China / Hong Kong Company Guide Guangzhou Automobile Group Version 6 | Bloomberg: 2238 HK Equity | 601238 CH Equity | Reuters: 2238.HK | 601238.SS Refer to important disclosures at the end of this report
DBS Group Research . Equity 7 May 2019
Japanese JCEs leading growth H: BUY Last Traded Price (H) ( 7 May 2019):HK$8.14(HSI : 29,363) More clarity on JVs future strategy. Guangzhou Auto (GAC) and its Price Target 12-mth (H):HK$9.60 (17.9% upside) (Prev HK$17.86) Japanese JCE partners have agreed on key priorities to grow the business. The medium-term plans include capacity expansion and new A: HOLD model development (both traditional and new energy vehicles). Last Traded Price (A) ( 7 May 2019):RMB11.61(CSI300 Index : 3,721) Price Target 12-mth (A):RMB11.30 (2.7% downside) (Prev RMB21.71) Another key factor is that both partners have agreed to maintain the current shareholding structure, hence removing uncertainties. The Analyst Rachel MIU+852 36684191 [email protected] Japanese auto brands have gained market share from 15.6% in December 2016 to 19% in February 2019 aided by their product What’s New range, pricing, and proactive business strategy. Despite the tough • More clarity on development of Japanese JCEs, key 1Q19 auto market, GAC’s Japanese JCEs managed to chalk up strong earnings driver in the future volume sales growth and decent profit contributions to the group. • Self-brand going through short-term adjustment and Where we differ? We expect normalisation of Trumpchi sales to have should start to normalise in 2H19 a meaningful impact on earnings, on anticipation of a recovery in • Maintain BUY, TP revised down slightly to HK$9.60 the PV market in 2H19. Apart from the overall weakness of the Chinese passenger vehicle market, destocking in preparation of Price Relative launch of new models had also affected Trumpchi’s 1Q19 performance. The self-brand accounted for 25% of FY18 total volume sales but this fell to 18% in 1Q19. Share price catalyst. Successful launch of 14 new and refresh car models should drive up GAC’s share price. Based on 1Q19 sales data, the Japanese JCEs are expected to produce decent earnings growth, based on the number of new models planned.
Valuation: We cut FY19F earnings by 16% to factor in lower gross margins
assumptions. We pegged our new HK$9.60 TP at 7x FY19F earnings (previously 7x FY18F PE). Forecasts and Valuation (H Shares) FY Dec (RMBm) 2017A 2018A 2019F 2020F Key Risks to Our View: Turnover 71,575 72,380 76,659 83,207 Margin compression. Rapid expansion in production capacity in the EBITDA 14,642 14,814 15,983 17,413 Pre-tax Profit 12,194 11,863 13,211 14,567 industry could intensify market competition and drag down product Net Profit 11,005 10,900 12,180 13,334 prices, affecting vehicle sales margins and earnings. Net Profit Gth (Pre-ex) (%) 75.0 (1.0) 11.7 9.5 EPS (RMB) 1.20 1.07 1.19 1.31 Weak controls at new auto JCEs. GAC has several JCEs with its EPS (HK$) 1.39 1.24 1.38 1.51 foreign partners and managing these operations require EPS Gth (%) 22.9 (11.1) 11.7 9.5 management’s full attention. Any misguided investment could lead Diluted EPS (HK$) 1.39 1.24 1.38 1.51 to substantial losses. DPS (HK$) 0.61 0.44 0.48 0.53 BV Per Share (HK$) 11.27 8.70 9.62 10.62 At A Glance PE (X) 5.8 6.6 5.9 5.4 Issued Capital - H shares (m shs) 3,099 P/Cash Flow (X) 4.4 nm 7.2 8.7 - Non H shrs (m shs) 7,134 P/Free CF (X) 7.6 nm 4358.4 nm H shs as a % of Total 30 EV/EBITDA (X) 1.8 2.9 2.7 2.6 Total Mkt Cap (HK$m/US$m) 117,334 / 14,976 Net Div Yield (%) 7.6 5.4 5.9 6.5 Major Shareholders (%) P/Book Value (X) 0.7 0.9 0.8 0.8 Guangzhou Automobile Industry Group Co., Ltd. 72.8 Net Debt/Equity (X) CASH CASH CASH CASH Guangzhou Huiyin Tianyue Equity ROAE(%) 19.4 14.9 15.1 15.0 Investment Fund Management Co., Ltd. 5.9 Major H Shareholders (As % of H shares) 0 Earnings Rev (%): (16) New Guangzhou Automobile Industry Group Co., Ltd. 9.4 Consensus EPS (RMB) 1.16 1.29 Schroder Investment Management Ltd. (SIM) 5.9 Other Broker Recs: B:29 S:2 H:5 H Shares-Free Float (%) 84.6 Source of all data on this page: Company, DBS Bank (Hong Kong) Limited 3m Avg. Daily Val. (US$m) 28.39 (“DBS HK”), Thomson Reuters ICB Industry: Consumer Goods / Automobiles & Parts Bloomberg ESG disclosure score (2017)^ 43.0 - Environmental / Social / Governance 34.1 / 52.6 / 53.6 ^ refer to back page for more information
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Company Guide
Guangzhou Automobile Group
WHAT’S NEW sales growth. To further enhance its market position, GAC is Moving ahead amid market challenges working with internet companies on mobility development. The company is working with Tencent and Guangzhou Public Major Japanese JCEs the main earnings growth driver; foreign Transport Group to roll out around 10,000 vehicles in ownership structure intact. Toyota and Honda recorded Guangzhou under phase one of the mobility service provider strong volume sales growth of 11% and 46% y-o-y in 1Q19 development plans. Demand for mobility and ridesharing respectively, ahead of the industry passenger vehicle (PV) services is a rising trend globally and GAC is ready to market trend of a 6.9% contraction. This explains the JVs’ penetrate this market. The JV partners are committing 1Q19 profit contribution rose c.5% y-o-y to Rmb2.5bn. Rmb1bn of investment into the business. Steady new product rollouts, quick response to consumer
preference, and new models enabled the Japanese JCEs to Financial health remains decent. Operating cashflows was outperform the overall PV market, despite market challenges. negative at Rmb6bn in 1Q19, due to lower profits and higher In fact, the Japanese automakers in China have managed to level of cash tied up in working capital. Capex also increased raise market share by about 3ppts since early 2018 to reach as the company expanded its business scale and is carrying c.20% at end March 2019. This should be positive on GAC’s out new product development. As a result, net cash balance future development. GAC-Toyota and GAC-Honda JVs have was down by Rmb1bn from December 2018 to Rmb19bn recorded market share expansion since 2012. during the quarter. We believe this situation could be
temporary as the business improves in 2H19. GAC-Toyota have agreed to invest some US$1.64bn to
expand NEV production capacity as well as US$605.19m into Early adoption of national VI standard in Guangzhou and the production of Toyota New Global Architecture (TNGA) Shenzhen. We believe this move could have some bearing on engine series. The NEV project is scheduled to complete by GAC’s near-term sales performance, as the company will 2022 under two phases and will have a total production have to destock to prepare for the new fuel standard capacity of 400,000 units per year. When the TNGA engine implementation. China intends to implement the stringent plant is ready for production in 2021, it will have annual National VI fuel standard by 1 July 2023 but certain cities will output of 432,000 units. adopt the new fuel standard starting this year, such as
Shenzhen and Guangzhou. So far, the Japanese JCE partners have decided to keep the
existing ownership structure intact, thus removing the near- New energy vehicle (NEV) strategy gathering pace. To further term uncertainty on JCE earnings. The PV market will be fully enhance the NEV segment, GAC’s NEV brand - Aion - has liberalised in 2022. two new models planned. The NEV strategy will be
undertaken at its new Rmb4.7bn facility in Guangzhou. The Self-brand’s weak performance could be temporary. The plans including annual production output of 200,000 units weak Chinese auto market and keen competition have when fully operational and two new models every year to dragged Guangzhou Auto Group Co (GAC)’s 1Q19 broaden the NEV product offerings. GAC achieved NEV performance. Its Trumpchi brand had to adjust production to revenue of Rmb2.3bn in FY18 on sales of 20,000 units and clear inventories and as a result, 1Q19 total volume sales fell targets to raise volume sales to 50,000 units this year. 41% y-o-y to 88,000 units, leading to a 26% decline in
revenue to Rmb14.4bn. GP declined 63% to Rmb1.8bn on Earnings revision post weak 1Q19 results: We cut FY19F lower volume sales, and GP margin slipped to 12.8% vs earnings by c.16%, after adjusting down our profit margin 25.5% in 1Q18. With the sharp drop in gross profit, net assumptions. Our new TP is HK$9.60, rolled over to FY19F earnings fell 28% to Rmb2.8bn. earnings and pegged to unchanged 7x PE (previously 7x PE
on FY18F earnings). The overall vehicle market is expected to New models to drive 2019 volume sales. The various pick up in 2H19, and the company is lining up its new models operating units are rolling out 14 new and facelift models to to ride on this industry trend. However, given market drive sales, despite the tough market conditions. Honda has volatility, GAC’s share price is expected to be under pressure Odyssey Hybrid and Crider while Toyota will roll out Levin and in the near-term. Besides, with the vehicle market in a Camry (2.5L) this year. Trumpchi is broadening its product seasonal slow period, trading interest on the whole sector is range with two new models planned. More importantly, the expected to be lackluster. GAC’s current valuation is VAT cut of 3ppts to 13% this year is positive on vehicle sales, undemanding and we project FY19-20F earnings CAGR of as automakers are passing some of the cost savings to 11%. consumers. In 2019, GAC targets to achieve 4-8% volume
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Company Guide
Guangzhou Automobile Group
Japanese auto brands monthly car sales GAC Japanese JCE market share trends
Source: CAAM Source: Company, CAAM
GAC Toyota Honda (China)
Source: Company Source: Company
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Company Guide
Guangzhou Automobile Group
CRITICAL FACTORS TO WATCH Trumpchi volume and sales revenue projections
Critical Factors Foreign JCEs’ growth strategy. GAC derives the bulk of its earnings from the Japanese JCEs. Under the various Sino- foreign JCEs with Honda, Toyota and Mitsubishi, the medium- term plans include new model pipeline, capacity expansion as well as NEV investments. Both Toyota and Honda JCE will each have over 200,000 units of new capacity this year to support the growth strategy. GAC and its Japanese JCE partners have decided to maintain the existing shareholding structure, hence removing the uncertainty on future earnings disruption when Gross profit and GP margins projections the Chinese government lifts the foreign ownership limit in Rmb m % 2022. 16,000 20.0 14,000 12,000 15.0 Health of the Chinese auto market. The growth trend in the 10,000 Chinese passenger vehicle (PV) market would determine the 8,000 10.0 6,000 Chinese automakers’ sales performance. Given the sharp 4,000 5.0 contraction in volume sales since July 2018, the government 2,000 0 0.0 has rolled out measures to support car consumption, which we FY16 FY17 FY18 FY19F FY20F believe will help market sentiment in 2H19. The Chinese auto Gross profit (LHS) Gross margin (RHS) market is projected to post flat volume growth this year, even as 1Q19 total sales plunged 11% y-o-y. JCE profit contributions Rmb m 10,000 New model pipeline and roll-out plans. GAC’s Trumpchi has already lined up several new models (include NEVs) to drive 8,000 volume sales. Trumpchi is one of the more successful local 6,000 brands with a SOE background to gain strong consumer support. Strong commitment in R&D and an expanding vehicle 4,000 range are key growth engines. GAC plans to grow Trumpchi 2,000 into a large auto self-brand, covering sedans, SUVs and MPVs 0 and various engine sizes to cater to various customer groups. In FY16 FY17 FY18 FY19F FY20F addition, the company has a new brand – Aion - that sells Share price vs monthly sales volume NEVs. The Rmb4.7bn NEV hub (annual capacity of 200k units) and its collaboration with Contemporary Amperex Technology Ltd (CATL), a large EV battery maker are progressing as planned to embark on the NEV project. For a start, the new GS4 EV will be based on a low-cost high-performance concept. The plan is to launch two NEV models per year to scale up this business.
JCE profit margin stability The Japanese JCEVs have been actively managing their production output and this has greatly reduced inventory pressure at the dealers’ channels. This has Share price vs quarterly net profits helped to stabilise car prices and protect profit margins, as HK$ Rmb m 20.0 5,000 inventory is kept at a healthy level of around 1.5 months. 4,000 15.0 Going forward, with a disciplined approach to production 3,000 output, we anticipate profit margins at its Js and self-owned 10.0 2,000 brand to be stable. 1,000 5.0 0 0.0 -1,000 Jan-11 Jan-13 Mar-15 Apr-17 May-19 Share price (LHS) Net profit (RHS)
Source: Company, DBS HK
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Company Guide
Guangzhou Automobile Group
Appendix 1: A look at Company's listed history – what drives its share price?
Major events that impacted share price performance
HK$ 16.0
14.0 12 11 12.0 16 10.0 13 14 8.0 10 1 3 4 15 2 6 6.0 8 4.0 5 9 7 2.0
0.0 Jan-11 Jan-12 Jan-13 Feb-14 Feb-15 Mar-16 Mar-17 Apr-18 Apr-19
Share price (LHS) Event
Events list Da te 1 Political tension between China and Japan since Feb. 2012 20-Feb-12 2 Intensive model launch pipeline in JVs was coming in 2H13 3-Jun-13 3 JVs started to push sales, hurting magins 2-Dec-13 4 Proposed adoption of a share option incentive scheme 11-Jul-14 5 CSRC allows China mutual funds to invest in HK stocks through SH-HK stock connect 27-Mar-15 6 China policy makers caution on stock market frenzy; 7 measures to cool sentiment 17-Apr-15 7 PBOC cuts interest rate by 25bps and RRR by 50bps 25-Aug-15 8 Automobile purchase tax reduced to 5% 2-Oct-15 9 Approved acquisition of GAC Gonow 16-Mar-16 10 Contemplating non-public issuance of A shares 17-Oct-16 11 Formed strategic alliance with Tencent to develop "Internet car" 18-Sep-17 12 Formed strategic alliance with NIO 28-Dec-17 13 China to remove foreign ownership cap in 2022 17-Apr-18 14 Truce on US-China trade war for 90 days 1-Dec-18 15 Auto stimulus policy to boost auto consumption in China 29-Jan-19 16 Cut in manufacturing VAT by 3ppts to 13% 5-Mar-19 Source: Bloomberg Financial L.P., Company, DBS HK
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Company Guide
Guangzhou Automobile Group
Balance Sheet: Maintaining a healthy balance sheet. GAC has maintained a Leverage & Asset Turnover (x) healthy financial position over the years. It has net cash of around Rmb29bn to fund growth. While it had a net operating cash outflow in FY18/1Q19 of Rmb2.3/6bn respectively, we believe this phenomenon is temporary.
Strong balance sheet to support capex. Dividend from JCEs and operating cashflow will help to fund new investments. Also, given the company’s healthy balance sheet, its ability to raise debt is not an issue.
Capital Expenditure Share Price Drivers: Healthy monthly vehicle sales. A steady increase in monthly vehicle sales will give the market a positive signal of its earnings trend. The new car models in the pipeline will help to strengthen its market positioning and drive earnings. However, given the broad market volatility, the whole auto sector is expected to be under pressure in the near-term.
Key Risks: Major deceleration of economic growth. Concerns of economic growth deceleration could affect buying sentiment Environment, Social, Governance on cars. A slowdown in disposable income growth and a 50 weaker property market could also dampen sales. 40 30 Industry overcapacity. Overcapacity could drive down prices of 20 cars, due to rising competition from other car makers. Under- 10 utilisation of production capacity may be a drag on return of 0 investment. Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Environment, Social, Governance: Overall score Environmental score CAG has improved its overall ESG score from 21.49 in 2012 to Forward PE Band 42.98 in 2017, signifying the company’s effort to meet environmental compliance. Its environmental score surged from 6.98 in 2012 to 34.11 in 2017. The move into NEV production and development of fuel-efficient vehicles will help to earn carbon credits for the company.
Company Background Guangzhou Automobile Group Company, Ltd. (GAC) manufactures, sells, and services automobiles. The Company is also involved in automobile parts and components, and auto financing and related services for both domestic and overseas PB Band markets. It manufactures Toyota, Honda, Mitsubishi and Fiat cars under partnerships with its foreign partners.
Source: Company, Bloomberg Financial L.P., DBS HK
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Company Guide
Guangzhou Automobile Group
Key Assumptions FY Dec 2016A 2017A 2018A 2019F 2020F Passenger vehicle (units) 372,034.0 508,586.0 535,168.0 572,629.8 618,440.1 Commercial vehicle (units) 0.0 0.0 0.0 0.0 0.0 Total veh sales at GAC level 372,034.0 508,586.0 535,168.0 572,629.8 618,440.1 Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec 2016A 2017A 2018A 2019F 2020F Revenues (RMB m) Guangqi Honda 75,834 92,011 97,853 104,762 112,011 GAC Toyota 57,760 60,400 83,725 88,790 93,176 GAC Mitsubishi 9,780 17,095 19,514 20,695 21,947 GAC Fiat 24,054 31,501 19,705 20,484 21,293
Unit sales Guangqi Honda 638,791 705,010 741,377 785,860 848,728 GAC Toyota 421,800 442,380 580,008 609,008 645,549 GAC Mitsubishi 55,888 117,388 144,018 151,219 158,780 GAC Fiat 146,439 205,177 125,181 131,440 138,012 Source: Company, DBS HK
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Company Guide
Guangzhou Automobile Group
Income Statement (RMB m) FY Dec 2016A 2017A 2018A 2019F 2020F Revenue 49,418 71,575 72,380 76,659 83,207 Cost of Goods Sold (41,961) (58,716) (60,836) (64,079) (69,048) Gross Profit 7,456 12,858 11,544 12,580 14,159 Other Opng (Exp)/Inc (5,804) (8,709) (8,532) (8,822) (9,619) Operating Profit 1,652 4,149 3,012 3,757 4,540 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 5,774 8,296 8,753 9,263 9,816 Net Interest (Exp)/Inc (377) (251) 98 190 212 Dividend Income 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 7,050 12,194 11,863 13,211 14,567 Tax (754) (1,154) (921) (987) (1,188) Minority Interest (8) (35) (43) (44) (45) Preference Dividend 0 0 0 0 0 Net Profit 6,288 11,005 10,900 12,180 13,334 Net Profit before Except. 6,288 11,005 10,900 12,180 13,334 EBITDA 9,487 14,642 14,814 15,983 17,413 Growth Revenue Gth (%) 68.0 44.8 1.1 5.9 8.5 EBITDA Gth (%) 52.7 54.3 1.2 7.9 8.9 Opg Profit Gth (%) (6,806.6) 151.1 (27.4) 24.7 20.8 Net Profit Gth (%) 49.3 75.0 (1.0) 11.7 9.5 Margins & Ratio Gross Margins (%) 15.1 18.0 15.9 16.4 17.0 Opg Profit Margin (%) 3.3 5.8 4.2 4.9 5.5 Net Profit Margin (%) 12.7 15.4 15.1 15.9 16.0 ROAE (%) 15.2 19.4 14.9 15.1 15.0 ROA (%) 8.4 10.9 8.7 8.8 8.9 ROCE (%) 2.6 5.1 3.1 3.5 3.9 Div Payout Ratio (%) 30.8 34.4 35.7 35.0 35.0 Net Interest Cover (x) 4.4 16.5 NM NM NM Source: Company, DBS HK
Interim Income Statement (RMB m) FY Dec 2H2016 1H2017 2H2017 1H2018 2H2018
Revenue 27,989 34,765 36,809 37,200 35,179 Cost of Goods Sold (24,207) (29,026) (29,691) (29,909) (30,927) Gross Profit 3,782 5,739 7,119 7,292 4,252 Other Oper. (Exp)/Inc (3,574) (3,242) (5,468) (4,630) (3,902) Operating Profit 207 2,498 1,651 2,662 351 Other Non Opg (Exp)/Inc 607 810 800 806 824 Associates & JV Inc 2,052 3,830 2,909 4,165 3,061 Net Interest (Exp)/Inc (242) (174) (130) (19) 14 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 2,625 6,964 5,231 7,614 4,251 Tax (344) (681) (473) (669) (252) Minority Interest 25 (15) (20) (32) (11) Net Profit 2,306 6,267 4,737 6,913 3,987 Net profit bef Except. 2,306 6,267 4,738 6,914 3,988
Growth Revenue Gth (%) 55.8 62.2 31.5 7.0 (4.4) Opg Profit Gth (%) (210.3) 72.9 696.5 6.6 (78.8) Net Profit Gth (%) (6.3) 57.4 105.4 10.3 (15.8)
Margins Gross Margins (%) 13.5 16.5 19.3 19.6 12.1 Opg Profit Margins (%) 0.7 7.2 4.5 7.2 1.0 Net Profit Margins (%) 8.2 18.0 12.9 18.6 11.3 Source: Company, DBS HK
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Company Guide
Guangzhou Automobile Group
Balance Sheet (RMB m) FY Dec 2016A 2017A 2018A 2019F 2020F
Net Fixed Assets 11,856 13,405 16,318 24,632 31,939 Invts in Associates & JVs 22,658 25,743 28,995 34,200 39,654 Other LT Assets 12,687 16,023 20,649 19,373 18,008 Cash & ST Invts 21,317 49,468 41,908 41,408 40,006 Inventory 2,494 3,347 6,730 8,076 9,287 Debtors 8,371 10,638 16,605 14,945 16,439 Other Current Assets 2,763 1,033 968 968 968 Total Assets 82,146 119,656 132,174 143,601 156,301
ST Debt 4,478 2,640 2,829 2,829 2,829 Creditors 19,128 33,071 37,122 40,834 44,917 Other Current Liab 667 907 340 406 607 LT Debt 10,346 8,273 9,611 9,111 8,612 Other LT Liabilities 2,633 4,297 4,296 4,296 4,296 Shareholder’s Equity 43,856 69,424 76,604 84,709 93,578 Minority Interests 1,037 1,044 1,371 1,415 1,460 Total Cap. & Liab. 82,146 119,656 132,174 143,601 156,301
Non-Cash Wkg. Capital (6,167) (18,961) (13,159) (17,252) (18,831) Net Cash/(Debt) 6,493 38,555 29,467 29,467 28,564 Debtors Turn (avg days) 63.1 48.5 68.7 75.1 68.8 Creditors Turn (avg days) 151.9 168.5 221.7 232.8 237.1 Inventory Turn (avg days) 20.2 18.9 31.8 44.2 48.0 Asset Turnover (x) 0.7 0.7 0.6 0.6 0.6 Current Ratio (x) 1.4 1.8 1.6 1.5 1.4 Quick Ratio (x) 1.2 1.6 1.5 1.3 1.2 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 35.2 56.9 79.2 83.7 78.7 Z-Score (X) 2.6 2.7 2.8 2.8 2.8 Source: Company, DBS HK
Cash Flow Statement (RMB m) FY Dec 2016A 2017A 2018A 2019F 2020F
Pre-Tax Profit 7,050 12,194 11,863 13,211 14,567 Dep. & Amort. 2,060 2,196 3,048 2,963 3,058 Tax Paid (707) (1,217) (1,372) (921) (987) Assoc. & JV Inc/(loss) (5,774) (8,296) (8,753) (9,263) (9,816) (Pft)/ Loss on disposal of FAs 0 0 0 0 0 Chg in Wkg.Cap. 1,239 8,242 (6,671) 4,027 1,378 Other Operating CF 1,043 1,541 (453) 0 0 Net Operating CF 4,910 14,660 (2,338) 10,016 8,200 Capital Exp.(net) (5,212) (6,209) (9,852) (10,000) (9,000) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV (1,093) (942) (1,870) (1,000) (1,000) Div from Assoc & JV 0 0 0 0 0 Other Investing CF 191 7,085 6,575 5,058 5,362 Net Investing CF (6,114) (66) (5,148) (5,942) (4,638) Div Paid (1,348) (2,080) (4,216) (4,075) (4,465) Chg in Gross Debt 3,267 (2,879) 1,542 (500) (499) Capital Issues 154 14,937 360 0 0 Other Financing CF 121 113 302 0 0 Net Financing CF 2,194 10,091 (2,012) (4,575) (4,964) Currency Adjustments 41 (66) 28 0 0 Chg in Cash 1,031 24,619 (9,469) (500) (1,403) Opg CFPS (RMB) 0.57 0.70 0.42 0.59 0.67 Free CFPS (RMB) (0.05) 0.92 (1.19) 0.00 (0.08)
Source: Company, DBS HK
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Company Guide
Guangzhou Automobile Group
H Share - Target Price & Ratings History
HK$ S.No. Date Closing 12-mth Rating 11.0 Price T arget 10.5 Price 1: 20-Sep-18 HK$7.87 HK$10.00 Buy 10.0 2: 9.5 9.0 1 8.5 8.0 7.5 7.0 6.5
6.0
Jul-18
Jan-19
Jun-18
Jun-18
Oct-18
Feb-19
Sep-18
Apr-19
Dec-18
Nov-18
Mar-19
Aug-18 May-18 May-19
A Share - Target Price & Ratings History
RMB S.No. Date Closing 12-mth Rating 16.0 Price Target Price 15.0 1: 20-Sep-18 RMB10.18 RMB10.60 Hold 14.0
13.0
12.0 1 11.0
10.0
9.0
Jul-18
Jan-19
Jun-18
Jun-18
Oct-18
Feb-19
Sep-18
Apr-19
Dec-18
Nov-18
Mar-19
Aug-18 May-18 May-19 Source: DBS HK Analyst: Rachel MIU
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Company Guide
Guangzhou Automobile Group
^ Bloomberg ESG Disclosure Scores rate companies annually based on their disclosure of quantitative and policy-related ESG data. It is based on a scoring scale of 0-100, and calculated using a subset of more than 100 raw data points it collects on ESG. It is designed to measure the robustness of companies' disclosure of ESG information in their reporting/the public domain. Based on Bloomberg disclosures, as of 25 Jan 2019, the global ESG disclosure average score is 24.92 and 22.14, 28.26, 49.97 for Environmental, Social and Governance, respectively.
DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
* Share price appreciation + dividends
Completed Date: 7 May 2019 15:40:48 (HKT) Dissemination Date: 7 May 2019 17:59:44 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
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Company Guide
Guangzhou Automobile Group
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Guangzhou Automobile Group Co Ltd (2238 HK) recommended in this report as of 03 May 2019.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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Company Guide
Guangzhou Automobile Group
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority
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In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate International Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
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Company Guide
Guangzhou Automobile Group
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank (Hong Kong) Limited 13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: (852) 3668-4181, Fax: (852) 2521-1812
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Company Guide
Guangzhou Automobile Group
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HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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