China / Hong Kong Industry Focus China Auto Sector
Refer to important disclosures at the end of this report
DBS Group Research . Equity 29 May 2019
Premium segment takes the lead HSI: 27,236
• Lineup of new premium car models (BMW) and ANALYST tight supply (Lexus) to support performance of Rachel MIU +852 36684191 [email protected] auto dealerships in 2H19
• Prefer BMW auto dealership proxies to ride on Recommendation & valuation new model cycle - Grand Baoxin, China Yongda, China ZhengTong and China Meidong Company Price T arget Recom F Y19F Mk t Price PE Cap • Brilliance’s valuation is attractive, given strong HK$ HK$ x US$m earnings led by solid BMW sales growth Auto Dealers China Yongda Automobiles Svs. 6.45 7.50 BUY 6.3 584 Premium car segment outperforming the overall auto market; 3669 HK margin pressure on auto dealerships easing. The premium auto China Zhengtong Auto Svs.* 3.16 6.30 BUY 4.2 990 segment is benefitting from lower import tariffs and new 1728 HK Grand Baoxin Auto Group 2.47 n.a. NR 8.0 893 models, which are supporting consumer upgrading and driving 1293 HK mid-term sales growth. Volume sales of German premium cars China Meidong Auto Hdg. 4.56 n.a. NR 10.6 670 (Audi-BMW-Benz combined) rose c.5% y-o-y in 4M19, with 1268 HK BMW leading the growth at 12%. There were some short-term disruptions to supplies as Porsche had adjusted production to Company Price T arget Recom F Y19F Mk t Price PE Cap comply with the National Fuel VI standard. Sales have also yet Local$ Local$ x US$m to reflect the positive impact from lower VAT after automakers Auto manufacturers revised down their price lists recently. As a result, growth in the Brilliance China 7.47 10.30 BUY 4.5 4,802 premium car market was modest for 4M19, but still better 1114 HK than the overall PV market which had shrunk by 14.7% YTD. We estimate the premium car market to grow at 8% this year. Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”), Bloomberg Finance L.P The auto dealership market has stabilised in 1Q19 compared to 2H18, as demand remains firm and downward pressure on GP *China ZhengTong TP under review. margin has eased slightly.
Volume sales growth comparison (Jan-Apr 2019) Brilliance stands out among premium automaker peers. The
BMW JV vehicle shipment grew 29% y-o-y from Jan-Apr 2019, ahead of peers. Besides, the Mercedes Benz product cycle is Y-o-Y (%) ageing and could affect future sales performance. The new 15 BMW 3 series will be ready in 2H19, an important volume 10 driver. Brilliance’s current valuation is attractive and we believe the company’s ownership reform has largely been factored into 5 its share price. We believe market will refocus on the JV 0 operations and its ability to generate future growth. -5 Auto dealership sector valuation. Following the recent broad -10 market sell-down, the auto dealership sector is trading at c.6x FY20F PE. This provides an opportunity for investors to -15 accumulate some of the BMW related auto names. The -20 attractive lineup of new BMW models is positive for the BMW BMW Lexus Mercedes Audi Premium Overall dealerships. Also, the special incentives from BMW in 1Q/2Q19 Benz market PV market should mitigate some pressure off dealers’ GP margins. Source: Companies; CEIC Note: Units sales including imports
ed- JS/ sa-CS / JY
Industry Focus
China Auto Sector
Takeaways from company visits China ZhengTong (1728 HK) China ZhengTong is among the top 3 BMW auto dealerships in We spoke to several auto dealerships recently on the 2019 China. In 2019, the company target to achieve around 10% outlook and their key concerns. In summary, the volume sales volume sales growth and BMW, Volvo and Porsche are some of momentum has remained encouraging YTD, trending along the important revenue drivers. The new car sales GP margin is with the key premium brands they represent. While the trade expected to norrmalise to around 5% this year, compared to war has some impact on demand, the auto dealerships believe 6.7% in 2018, as the company anticipates lower special a balanced demand-supply equilibrium should help to protect incentives from the automakers. China ZhengTong key margins. The special incentives from BMW in 1Q/2Q19 and advantages over its peers are 1) it is expected to benefit from lowering of vehicle price lists by automakers (due to cut in the Guangdong vehicle stimulus policy given its presence in the VAT) do help their new car sales business. The main concern is southern region; and 2) it operates an auto finance unit which the trade war impact on the health of the overall economy. is riding on the rapid industry expansion. As the credit market
is improving and interest rate coming down, it should be Below are the key takeaways from the meetings. positive on the auto finance operations. Its major subsidiary,
Wuhan ZhengTong posted 1Q19 earnings improvement from China Meidong (1268 HK) 4Q18, but lower than 1Q18 on high base and trade war Premium car sales growth is fine YTD, and margins have impact. Our FY19/20F earnings and TP are under review. stabilised for certain brands, compared to 4Q18. In 1Q19, the 4S store business was decent, with volume growth in the key premium brands they represent, such as BMW, Lexus, and Porsche. New car sales GP margin was reasonable, and the special bonus from BMW in 1Q/2Q19 helps to mitigate the margin pressure. In 4Q18, BMW GP margin was quite modest compared to other premium brands. For Porsche, the GP margin is expected to hover at 9%, compared to 10.5% in 1H18. Also, premium automakers such as BMW have lowered vehicle prices on some of their car models by 2-3% to reflect the 3ppts cut in VAT, enhancing its market competitiveness. The company expects 1H19 performance to be better than 2H18. In FY19, revenue is expected to increase by about 30%, coming from store expansion (acquired six BMW stores in 2018 which should start to contribute to sales) and projected volume growth (estimated to increase by over 20% y-o-y). By end 2019, the sales network is expected to reach 59 dealership stores, up from 49 in 2018. China Meidong adopts a single city single store strategy, largely in the tier 3-4 Chinese cities.
China Yongda Auto (3669 HK) New car sales GP margins have stabilised in 1Q19 compared to 2H18. Any further improvement in GP margin will depend on the demand situation. Since April 2019, sales momentum has remained decent, especially with the increase in deliveries from Porsche. The company expects its quarterly performance to improve from the trough level in 2H18, coming from the delivery of new car models as well as VAT cut. For 2019, China Yongda expects volume and new car sales revenue to grow at around 10% y-o-y. New car sales GP margin is expected to be flat in 2019 but may post some slight improvement if market competition eased. China Yongda has the largest exposure to the BMW brand. In 2018, it accounted for about 9% of total BMW volume sales in China. At end December 2018, China Yongda had 53 BMW outlets, of which 42 units are 4S stores.
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Industry Focus
China Auto Sector
Premium car sales outperformed Our view
• Premium car sales outperformed the overall PV market in (%) recent years on consumption upgrading 40.0 • Trade war has affected overall car sales, but the impact on 30.0 premium car segment was smaller 20.0 • Key premium volume drivers include car models from BMW, 10.0 Lexus and Volvo 0.0 -10.0 -20.0
-30.0
Jan-14
Jan-15
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Jan-19
Sep-14
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May-17 May-18 Premium YoY % PV YoY %
Source: CEIC, companies
Premium car market sales projections Our view
• Consumption upgrade and low penetration rate is '000 % supporting premium car sales growth 3,500 25 • Estimate premium car sales to expand by 8-10% for FY19- 3,000 20 20F 2,500 • Positive drivers are lower import tariffs on non-US made 15 2,000 cars, VAT cuts (automakers passing on cost savings to 1,500 10 consumers through lower vehicle prices) and new model 1,000 launches 5 500 • Relaxation of auto sales quota in Guangdong is expected to 0 0 be positive on high-end and premium car sales
2013
2014
2015
2016
2017
2018
2019F 2020F ABB Others Y-o-Y chg. (RHS)
Source: Companies; DBS HK Note: ABB: Audi, BMW, Mercedes Benz, Others: other premium brands
Volume sales growth comparison (Jan-Apr 2019) Our view
• BMW volume sales outperformed peers and the overall PV Y-o-Y (%) market, attributable to new model pipeline 15 • Several new models planned for 2019 launch, including 10 BMW X7, BMW 3 series, BMW series and BMW 7 series 5 (facelift) to drive sales
0 • Beneficial to BMW auto dealerships such as Grand Baoxin, China Yongda, China ZhengTong, China Meidong etc. -5
-10 -15
-20 BMW Lexus Mercedes Audi Premium Overall Benz market PV market
Source: Companies; CEIC Note: Units sales including imports
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Industry Focus
China Auto Sector
Inventory days of Sino-foreign and imported brands Our view
• Inventory levels were at healthy range of 1.7-1.8 months at Y-o-Y (%) end April 2019 for imported vehicles and Sino-foreign JV 15 brands, given that the industry is in a traditionally lull period
10 • Certain imported brands have very low inventory, such as 5 Lexus, as the automaker has controlled production to protect brand value and profit margins 0
-5
-10 -15
-20 BMW Lexus Mercedes Audi Premium Overall Benz market PV market Source: CADA
Vehicle import volumes Our view
• Changes in vehicle import tariffs have affected trade flow, unit as importers had waited for new tariff rates to take effect in 180,000 2H18 160,000 • Tariff rate on non-US made imported vehicles is 15%, down 140,000 120,000 from 25% previously 100,000 • Lexus overtook Mercedes Benz as the top imported brand in 80,000 4M19, due to the preferential tariff rate 60,000 40,000 20,000
0
Jul
Jan
Sep
Nov
Mar May
2016 2017 2018 2019
Source: CEIC
China Yongda quarterly performance Our view
• Improving net margin trend from trough level in 2H18 Rmb m (%) • Expect better 2H19 profitability as 1H19 is affected by high 500 4.0 450 base. Volume sales growth has been decent YTD 400 3.0 • Largest exposure to BMW in terms of volume sales; 350 company accounted for about 9% of total BMW volume 300 250 2.0 sales in China last year 200 150 1.0 100 50
0 0.0
1Q16 2Q16 3Q16 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 4Q16 1Q17 2Q17 3Q17
Net profit (LHS) Net margins (RHS)
Source: Company
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Industry Focus
China Auto Sector
China ZhengTong major subsidiary quarterly performance Our view
• 1Q19 net margin riding on sector improvement from the Rmb m (%) trough in 2H18. But 1Q19 profit growth was affected by 500 6.0 the high base effect and trade war 450 • Expect 2019 GP margin on new car sales to normalise, and 400 5.0 volume sales growth estimated at low-double digits 350 4.0 300 • Separate listing of auto finance subsidiary will help to 250 3.0 accelerate business growth, given the huge market 200 potential. It will help China ZhengTong auto dealership 2.0 150 business, given the rising acceptance of auto credit in the 100 1.0 country 50
0 0.0
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3Q14
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3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18 1Q19
Net profit (LHS) Net margins (RHS)
Source: Company
Auto dealership sector index vs premium car sales Our view
• The auto dealership sector valuation was hit by trade war. Index (1 Jan 09 = 100) % The uncertainty continues to drag on the sector 1,000 140 performance in recent months 900 120 800 • YTD 2019 premium car sales were partly affected by short- 100 700 term disruption to supplies and automakers adjusted down 600 80 their price lists after government cut VAT by 3ppts. The 500 60 lower vehicle price is expected to boost future sales 400 40 300 20 200 100 0
0 (20)
Jan-09 Jan-10 Jan-11
Feb-12 Feb-13
Apr-17 Apr-18
Mar-14 Mar-15 Mar-16 May-19 Auto dealer index (LHS) Luxury car sales growth (RHS)
Source: Thomson Reuters; Company
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Industry Focus
China Auto Sector
Series of events that moved the auto sector
Index (1 Jan 17 = 100)
250 250 230 1 230 210 2 210 3 190 4 190 170 5 170 150 9-11 150 14 130 6-8 12 130 110 13 110 90 90
70 70
Jul-17
Jul-18
Jan-17
Jan-18
Jan-19
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May-17 May-18 May-19 Source: Thomson Reuters
Major Events
2018 1 1-Jan-18 Waiver of NEV purchast tax from 2018-2020 2 14-Feb-18 Revision in NEV subsidy scheme 3 13-Apr-18 Ownership reform 4 22-May-18 Cut in import tariffs on non-US made vehicles 5 6-Jul-18 Trade war - raised tariffs on US-made cars
2019 6 29-Jan-19 Measures to boost auto consumption 7 29-Jan-19 Proposed subsidy on rural car consumptions and car replacement 8 29-Jan-19 Continual support on NEV sector development 9 2-Mar-19 Lower VAT of pre-owned cars from 3% to 2% 10 2-Mar-19 Cut in VAT on manufacturing sector from 16% to 13% 11 2-Mar-19 Lower toll fees on highways 12 27-Mar-19 Revision in NEV subsidy scheme 13 24-May-19 Details on vehicle purchase tax law released. The law will be effective from 1 July 2019 14 28-May-19 Guangdong government announced measures to boost consumptions, including auto stimulus policy Source: Chinese government
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Industry Focus
China Auto Sector
Auto companies YTD share price performance
% 60 35.5 40 28.1 24.9 24.0 14.5 20 6.0 0 (20) -2.3 -4.4 -5.5 -5.6 -5.7 -8.5 -10.3 (40) -18.4 -32.3 (60)
(80)
HSI
BYD
Geely Auto Geely
BAIC Motor BAIC
Zhongsheng
Minth Group Minth
Nexteer Auto Nexteer
China Yongda China
Brilliance China Brilliance
Dongfeng Motor Dongfeng
Guangzhou Auto Guangzhou
Great Wall Motor Great
Dah Chong Hong Chong Dah
Xinchen China Power China Xinchen China Zhengtong Auto Zhengtong China
Source: Bloomberg Finance L.P
Auto Manufactures Sector PE Chart Auto Dealers Sector PE Chart
x x 30 10 9 +2SD :8x 25 8 20 7 +1SD :6.6x 6 Average :5.2x 15 +1SD :12.4x 5 4 -1SD :3.8x 10 Average :7.9x 3 -2SD :2.5x 5 2 -1SD :3.4x 1
0 0
Jul-11
Jan-05
Jan-18
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Sep-12
Sep-14
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Nov-15
Mar-07
May-09
May-11
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May-15 May-17 May-19 Source: Thomson Reuters, DBS HK
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Industry Focus
China Auto Sector
Peers comparison table (Auto Manufactures)
Mk t PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE ROE Price Cap F iscal 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F Company Name Code Currency Local$ US$m Yr x x % % x x x x % % Hong Kong Guangzhou Automobile Gp. 'H' 2238 HK HKD 7.63 14,463 Dec 6.0 5.4 5.6 6.2 0.8 0.7 10.5 9.2 14.2 14.3 Sinotruk (Hong Kong) 3808 HK HKD 14.86 5,227 Dec 8.3 8.6 4.8 4.9 1.3 1.2 4.2 4.4 15.8 14.6 Dongfeng Motor Gp.'H' 489 HK HKD 6.5 7,135 Dec 3.3 3.3 4.4 4.4 0.4 0.3 1.8 1.9 11.7 10.7 Brilliance China 1114 HK HKD 7.47 4,802 Dec 4.5 4.0 1.7 1.7 0.9 0.7 4.8 4.1 21.1 19.8 Great Wall Motor Co.'H' 2333 HK HKD 5.54 9,724 Dec 8.3 7.8 6.1 6.5 0.8 0.8 5.0 4.8 9.9 10.0 BYD 'H' 1211 HK HKD 47.2 18,753 Dec 34.4 28.9 0.4 0.5 1.9 1.8 9.1 8.3 5.8 6.5 Geely Automobile Hdg. 175 HK HKD 13.02 15,095 Dec 7.4 6.6 2.7 3.0 1.8 1.5 4.5 3.5 27.3 25.1 Baic Motor 'H' 1958 HK HKD 4.73 4,830 Dec 5.0 4.3 7.0 8.1 0.6 0.6 1.5 1.1 12.8 13.4 A v erage 9.7 9.2 4.1 4.4 1.1 1.0 5.2 4.7 14.8 14.3 China Saic Motor 'A' 600104 CH CNY 24.78 41,897 Dec 8.0 7.4 6.2 6.5 1.1 1.0 5.8 5.3 14.5 14.0 Faw Car 'A' 000800 CH CNY 9.29 2,188 Dec 61.9 28.2 0.0 0.0 1.8 1.7 12.5 9.7 2.9 6.3 Chongqing Changan Autmb. 'A' 000625 CH CNY 7.13 4,955 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0 Chongqing Changan Autmb. 'B' 200625 CH HKD 3.35 2,050 Dec 4.1 5.8 6.7 5.4 0.3 0.3 1.7 2.2 7.1 4.9 Beiqi Foton Motor 'A' 600166 CH CNY 2.41 2,326 Dec 80.3 40.2 n.a. n.a. 1.0 1.0 n.a. n.a. 1.3 2.3 Tianjin Faw Xiali Autmb. 'A' 000927 CH CNY 4.68 1,080 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Dong Feng Automobile 'A' 600006 CH CNY 5.12 1,482 Dec 23.2 19.6 1.3 1.5 1.4 1.3 n.a. n.a. n.a. n.a. Anhui Jianghuai Automobile 'A' 600418 CH CNY 5.36 1,469 Dec 76.6 14.3 1.9 3.0 0.8 0.7 3.0 2.6 2.9 4.1 Zhengzhou Yutong Bus 'A' 600066 CH CNY 12.88 4,127 Dec 11.8 10.9 3.9 4.8 1.6 1.4 8.5 7.9 13.5 13.6 Haima Automobile Group 'A' 000572 CH CNY 1.98 471 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Great Wall Motor 'A' 601633 CH CNY 8.64 9,724 Dec 14.8 13.9 3.4 3.7 1.4 1.4 8.2 8.2 9.9 10.0 Guangzhou Automobile Gp. 'A' 601238 CH CNY 11.09 14,463 Dec 9.3 8.5 3.8 4.1 1.3 1.2 5.1 4.7 15.1 15.0 BYD 'A' 002594 CH CNY 50.5 18,753 Dec 41.9 35.2 0.4 0.4 2.4 2.2 10.3 9.4 5.8 6.5 A v erage 33.2 18.4 2.8 3.0 1.3 1.2 6.1 5.6 7.3 7.7 US Ford Motor F US USD 9.78 39,019 Dec 7.0 7.0 6.1 6.4 1.0 1.0 2.4 2.1 15.3 15.2 General Motors GM US USD 34.85 49,431 Dec 5.2 5.6 4.5 4.5 1.0 0.9 2.8 2.9 22.7 17.0 Tesla TSLA US USD 188.7 33,356 Dec n.a. 33.3 0.0 0.0 5.5 4.3 24.1 14.7 (9.3) 6.1 A v erage 6.1 15.3 3.5 3.6 2.5 2.1 9.8 6.6 9.5 12.8
Korea Kia Motors 000270 KS KRW 40900 13,945 Dec 8.1 7.8 2.4 2.7 0.6 0.5 3.5 3.4 7.2 7.1 Hyundai Motor 005380 KS KRW 136500 31,795 Dec 9.6 8.4 3.1 3.2 0.5 0.5 11.5 10.6 5.1 5.6 A v erage 8.8 8.1 2.8 2.9 0.5 0.5 7.5 7.0 6.2 6.4 J apan Toyota Motor# 7203 JP JPY 6604 197,009 Mar 8.2 7.7 3.6 3.9 0.9 0.8 3.0 2.9 11.5 11.2 Honda Motor# 7267 JP JPY 2770 45,874 Mar 6.7 6.2 4.4 4.7 0.6 0.5 5.3 5.0 8.3 8.6 Nissan Motor# 7201 JP JPY 765.1 29,523 Mar 8.0 6.6 6.3 6.3 0.5 0.5 1.7 1.5 6.3 7.4 Suzuki Motor# 7269 JP JPY 5499 24,687 Mar 11.3 10.6 1.5 1.6 1.5 1.4 3.3 3.0 14.7 13.9 Mitsubishi Motors# 7211 JP JPY 516 7,030 Mar 7.4 6.7 4.2 4.6 0.8 0.8 2.3 2.1 11.4 11.9 A v erage 8.3 7.6 4.0 4.2 0.9 0.8 3.1 2.9 10.4 10.6
Europe Bmw BMW GR EUR 64.05 47,045 Dec 7.5 6.5 5.0 5.4 0.7 0.7 2.3 2.1 10.0 11.3 Volkswagen VOW GR EUR 147.5 82,523 Dec 5.3 4.9 4.3 5.0 0.6 0.5 1.4 1.3 11.4 11.7 Saab B SAABB SS SEK 277.1 3,928 Dec 17.7 14.5 1.8 2.2 1.7 1.6 11.5 9.9 10.4 11.8 Peugeot UG FP EUR 20.84 21,045 Dec 5.7 5.3 4.6 5.2 1.0 0.9 1.6 1.5 19.0 18.2 Porsche Aml.Hldg.Pref. PAH3 GR EUR 58.04 19,838 Dec 4.2 4.0 5.2 5.8 0.5 0.4 (5.1) (4.7) 12.8 12.4 Daimler DAI GR EUR 47.87 57,157 Dec 6.5 6.3 6.6 6.6 0.7 0.7 2.5 2.4 12.1 11.9 Fiat Chrysler Autos. FCA IM EUR 12.26 26,799 Dec 4.5 4.1 5.1 5.3 0.7 0.6 1.5 1.4 16.3 16.3 Audi NSU GR EUR 790 37,913 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Renault RNO FP EUR 56.5 18,648 Dec 5.0 4.6 6.2 6.4 0.4 0.4 1.3 1.3 9.0 9.6 Ferrari RACE IM USD 144.52 35,323 Dec 34.3 32.0 0.8 0.9 14.0 11.5 19.9 17.3 46.5 38.5 Volvo B VOLVB SS SEK 138 30,649 Dec 8.8 10.3 3.9 4.2 2.1 2.0 4.3 4.8 25.3 19.7 A v erage 10.2 9.4 4.3 4.6 2.2 1.9 4.6 4.2 17.2 16.1 # FY19: FY20; FY20: FY21 Source: Thomson Reuters, *DBS HK
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Industry Focus
China Auto Sector
Peers comparison table (Auto Dealers)
Mk t PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE ROE Price Cap F iscal 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F Company Name Code Currency Local$ US$m Yr x x % % x x x x % % Hong Kong Dah Chong Hong 1828 HK HKD 2.43 584 Dec 5.6 5.0 7.2 8.0 0.4 0.4 5.2 4.6 7.7 8.2 Zhongsheng Gp.Hdg. 881 HK HKD 19.24 5,568 Dec 8.9 7.3 2.2 2.7 1.8 1.5 6.0 4.9 21.5 21.8 China Zhengtong Auto Svs. 1728 HK HKD 3.16 990 Dec 4.2 3.5 10.0 10.0 0.5 0.5 4.2 4.2 12.7 14.1 Grand Baoxin Auto Group 1293 HK HKD 2.47 893 Dec 8.0 6.8 3.7 3.4 0.8 0.7 5.0 4.5 10.9 10.1 China Yongda Automobiles Svs. 3669 HK HKD 6.45 1,511 Dec 6.3 4.6 5.2 7.1 1.0 0.9 6.5 5.2 17.2 20.3 China Meidong Auto Hdg. 1268 HK HKD 4.56 670 Dec 10.6 8.4 3.7 4.5 3.0 2.5 n.a. n.a. 28.6 31.4 China Harmony New Energy Auto Holding3836 HK HKD 2.72 529 Dec 6.3 5.7 3.6 4.0 0.5 0.5 5.4 4.8 8.1 8.4 Sparkle Roll Group# 970 HK HKD 0.275 174 Mar n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Auto Italia Holdings 720 HK HKD 0.059 39 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. New Focus Auto Tech Hdg. 360 HK HKD 0.187 161 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Rundong Auto Gp. 1365 HK HKD 0.75 90 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sunfonda Group Holdings 1771 HK HKD 1.2 92 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. A v erage 7.1 5.9 5.1 5.7 1.1 1.0 5.4 4.7 15.2 16.3 Other A sia Jardine Cyc.& Carr. JCNC SP SGD 34.01 9,743 Dec 10.2 9.4 3.9 4.1 1.4 1.2 5.6 5.3 14.1 13.8 Tan Chong Motor Holdings TCM MK MYR 1.51 242 Dec 9.9 8.8 2.4 2.5 0.3 0.3 n.a. n.a. 3.5 3.7 Wuchan Zhongda Group 'A' 600704 CH CNY 5.7 3,552 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Power Diversity Autmb. Trd.'A' 601258 CH CNY 1.23 1,164 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Offcn Education Technology 'A' 002607 CH CNY 11.97 10,683 Dec 44.8 33.0 0.5 0.7 1.2 1.4 n.a. n.a. 36.2 35.4 Chd.Autv.Ssgp.'A' 600297 CH CNY 4.55 5,388 Dec 9.2 8.1 1.3 1.4 0.9 0.8 7.5 6.8 10.1 10.6 Wuxi Coml.Mansion Grand Orient 'A' 600327 CH CNY 4.84 516 Dec 13.1 12.1 1.7 1.7 1.3 1.2 n.a. n.a. 9.6 9.6 Shanghai Shenhua Hdg.'A' 600653 CH CNY 2.3 648 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fujian Zhangzhou Dev.'A' 000753 CH CNY 3.36 482 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Yulon Motor 2201 TT TWD 23.55 1,174 Dec 11.9 n.a. 3.4 n.a. 0.5 n.a. n.a. n.a. 3.0 n.a. Hotai Motor 2207 TT TWD 505 8,745 Dec 26.3 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15.6 n.a. A v erage 17.9 14.3 2.2 2.1 0.9 1.0 6.5 6.0 13.1 14.6 US Autonation AN US USD 39.82 3,552 Dec 9.4 9.3 0.0 0.0 1.2 1.0 7.2 7.2 13.5 11.3 Group 1 Automotive GPI US USD 75.73 1,402 Dec 7.6 7.6 1.4 1.4 1.1 0.9 7.7 7.8 15.1 12.8 Asbury Automotive Gp. ABG US USD 77.19 1,498 Dec 8.6 8.6 0.0 0.0 2.0 1.7 8.2 8.3 30.7 23.9 Carmax# KMX US USD 76.24 12,691 Feb 14.9 13.7 0.0 0.0 3.4 3.2 13.7 13.1 23.6 22.8 A v erage 10.1 9.8 0.3 0.3 1.9 1.7 9.2 9.1 20.7 17.7 # FY19: FY20; FY20: FY21 Source: Thomson Reuters, *DBS HK
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Industry Focus
China Auto Sector
Brilliance China (1114 HK) PE Chart Brilliance China (1114 HK) PB Chart
x x 6.0 25 5.0 20 4.0 15 +1SD: 14.8x +1SD: 3.3x 3.0 Avg: 11.3x 10 Avg: 2.4x -1SD: 7.8x 2.0 -1SD: 1.6x 5 1.0
0 0.0
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Jul-17
Jul-18
Jul-19
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17 Jan-18 Jan-19 China Meidong (1268 HK) PE Chart China Meidong (1268 HK) PB Chart
x x 3.5 18 16 3.0 14 2.5 +1SD: 2.4x 12 +1SD: 11.9x 2.0 10 Avg: 1.8x 8 Avg: 8.3x 1.5 -1SD: 1.2x 6 1.0 4 -1SD: 4.7x 0.5 2
0 0.0
Apr-15
Apr-19
Dec-13
Dec-17
Aug-16
Apr-15
Apr-19
Dec-13 Dec-17 Aug-16 China Yongda (3669 HK) PE Chart China Yongda (3669 HK) PB Chart
x x 3.5 25 3.0 20 2.5 +1SD: 2.4x +1SD: 16x 15 2.0 Avg: 1.7x 1.5 10 Avg: 10.9x 1.0 -1SD: 1x -1SD: 5.8x 5 0.5
0 0.0
Jul-12
Jul-19
Jan-16
Jul-12
Jul-19
Sep-13
Nov-14
Jan-16
Mar-17
May-18
Sep-13
Nov-14 Mar-17 May-18 Source: Thomson Reuters, DBS HK
Page 10
Industry Focus
China Auto Sector
China ZhengTong (1728 HK) PE Chart China ZhengTong (1728 HK) PB Chart
x x 4.0 40 3.5 35 30 3.0 25 2.5 20 +1SD: 20.3x 2.0 +1SD: 1.9x 15 1.5 Avg: 13.3x Avg: 1.2x 10 1.0 -1SD: 6.3x -1SD: 0.6x 5 0.5
0 0.0
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17 Dec-18 Dec-19 Grand Baoxin (1293 HK) PE Chart Grand Baoxin (1293 HK) PB Chart
x x 6.0 60 5.0 50 4.0 40 +1SD: 3.1x 3.0 30 +1SD: 29.1x 2.0 Avg: 2.1x 20 Avg: 18.8x 1.0 -1SD: 1x 10 -1SD: 8.6x
0 0.0
Apr-13 Apr-17
Dec-15 Dec-19 Dec-11
Aug-14 Aug-18
Apr-13 Apr-17
Dec-11 Dec-15 Dec-19 Aug-18 Aug-14 Source: Thomson Reuters, DBS HK
Page 11
Industry Focus
China Auto Sector
DBS HK recommendations are based on 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 share price catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 29 May 2019 12:29:38 (HKT) Dissemination Date: 29 May 2019 17:21:53 (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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Industry Focus
China Auto Sector
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 proprietary positions in Guangzhou Automobile Group Co Ltd (2238 HK), Dongfeng Motor Group Co Ltd (489 HK), Brilliance China Automotive Holdings Ltd (1114 HK), Great Wall Motor Co Ltd (2333 HK), BYD Co Ltd (1211 HK) and Geely Automobile Holdings Ltd (175 HK) recommended in this report as of 27 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. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Dongfeng Motor Group Co Ltd (489 HK) recommended in this report as of 27 May 2019.
4. 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.
5. 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.
Page 13
Industry Focus
China Auto Sector
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.
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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.
Page 14
Industry Focus
China Auto Sector
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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Industry Focus
China Auto Sector
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