696 10.0% Japan Korea 1,894 -1.9% 1,603 -1.0% 1,651 0.1% 1,656 6.3% 6,803 0.7% 1,858 -1.9% 1,577 -1.6% 1,659 0.5% 1,523 -8.0% 6,638 -2.4% Japan 1,477 -2.2% 1,140 -1.6% 1,230 1.1% 1,191 6.3% 5,038 0.6% 1,449 -1.9% 1,110 -2.6% 1,236 0.5% 1,041 ##### 4,856 -3.6% Greater China 6,697 2.0% 6,259 5.8% 6,053 -6.3% 7,168 -12.5% 26,177 -3.5% 6,461 -3.5% 5,753 -8.1% 5,987 -1.1% 7,888 10.0% 26,253 0.3% China 6,579 2.1% 6,146 6.0% 5,953 -6.2% 7,046 -12.7% 25,724 -3.5% 6,364 -3.3% 5,642 -8.2% 5,870 -1.4% 7,741 9.9% 25,783 0.2% Middle East/Africa 1,238 -0.9% 1,044 -1.2% 997 -10.6% 1,115 -5.4% 4,394 -4.5% 1,118 -9.7% 1,003 -3.9% 1,070 7.3% 1,148 3.0% 4,336 -1.3% ASEAN + India 1,859 6.7% 1,924 16.7% 1,925 4.6% 1,801 -1.1% 7,510 6.5% 1,966 5.7% 1,894 -1.6% 1,993 3.5% 2,133 18.4% 7,989 6.4% India 1,001 11.4% 1,052 25.3% 1,013 0.5% 859 -5.4% 3,924 7.4% 1,042 4.1% 984 -6.5% 1,084 7.0% 1,147 33.6% 4,260 8.6% Indonesia 264 0.7% 236 2.6% 273 10.4% 267 7.1% 1,039 5.2% 276 4.5% 259 10.1% 265 -2.7% 276 3.6% 1,079 3.8% Malaysia 131 -4.9% 151 8.1% 160 16.4% 135 -8.2% 577 2.7% 141 7.2% 141 -6.3% 145 -8.9% 165 22.2% 591 2.5% Thailand 231 13.2% 245 27.1% 250 22.5% 275 12.9% 1,001 18.6% 256 11.1% 254 3.4% 249 -0.5% 270 -1.7% 1,033 3.3% Others 232 -3.1% 241 -3.0% 230 -5.7% 266 -2.9% 969 -3.7% 251 8.0% 256 6.5% 250 8.3% 275 3.2% 1,026 5.9% Oceania 323 3.9% 342 -2.1% 303 -4.6% 315 -4.6% 1,283 -1.9% 309 -4.5% 314 -8.1% 325 7.1% 340 7.9% 1,276 -0.5% Global 23,166 2.2% 23,173 4.4% 21,699 -2.9% 22,820 -5.6% 90,858 -0.5% 22,651 -2.2% 22,037 -4.9% 21,937 1.1% 24,331 6.6% 90,795 -0.1% Triad Markets 10,506 0.1% 10,827 2.0% 9,820 -1.5% 9,610 -2.1% 40,763 -0.3% 10,325 -1.7% 10,295 -4.9% 9,788 -0.3% 9,776 1.7% 39,910 -2.1% BRIC markets 8,614 4.5% 8,353 8.8% 8,163 -3.5% 9,229 -9.2% 34,360 -0.5% 8,515 -1.2% 7,911 -5.3% 8,303 1.7% 10,331 11.9% 35,198 2.4% EU (Western+Central 4,833 0.8% 5,003 5.2% 4,106 1.2% 3,946 -5.0% 17,888 0.8% 4,518 -6.5% 4,686 -6.3% 4,124 0.4% 4,301 9.0% 17,643 -1.4% Europe) Global ex Japan 21,689 2.6% 22,034 4.8% 20,469 -3.1% 21,629 -6.2% 85,820 -0.6% 21,202 -2.2% 20,927 -5.0% 20,701 1.1% 23,290 7.7% 85,939 0.1% Global ex Japan and China 15,110 2.8% 15,888 4.3% 14,516 -1.7% 14,582 -2.6% 60,096 0.7% 14,837 -1.8% 15,285 -3.8% 14,830 2.2% 15,548 6.6% 60,156 0.1% EU28+EFTA countries 4,822 0.8% 4,987 5.2% 4,095 1.2% 3,934 -5.0% 17,838 0.7% 4,506 -6.6% 4,669 -6.4% 4,110 0.4% 4,287 9.0% 17,586 -1.4% Europe (total) 5,436 2.3% 5,715 5.0% 4,728 -0.4% 4,677 -6.6% 20,556 0.2% 5,120 -5.8% 5,422 -5.1% 4,854 2.7% 5,178 10.7% 20,571 0.1% APAC (exc China, Japan) 2,718 4.9% 2,842 10.4% 2,749 1.6% 2,703 -0.3% 11,012 4.1% 2,780 2.3% 2,787 -1.9% 2,857 3.9% 3,102 14.8% 11,518 4.6%
Source: IHS, HSBC estimates
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Global annual light vehicle production forecast by region, 2015-22e (000 units) Region 2015 yoy% 2016 yoy% 2017 yoy% 2018e yoy% 2019e yoy% 2020e yoy% 2021e yoy% 2022e yoy% Western Europe 14,162 6.9% 14,663 3.5% 14,779 0.8% 14,236 -3.7% 14,078 -1.1% 14,082 0.0% 14,280 1.4% 13,867 -2.9%
Germany 5,921 2.0% 5,954 0.6% 5,826 -2.1% 5,270 -9.5% 5,282 0.2% 5,427 2.8% 5,460 0.6% 5,341 -2.2% ●
United Kingdom 1,671 5.5% 1,803 7.9% 1,737 -3.7% 1,576 -9.3% 1,479 -6.2% 1,489 0.7% 1,534 3.0% 1,583 3.2% AUTOS Italy 960 46.1% 1,041 8.4% 1,067 2.5% 1,000 -6.2% 919 -8.1% 981 6.8% 988 0.7% 979 -1.0%
France 1,955 8.0% 2,075 6.1% 2,220 7.0% 2,254 1.6% 2,208 -2.1% 1,821 -17.5% 2,027 11.3% 2,069 2.1%
Spain 2,705 13.2% 2,884 6.6% 2,818 -2.3% 2,810 -0.3% 2,798 -0.4% 3,002 7.3% 3,037 1.2% 2,842 -6.4% Eastern Europe 2,813 -12.3% 2,778 -1.3% 3,268 17.6% 3,391 3.8% 3,373 -0.5% 3,553 5.3% 3,693 4.0% 3,912 5.9% Russia 1,302 -26.5% 1,219 -6.4% 1,449 18.9% 1,633 12.7% 1,722 5.4% 1,901 10.4% 2,031 6.8% 2,186 7.6% Turkey 1,300 16.5% 1,449 11.5% 1,652 14.0% 1,518 -8.1% 1,384 -8.8% 1,384 0.0% 1,416 2.3% 1,474 4.1% Central Europe 3,920 7.9% 4,028 2.7% 4,121 2.3% 4,259 3.4% 4,205 -1.3% 4,184 -0.5% 4,253 1.6% 4,556 7.1% Czech Republic 1,237 6.5% 1,336 8.0% 1,398 4.6% 1,401 0.2% 1,331 -4.9% 1,298 -2.5% 1,347 3.7% 1,579 17.3% Poland 642 12.7% 661 2.8% 666 0.7% 625 -6.1% 588 -6.0% 511 -13.0% 514 0.6% 545 6.0% North America 16,394 2.5% 16,672 1.7% 15,858 -4.9% 15,751 -0.7% 15,592 -1.0% 15,139 -2.9% 15,292 1.0% 15,459 1.1% United States 10,958 3.2% 11,068 1.0% 10,022 -9.4% 10,086 0.6% 9,926 -1.6% 9,844 -0.8% 10,067 2.3% 10,165 1.0% Mexico 3,179 6.0% 3,234 1.7% 3,666 13.4% 3,674 0.2% 3,778 2.8% 3,596 -4.8% 3,509 -2.4% 3,508 0.0% South America 3,072 -19.4% 2,721 -11.4% 3,270 20.2% 3,373 3.1% 3,590 6.4% 3,802 5.9% 4,038 6.2% 4,136 2.4% Brazil 2,355 -21.4% 2,099 -10.9% 2,639 25.8% 2,746 4.1% 2,939 7.0% 3,095 5.3% 3,232 4.4% 3,376 4.5% Argentina 521 -13.1% 473 -9.2% 475 0.6% 465 -2.1% 473 1.7% 502 6.1% 580 15.5% 561 -3.2% Middle East/Africa 1,968 2.1% 2,268 15.2% 2,578 13.7% 2,522 -2.2% 2,389 -5.3% 2,617 9.5% 2,786 6.5% 2,953 6.0% Iran 954 -6.8% 1,199 25.8% 1,436 19.7% 1,275 -11.2% 999 -21.6% 1,072 7.3% 1,187 10.7% 1,359 14.5% Greater China 22,834 5.0% 26,019 13.9% 26,630 2.3% 25,696 -3.5% 24,881 -3.2% 25,694 3.3% 26,562 3.4% 27,618 4.0% China 22,498 5.3% 25,721 14.3% 26,352 2.5% 25,451 -3.4% 24,594 -3.4% 25,400 3.3% 26,269 3.4% 27,325 4.0% ASEAN + India 7,729 2.7% 8,198 6.1% 8,522 4.0% 9,112 6.9% 9,328 2.4% 9,664 3.6% 10,480 8.4% 11,158 6.5% India 3,775 5.9% 4,138 9.6% 4,421 6.8% 4,712 6.6% 4,893 3.8% 4,980 1.8% 5,588 12.2% 6,143 9.9% Thailand 1,885 1.8% 1,927 2.3% 1,957 1.5% 2,134 9.0% 2,085 -2.3% 2,156 3.4% 2,236 3.7% 2,248 0.5% Indonesia 1,024 -15.6% 1,115 8.9% 1,126 1.0% 1,218 8.2% 1,251 2.7% 1,340 7.1% 1,379 2.9% 1,441 4.5% Others 13,198 -2.9% 12,845 -2.7% 13,145 2.3% 13,003 -1.1% 13,074 0.5% 12,308 -5.9% 12,170 -1.1% 12,068 -0.8% Japan 8,567 -4.8% 8,548 -0.2% 9,029 5.6% 9,052 0.3% 9,183 1.4% 8,631 -6.0% 8,481 -1.7% 8,402 -0.9% South Korea 4,462 1.0% 4,142 -7.2% 4,024 -2.8% 3,951 -1.8% 3,891 -1.5% 3,677 -5.5% 3,689 0.3% 3,666 -0.6% Total Sum 86,090 1.6% 90,191 4.8% 92,172 2.2% 91,344 -0.9% 90,510 -0.9% 91,042 0.6% 93,554 2.8% 95,728 2.3% - thereof Triad markets 39,122 2.3% 39,883 1.9% 39,666 -0.5% 39,039 -1.6% 38,853 -0.5% 37,852 -2.6% 38,053 0.5% 37,728 -0.9% - thereof non Triad markets 46,968 1.1% 50,309 7.1% 52,506 4.4% 52,305 -0.4% 51,657 -1.2% 53,190 3.0% 55,501 4.3% 57,999 4.5% - thereof BRIC markets 29,929 0.8% 33,177 10.9% 34,861 5.1% 34,543 -0.9% 34,148 -1.1% 35,376 3.6% 37,120 4.9% 39,030 5.1% Source: IHS, HSBC estimates
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Global quarterly light vehicle production forecast by region, Q1 2018 to Q4 2019e (000 units) Region Q1 2018 yoy% Q2 2018 yoy% Q3 2018 yoy% Q4 2018 yoy% 2018 yoy% Q1 2019e yoy% Q2 2019e yoy% Q3 2019e yoy% Q4 2019e yoy% 2019e yoy% Western Europe 3,934 -1.1% 3,952 4.4% 2,960 -9.9% 3,408 -8.6% 14,236 -3.7% 3,664 -6.9% 3,673 -7.1% 3,110 5.1% 3,592 5.4% 14,078 -1.1%
Germany 1,467 -6.3% 1,447 -0.2% 1,108 -20.5% 1,248 -11.9% 5,270 -9.5% 1,358 -7.5% 1,329 -8.1% 1,220 10.0% 1,375 10.2% 5,282 0.2% ●
France 636 10.1% 592 1.6% 460 0.8% 566 -6.1% 2,254 1.6% 617 -3.1% 628 6.1% 448 -2.6% 515 -9.0% 2,208 -2.1% AUTOS Spain 758 -5.3% 854 13.9% 534 -5.3% 664 -5.8% 2,810 -0.3% 740 -2.4% 765 -10.4% 585 9.5% 708 6.7% 2,798 -0.4%
United Kingdom 455 -7.3% 412 0.3% 351 -13.4% 358 -16.8% 1,576 -9.3% 365 -19.9% 358 -13.1% 350 -0.3% 406 13.5% 1,479 -6.2%
Italy 262 -5.6% 299 -1.8% 206 -8.8% 233 -9.8% 1,000 -6.2% 240 -8.4% 250 -16.5% 203 -1.8% 227 -2.8% 919 -8.1% Eastern Europe 845 9.8% 879 3.6% 750 1.5% 917 0.7% 3,391 3.8% 802 -5.1% 888 1.0% 814 8.5% 870 -5.2% 3,373 -0.5% Russia 382 18.3% 420 14.8% 376 7.2% 456 11.2% 1,633 12.7% 362 -5.1% 443 5.6% 429 14.0% 488 7.1% 1,722 5.4% Turkey 413 -0.4% 405 -6.7% 312 -9.4% 387 -15.5% 1,518 -8.1% 381 -7.9% 377 -7.0% 315 0.8% 312 -19.3% 1,384 -8.8% Central Europe 1,101 -0.1% 1,154 5.6% 898 1.2% 1,107 6.5% 4,259 3.4% 1,091 -0.8% 1,108 -4.0% 936 4.3% 1,070 -3.4% 4,205 -1.3% Czech Republic 372 -3.2% 372 1.7% 290 -0.6% 367 3.0% 1,401 0.2% 355 -4.4% 352 -5.3% 296 1.9% 328 -10.5% 1,331 -4.9% Slovakia 241 0.1% 276 10.1% 235 17.7% 279 12.7% 1,031 9.8% 278 15.0% 276 -0.1% 238 1.4% 266 -4.5% 1,058 2.6% Poland 171 -13.3% 175 -2.5% 127 -5.8% 152 -1.3% 625 -6.1% 152 -11.0% 156 -10.8% 128 1.3% 151 -0.7% 588 -6.0% North America 4,068 -3.2% 4,065 -1.8% 3,724 1.0% 3,894 1.7% 15,751 -0.7% 4,064 -0.1% 4,043 -0.5% 3,751 0.7% 3,733 -4.1% 15,592 -1.0% United States 2,624 -3.1% 2,569 -2.0% 2,367 3.6% 2,525 4.9% 10,086 0.6% 2,587 -1.4% 2,531 -1.5% 2,409 1.8% 2,399 -5.0% 9,926 -1.6% South America 818 11.4% 872 9.7% 896 2.1% 787 -8.9% 3,373 3.1% 824 0.7% 929 6.5% 981 9.6% 856 8.8% 3,590 6.4% Brazil 668 10.6% 701 10.7% 725 3.3% 652 -6.8% 2,746 4.1% 675 1.0% 757 8.1% 807 11.3% 701 7.4% 2,939 7.0% Middle East/Africa Total 728 10.0% 651 12.0% 594 -7.4% 549 -20.9% 2,522 -2.2% 585 -19.6% 522 -19.8% 614 3.3% 667 21.6% 2,389 -5.3% Greater China 6,469 -1.4% 6,434 11.0% 5,778 -7.6% 7,015 -12.5% 25,696 -3.5% 5,583 -13.7% 6,091 -5.3% 6,135 6.2% 7,072 0.8% 24,881 -3.2% China 6,403 -1.3% 6,366 11.1% 5,726 -7.5% 6,956 -12.4% 25,451 -3.4% 5,526 -13.7% 6,018 -5.5% 6,056 5.8% 6,994 0.6% 24,594 -3.4% Taiwan 66 -6.4% 68 -3.7% 52 -20.8% 60 -17.1% 245 -11.9% 57 -13.5% 73 8.2% 80 52.1% 78 30.5% 287 17.2% ASEAN + India 2,331 6.4% 2,202 9.1% 2,374 5.5% 2,205 2.3% 9,112 5.8% 2,328 -0.1% 2,224 1.0% 2,396 0.9% 2,380 7.9% 9,328 2.4% Japan/Korea Total 3,314 -2.2% 3,180 -1.9% 3,013 -5.6% 3,497 8.3% 13,003 -0.4% 3,424 3.3% 3,135 -1.4% 3,256 8.1% 3,259 -6.8% 13,074 0.5% Japan 2,371 0.1% 2,157 0.5% 2,136 -3.2% 2,388 3.5% 9,052 0.3% 2,485 4.8% 2,123 -1.6% 2,331 9.1% 2,244 -6.0% 9,183 1.4% Global 23,607 0.1% 23,388 4.9% 20,987 -3.8% 23,381 -4.4% 91,344 -0.9% 22,366 -5.3% 22,612 -3.3% 21,994 4.8% 23,499 0.5% 90,510 -0.9% thereof Triad Markets 10,373 -1.7% 10,174 1.0% 8,821 -3.9% 9,691 -1.8% 39,039 -1.6% 10,213 -1.5% 9,839 -3.3% 9,193 4.2% 9,569 -1.3% 38,853 -0.5% thereof non Triad Markets 13,234 1.5% 13,214 8.0% 12,167 -3.7% 13,690 -6.2% 52,305 -0.4% 12,153 -8.2% 12,773 -3.3% 12,801 5.2% 13,929 1.7% 51,657 -1.2% thereof BRIC+ASEAN markets 9,784 1.8% 9,688 10.8% 9,201 -3.1% 10,269 -8.4% 38,942 -0.3% 8,892 -9.1% 9,442 -2.5% 9,687 5.3% 10,562 2.9% 38,583 -0.9% Global ex Japan 21,236 0.1% 21,231 5.3% 18,851 -3.9% 20,993 -5.3% 82,292 -1.0% 19,882 -6.4% 20,490 -3.5% 19,663 4.3% 21,254 1.2% 81,327 -1.2% Europe (West+East+CE) 5,880 0.5% 5,985 4.5% 4,608 -6.2% 5,433 -4.3% 21,887 -1.3% 5,557 -5.5% 5,669 -5.3% 4,860 5.5% 5,531 1.8% 21,656 -1.1% Europe (West+East), ex Russia 5,085 -0.5% 5,160 4.7% 3,920 -7.1% 4,591 -4.6% 18,755 -1.6% 4,815 -5.3% 4,848 -6.0% 4,117 5.0% 4,731 3.1% 18,550 -1.1% Asia (Greater China + 12,114 -0.2% 11,815 6.8% 11,165 -4.5% 12,717 -5.1% 47,811 -1.0% 11,335 -6.4% 11,450 -3.1% 11,787 5.6% 12,711 0.0% 47,283 -1.1% Japan/Korea + ASEAN/India) Source: IHS, HSBC estimates
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Notes
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Disclosure appendix
Analyst Certification The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Horst Schneider, Henning Cosman, Giulio Pescatore, CFA, Wei Sim, Yogesh Aggarwal, Tracy Li, CFA, Paul Choi, Cenk Orcan, Antoine Belge, Alexandre Falcao, Yushin Park and Vivek Gedda
Brazilian Securities Exchange Commission (CVM) Regulation No. 483 Pursuant to CVM Ruling No. 483 (July 2010), HSBC has obtained from the analyst(s) listed above under "Analyst Certification" and disclosed (where applicable), the statements set forth in Article 17 and have rendered (where applicable) the statements set forth in Article 18, under the sections titled "Analyst Certification" and "HSBC & Analyst Disclosures". The analyst(s) furthermore certifies(y) that the recommendations contained in this report have been prepared independently, even in relation to HSBC.
Additionally, for purposes of Article 16, the principal analyst responsible for compliance of the mentioned regulation is the first name in the list under "Analyst Certification" that has local certification, where applicable.
Important disclosures Equities: Stock ratings and basis for financial analysis HSBC and its affiliates, including the issuer of this report (“HSBC”) believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating.
From 23rd March 2015 HSBC has assigned ratings on the following basis: The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates).
Upside/Downside is the percentage difference between the target price and the share price.
Prior to this date, HSBC’s rating structure was applied on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was
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expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.
*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities As of 06 February 2019, the distribution of all independent ratings published by HSBC is as follows: Buy 55% ( 29% of these provided with Investment Banking Services ) Hold 36% ( 28% of these provided with Investment Banking Services ) Sell 9% ( 20% of these provided with Investment Banking Services )
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.
To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please use the following links to access the disclosure page:
Clients of Global Research and Global Banking and Markets: www.research.hsbc.com/A/Disclosures
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HSBC & Analyst disclosures Disclosure checklist
Company Ticker Recent price Price date Disclosure BAJAJ AUTO BAJA.BO 2770.15 06 Feb 2019 5, 6, 7 BRILLIANCE AUTO 1114.HK 7.80 05 Feb 2019 6, 7 ESCORTS LIMITED ESCO.BO 683.90 06 Feb 2019 7 FERRARI NV RACE.MI 112.25 05 Feb 2019 6, 7 FORD OTOSAN FROTO.IS 57.75 05 Feb 2019 1, 5, 6, 7 MICHELIN MICP.PA 94.80 05 Feb 2019 1, 4, 5, 6, 7 RENAULT RENA.PA 60.49 05 Feb 2019 1, 4, 5, 6, 7 Source: HSBC
1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 31 December 2018, HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 December 2018, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 December 2018, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 December 2018, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below.
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10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company 12 As of 01 Feb 2019, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology. 13 As of 01 Feb 2019, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology. HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or liquidity provider in the securities/instruments mentioned in this report.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Non-U.S. analysts may not be associated persons of HSBC Securities (USA) Inc, and therefore may not be subject to FINRA Rule 2241 or FINRA Rule 2242 restrictions on communications with the subject company, public appearances and trading securities held by the analysts.
Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for queries regarding other research reports. In order to find out more about the proprietary models used to produce this report, please contact the authoring analyst.
Additional disclosures
1 This report is dated as at 07 February 2019.
2 All market data included in this report are dated as at close 04 February 2019, unless a different date and/or a specific time of day is indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument.
5 As of 25 Jan 2019 HSBC owned a significant interest in the debt securities of the following company(ies): RENAULT
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MSCI Disclaimer
The MSCI information included in this report is for your internal use only, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the "MSCI Parties") expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non- infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)
Production & distribution disclosures
1. This report was produced and signed off by the author on 07 Feb 2019 10:59 GMT.
2. In order to see when this report was first disseminated please see the disclosure page available at https://www.research.hsbc.com/R/34/BW9gcRn
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Disclaimer Legal entities as at 30 November 2017 Issuer of report ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; HSBC Trinkaus & Burkhardt AG ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Securities (Canada) Inc.; HSBC Bank, Paris Branch; HSBC Königsallee 21/23 France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital D-40212 Düsseldorf Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Germany Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Telephone: +49 211 910-0 Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Fax: +49 211 910-98091 Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Website: www.research.hsbc.com Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch; PT Bank HSBC Indonesia; HSBC Qianhai Securities Limited This document has been issued by HSBC Trinkaus & Burkhardt AG (“HSBC”) for the information of its customers only. 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Global Industrials Research Team
Industrials Autos Construction & Engineering Analyst Analyst Head of French Research Michael Hagmann +44 20 7991 2405 Horst Schneider +49 211 910 3285 Pierre Bosset +33 1 56 52 43 10 [email protected] [email protected] [email protected]
Analyst Analyst Analyst Scott Cagehin +44 20 7992 1444 Yogesh Aggarwal +91 22 2268 1246 Jonathan Brandt, CFA +1 212 525 4499 [email protected] [email protected] [email protected] Analyst Head of Research, Korea Henning Cosman +44 207 991 0369 Analyst, LatAm Metals & Mining, Pulp & Brian Cho +822 3706 8750 [email protected] Paper [email protected] Mariano Szachtman 54 11 4121 7629 Analyst [email protected] Analyst Giulio Pescatore +49 211 910 3018 Paul Choi +822 3706 8758 [email protected] Analyst [email protected] Eduardo Altamirano +1 212 525 8333 Analyst [email protected] Analyst Wei Sim +852 2996 6602 Anderson Chow +852 2996 6669 [email protected] Analyst, LatAm Cement and Constructions, [email protected] Real Estate Analyst Javier Santiago +52 55 5721 2397 Tracy Li +852 2996 6751 Analyst [email protected] [email protected] Puneet Gulati +91 22 2268 1235 [email protected] Analyst Analyst Vivek Gedda +91 22 6164 0693 Coleman Clyde +1 212 525 2441 Analyst [email protected] [email protected] Yeon Lee +822 3706 8778 [email protected] Analyst Global Equity Head of Building Materials Vikas Ahuja +91 22 6164 0690 John Fraser-Andrews +44 20 7991 6732 Analyst [email protected] [email protected] Helen Fang +852 2996 6942 Analyst [email protected] Kushan Parikh +91 22 2268 1239 Analyst [email protected] Lesley Liu +852 2822 4524 Analyst [email protected] Sean McLoughlin +44 20 7991 3464 Analyst [email protected] Jeremy Chen +8862 6631 2866 Analyst [email protected] Nicholas Paton, CFA +971 4 423 6923 Analyst [email protected] Edward Perry +44 20 7991 8415 Transportation [email protected] Analyst Analyst Emily Li +852 2996 6599 Andrew Lobbenberg +44 20 7991 6816 Analyst [email protected] [email protected] Shrinidhi Karlekar +91 22 6164 0689 [email protected] Analyst Analyst Howard Lau, CFA +852 2996 6625 Edward Stanford +44 20 7992 4207 Analyst [email protected] [email protected] Puneet Garg +91 80 4555 2756 [email protected] Analyst Parash Jain +852 2996 6717 Analyst [email protected] Nick Webster +27 11 676 4537 Specialist Sales [email protected] Analyst Rod Turnbull +44 20 7991 5363 Achal Kumar +91 80 4555 2751 [email protected] Analyst [email protected] Jörg-André Finke, CFA +49 211 910 3722 Analyst Oliver Magis +49 21 1910 4402 [email protected] Joe Thomas +44 20 7992 3618 [email protected] [email protected] Analyst Billal Ismail +44 20 7991 5362 Somesh Agarwal +65 6658 0616 Analyst [email protected] [email protected] Alexandre Falcao +1 212 525 4449 [email protected] Jean Gael Tabet +44 20 7991 5342 Analyst [email protected] Richard Schramm +49 211 910 2837 Analyst [email protected] Augusto A Ensiki +1 212 525 4915 [email protected] Analyst Philip Saliba +49 211 910 2672 Analyst [email protected] Mauricio Arellano +52 55 5721 3863 [email protected]
Analyst, LatAm Airlines, Healthcare, Education Ronny Berger, CFA +1 212 525 6707 [email protected] Analyst Teresa Yan +852 2914 9934 [email protected]
Associate Deepak Maurya +852 2822 4292 [email protected]