China Consumer Discretionary 4 January 2016 China Autos Sector Running on fumes in 2016; refill needed for 2017 Positive investor sentiment on the sector should persist in 1Q-3Q16, but concerns are likely to resurface as we get closer to 2017 We prefer domestic brands to foreign brands, but expect SUV margins Kelvin Lau to continue to deteriorate over our forecast period (852) 2848 4467 Positive on Geely, BAIC and DFM; negative on GWM; initiating on
[email protected] DFM with an Outperform (2) and Brilliance with an Underperform (4) Brian Lam (852) 2532 4341
[email protected] See important disclosures, including any required research certifications, beginning on page 103 China Autos Sector: 4 January 2016 Table of contents Running on fumes in 2016; refill needed for 2017 ................................................. 5 Tax cut should boost sales volume growth in 2016 ........................................................... 5 Strong industry pipeline in 2016 ........................................................................................ 6 Domestic brands should keep outpacing foreign brands ..................................................10 Accelerating investment in NEVs in 2016-20 ...................................................................14 Balance sheets remain healthy ........................................................................................18 Hard to see any recovery for CVs ....................................................................................18 Valuations and