Asian Insights SparX Regional Automobile, Oil & Metal Sectors
DBS Group Research . Equity 17 JulyRefer 2018 to important disclosures at the end of this report Asia leapfrogs in E-mobility HSI: 28,481 Transportation sector one of the largest generators of ANALYST air pollutants in major global cities Rachel MIU +852 2863 8843 [email protected] Intensifying vehicle electrification could translate to Suvro Sarkar +65 81893144 electric vehicle (EV) penetration rate of over 20% by [email protected] 2030 globally Pei Hwa HO +65 6682 3714 [email protected] For every two EVs sold globally, one will be in China, Lee Eun Young +65 6682 3708 creating a huge EV supply chain network [email protected] Yi Seul SHIN +65 6682 3704 Expect Chinese upstream suppliers to benefit from [email protected] robust development of global EV market Recommendation & valuation E-mobility is a game-changer. Electrification aims to address vehicle pollution. Western governments have plans to phase T arget out or cut fossil-fuel vehicle sales from 2025 to 2040. We Price Price PE Mk t Cap estimate global EV to account for some 20% of total vehicle Company Name Local$ Local$ Recom 18F x US$m sales by 2030, translating to about 27m units. With the rise in Battery EVs, approximately 6% of annual oil demand could disappear Contemporary Amperex 83.90 n.a. NR 55.1 27,566 by 2030. To power EV development, governments are leaning (300750 CH) more on clean energy and by 2030, half of the global energy Guoxuan High-Tech Co 13.64 n.a. NR 14.3 2,345 mix will be from natural gas and renewable sources. The robust Ltd (002074 CH) EV market is also a major driver of the metals sector, such as A uto Parts cobalt and copper. Minth Group* (425 32.25 39.80 BUY 13.1 4,726 EV upstream supply chain to benefit. China, the world’s HK) largest automobile market (both electric and traditional), is Nexteer Automotive 11.54 15.60 BUY 10.5 3,698 leading the E-mobility development, with its strong policies and Group* (1316 HK) fiscal support. The rapid EV market development has created an Auto Makers exciting value chain, one of the most complete in the world. BYD 'H'* (1211 HK) 45.30 60.00 BUY 25.6 17,354 Several Chinese upstream suppliers such as battery Tesla (TSLA US) 310.10 n.a. NR n.a. 52,653 manufacturers and auto parts producers stand to benefit. The Source: Thomson Reuters, *DBS Bank (Hong Kong) Limited (“DBS HK”), Chinese EV market upcycle is expected to increase battery Bloomberg Finance L.P. production by almost 5x to 215GWh by 2022, up from 44.5GWh in 2017. On the other hand, the introduction of the EV quota cum carbon credit dual system in 2019 means automakers could face keen market competition.
ASIAN INSIGHTS ed-TH/ JS / sa- AS / CW / CS Asian Insights SparX Regional Automobile, Oil & Metal Sectors
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one off treatise on the topic, and invite feedback from our readers, and in particular welcome follow on questions worthy of closer examination. Table of Contents
Investment summary 3
Rapid economic development brings environmental woes 4
World governments embarking on electric vehicle development to tackle air pollution 7
United States – Exit from Paris Agreement, a potential setback 10
Europe – Set timeline to exit from ICE vehicle productions 11
Asia –China leading in EV adoption 16
India: U-turn on full electric adoption by 2030 23
South Korea: EV market still in an early stage but has huge potential 24
Oil sector – EV unlikely a demand shock 28
Metals sector: Key beneficiary from the EV growth 32
Copper: demand growth powered by EV, from battery to infrastructure 32 Steel – intensifying competition but to remain as key autobody material 34 Aluminium – the lighter the better 34 Profile
BYD Company (1211 HK) 40 Contemporary Amperex Technology (300750 CH) 42 Minth Group (425 HK) 44 Nexteer Automotive Group (1316 HK) 46
Special thanks to Hanjoon Lee for his contributions to the Korean EV market analysis
Note: Prices used as of 16 July 2018
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Asian Insights SparX Regional Automobile, Oil & Metal Sectors
Investment summary shock from EVs, as the evolution, growth and adoption of EVs will take time. Rather, industry investments and geopolitics will Thriving cities, environmental woes be the major factors in determining oil prices in the future.
Rising carbon emissions from transportation sector a concern; But a substantial driver of metals sector. The anticipated robust countries looking at exiting from fossil vehicle sales. Both EV market outlook has spurred prices of raw materials such as developed and developing nations are grappling with rising lithium, cobalt, nickel and copper, the key raw materials for carbon emission levels, due to the rapid economic lithium batteries, automotive parts and infrastructure network development in the past decade. Asia’s share of the carbon to hit record levels. Based on International Copper emission pie is huge, and China alone accounted for 26% in Association’s estimates, the amount of copper needed to make 2016, double that of the US. Of this, transportation is one of one battery-electric vehicle (BEV) and hybrid electric vehicle the main culprits causing rising carbon emissions. Several (HEV) is about four times and two times respectively the European countries have made plans to exit fossil fuel vehicles amount needed for an internal combustion engine vehicle starting from 2025 to 2040, such as Norway, Switzerland, (ICEV). From 2017-2030, we estimate copper demand to rise Netherlands, Germany, United Kingdom and France. China is by 19% per annum to 1.91m tons solely from EVs alone. Other looking at a time frame after 2025. metals such as advanced high strength steel and aluminium are expected to ride on the EV trend, as these metals are widely Policies and government directives to spur global electric used by automakers to reduce the weight of the EVs to vehicle (EV) market development; financial incentives an enhance battery performance. important driver. Globally, several government bodies (from the developed countries and Asia, particularly China) are China dominates global EV penetration rate. China has the pushing for EV development as part of their initiatives to largest electric vehicle (EV) market in the world. For every two reduce carbon emissions. Policies (including financial incentives EVs sold globally, one is in China. To accelerate the EV and tax credits) have been implemented to encourage development, the government introduced the EV quota and automakers and car buyers to switch over to EVs. In China, the carbon credit dual system. The EV quota-credit policy effective “stick and carrot” approach since 2010 has produced some from January 1, 2019, requires passenger vehicle makers in rather favourable results. From 2013 to 2017, the Chinese China to generate a certain amount of credit points from EVs government have spent around Rmb50bn on EV subsidies. (equivalent to10% of total production in 2019 and 12% in 2020). In addition, automakers have to comply with higher Rapid global EV market expansion; Asia to lead the race. In vehicle fuel standards under the corporate average fuel 2017, EV sales accounted for around 2% of the global vehicle consumption (CAFC) policy. Starting from June 2018, only EVs market. Due to strong policies and government directives, we that meet the higher drive range will be entitled to subsidies. project global EV sales to increase from about 1.26m units in This shift effectively forces EV makers to develop more 2016 to approximately 27m units by 2030. This translates to an advanced technologies to level up with the international EV penetration rate of about 20% (from 2%% in 2017). And players. Hence, we forecast EV sales to reach approximately the bulk of the EV consumption is expected to come from Asia. 15m units by 2030, up from 777,000 units in 2017. By 2030, Europe ranks second, well supported by several of the Nordic China’s EV penetration is expected to hit 33%. countries’ aggressive policy on EV adoption. Broadly, the Asian EV market is expected to be 3.5 times the size of North Top players in EV value-chain. Along the EV value-chain, we America and 2.6 times of Europe by 2030. prefer upstream EV parts suppliers, as they directly tap on the global EV market trend. These include high-end EV batteries Future power source for EVs. Currently, vehicle energy comes and light-weight automotive parts. China has a relatively large largely from fossil fuels. As governments increase their EV supply chain given its scale. By end-2017, China EV market investments into clean energy, reliance on clean fuel is size has reached approximately 1.8m units, the largest in the expected to play a bigger role in powering EVs in the future. By world. Among the Chinese EV battery makers, Contemporary 2030, clean energy (natural gas and renewables) is projected to Amperex Technology Ltd (CATL; 300750 CH) is the largest account for about half of the energy mix to power EVs, up player in the world. The Chinese EV market upcycle is expected from 39% in 2016. to create a battery market size of 215GWh by 2022, almost 5x up from 44.5GWh in 2017. CATL has locked in several EVs unlikely to create a demand shock on oil sector. The international automakers to be their battery supplier. In the passenger vehicle market (factoring in improving efficiencies, lightweight automotive parts segment, Minth (425 HK) is one share mobility and EV) accounts for about 21% of global oil of the leading global players. It is expanding production demand. While this may seem big, other drivers of oil demand capacity in view of increasing demand for lightweight parts, as could mitigate some of the impact from EVs. India is potentially well as working with US’s Clean Wave to develop electric drive a bright spot, with projected strong economic growth. With systems (including the electric traction motor and its drive the rise in EVs, approximately 6% of annual oil demand could control units, and the gearhead system) for NEVs. disappear by 2030. Thus, we do not expect a major demand
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Asian Insights SparX Regional Automobile, Oil & Metal Sectors
Rapid economic development brings Based on the 2015 greenhouse gas (GHG) emission statistics, it environmental woes shows that Asia is a large contributor to global warming. China accounts for almost a quarter of the global GHG emission, one Rising global carbon dioxide emissions a worrying sign. Global of the largest in the world. air pollution is not just a country specific issue today, it has become a global problem, as both developed and developing Share of greenhouse gas emissions by countries (2015) countries are facing worsening air quality, especially in the major capital cities around the world. Japan 3% Based on WorldBank’s study, rising carbon dioxide (CO2) China International emission is reaching a critical point and governments are 26% transport getting together to address this issue. Globally, 195 countries 3% (the US withdrew from the agreement recently) have pledged Russian their Nationally Determined Contributions (NDCs) under the Other Federation Paris Agreement on their emission reduction targets. countries India 5% 20% 7% In fact, global CO2 emission has been on the rise since 1990, EU 28 as shown in the chart below. The rising trend is largely Other G20 United 9% attributable to economic development – industrial production, countries States transportation, and power generation. Among which, the 14% 13% vehicle sector has played a key role.
Source: Natural Resources Defense Council, as of 15 Dec 2015 Trend in global total greenhouse gas emissions Over the years, China’s share of global CO2 emission has been on the rise, attributable to its growing economic power. Gt CO2 eq 55 Increasing demand for goods and services (such as car ownership and transportation) has contributed to the alarming 50 level of CO2 emissions. This trend also holds in many of the developing nations in Asia. Below are some of the key factors 45 contributing to the rise in CO2 emissions.
40
35
30
25
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: PBL Netherlands Environmental Assessment Agency
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Asian Insights SparX Regional Automobile Sector
Global carbon dioxide emissions by region, 1751 to 2015
40 35 30 25 20 15
CO2 per year (billion tonnes) (billion year per CO2 10 5 0 1850 1855 1860 1865 1870 1875 1880 1885 1890 1895 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
International transport Africa Asia and Pacific (other) Middle East Americas (other) Europe (other) India China United States EU-28 Source: World in Data, CDIAC (2017)
Rapid urbanisation a major driver of GHG emission. Rapid Global vehicle sales projection economic expansion has delivered about 60% of global growth. The Organisation for Economic Cooperation and Units (mil) % Development (OECD) has suggested that Asia’s fast growth will stay through 2030. Urbanisation rates are also on the rise in 110 15 Asia, from around 40% in 2010 to over 50% in 2030. Such a 100 10 fast rate of expansion would drive up GHG emissions. 90 80 5 Transportation needs in step with urbanisation. Based on 70 various studies, transportation is a growing contributor to GHG 60 0 emissions. In fact, rising car ownership is the main culprit to 50 -5 the worsening air quality across the globe, especially for the 40 Asian economies. Global vehicle sales have been on the rise 30 -10 post the great financial crisis, and a large part coming from 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Asia. For example, the Chinese government has been building 2019F more roads and this has facilitated car travel and rising car Global vehicle sales (LHS) Chg. (RHS) ownership. Source: OICA, DBS HK China’s automobile market is the largest in the world, and this has been the main factor to the worsening air quality especially in the major Chinese cities. The Chinese government in its latest 2017 Environmental Report, mentioned that the automobile industry released a total of 43.6m tonnes of GHG in 2017, given that the country has over 300m automotive vehicles, and of which 217m units are motor vehicles.
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Industrial activities. Economic growth is tagged to a vibrant US greenhouse gas emission by sector industrial sector, which also leads to huge power demand. The combined impact of industry growth, power generation and transportation could account for sizeable portion of the total Electricity Residential GHG emissions. For example, in the US, these three sectors 29% 5% accounted for approximately 80% of the total GHG emission in 2016, as shown in the chart below.
Commercial 6%
Agriculture Transportation 9% 29%
Industry 22%
Source: US Environmental Protection Agency
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World governments embarking on electric For the first four months of 2018, EV deliveries worldwide had vehicle development to tackle air pollution hit almost 130,000 units, representing 93% y-o-y expansion.
Global EV scenario. Governments worldwide have arrived at World’s top 10 best-selling electric cars (Jan-Apr 2018) measures to address the worsening air pollution. Regulations targeting cleaner vehicle fuel are being formulated. For instance, China and the European Union (EU) have announced Units higher fuel standards to reduce the amount of vehicle pollutants. But a longer-term solution is to increase the vehicle Nissan LEAF electrification rates. BAIC EC Series Toyota Prius Many global automakers are intensifying their EV business BYD Song strategy to catch up with the EV trend. Tesla Model S BYD Qin JAC iEV7S/E International automakers’ EV strategy Tesla Model X Tesla Model 3 Auto makers EV strategy and targets Renault ZOE Volkswagen Electrified all 300 models by 2030, involving some 0 5000 10000 15000 20000 25000 30000 EUR70bn of investment 16 productions sites for EV by end of 2022 Partner with battery manufacturers for Europe Source: Inside EVs and China demand, amounting to EUR50bn by Compared to the US and EU, China’s EV market has advanced 2025 the most. One major driving force is the Chinese government’s To build 2-3m Evs annually or 20-25% of total willingness to spend billions of yuan to incentivise new energy portfolio by 2025 vehicle companies to embark on EV development. After years Over EUR20bn of capex in the period to 2030 of promotion and providing financial support, China’s EV BMW All future vehicle models on modular industry has reached the top, becoming the largest in the construction, allowing for fully electric, plug-in world. hybrid or internal combustion powertrains Planned 12 all electric and 13 hybrids in its lineup Moving away from fossil fuel vehicles. Globally, the electric car by 2025 market is attracting a lot more attention. The following are To enhance its xEVDrive train architectures by factors directing the global EV market development in the 2020, and leveraging on its in-house battery coming few years. modules and packs capability Daimler Focus on 48 Volt electrification to provide comfort EVs are approaching cost parity with the internal and agility combustion engine (ICE). Market estimates point to 2020- Modular architecture to provide flexibility from 2025 for the price of BEV to be on parity to the ICE ICE to xEV vehicle. EUR10bn investment in EV fleet Adoption rate of EVs is expected to rise, as global More than 10 BEV and 50 electrified passenger governments are pushing for EV development. Several cars by 2022 large automakers have plans to roll out new EV models in General Delivering over 300 miles of range the coming years. For instance, Volkswagen plans to offer Motors To lower battery cell cost by 30% from US$145 80 EV models by 2025. We project EVs to account for per KWh to below US$100 by 2021 Source: Companies some 20% of market by 2030. China is accelerating the EV adoption rate through various Anticipate faster adoption of EVs globally. Many nations are investment, incentive and policies measures, especially racing to finalise their EV development plans and several under the latest dual credit scheme. European nations (the EU) have vowed to stop the production and sale of fossil fuel vehicles during 2030-2040. Member Governments have announced that there could be bans countries of the Paris Climate Accord are becoming more on ICEs in the future. France, Britain and Norway are active in cutting down GHG emissions through various ditching fossil fuel vehicles and replacing these with measures and faster EV adoption is one of the solutions. The cleaner energy ones between 2030 to 2040. And China automobile markets in the US and Europe are the most has started to study the timeline for the country to exit developed but their EV development were slower compared to from fossil fuel cars. China. Worldwide, the total number of EVs sold passed a million units in 2017, with China taking a sizeable 40% share.
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Global EV market to post rapid expansion. In 2017, total Market estimates on cost parity time-line electric car sales hit over one million units, with China as the largest. China sold 770,000 units of electric vehicles (passenger and commercial vehicles) last year, compared to approximately 750,000 units in the EU and 190,000-200,000 units in the US. DNV GL (Energy Consulting Firm) Top electric car market in the world (2017)
Units China Bloomberg New Energy United States France
Norway Mckinsey Germany Japan 2015 2020 2025 2030 2035 United Kingdom Australia Source: Companies
India The cost of EVs currently is more expensive to ICEVs by about Brazil 30%, largely attributable to the battery cost. However, as the 0 200000 400000 600000 800000 cost of batteries is falling, achieving parity is only a matter of time. Depending on the speed of battery cost reduction, 2020- Source: Statista Research 2025 is a possible timeline for EVs to hit a critical mass level.
Based on the various governments’ incentive schemes and GHG policy, we estimate total EV sales will reach approximately Battery cost as percentage of EV’s total cost (2016-2030) 27m units by 2030, and account for about 21% of total vehicle sales. 60%
50% Global EV sales and penetration rates
40% 000 units (%) 30,000 25.0 30% 20.0 20,000 20% 15.0
10.0 10% 10,000 5.0 0% 0 0.0 2016 2018 2020 2022 2024 2026 2028 2030
2016 2017 Source: Statista Research 2017F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F Others Europe A 2018 study by the University of Michigan’s Transportation North America Asia EV penetration rate (%) Research Institute shows the average cost to operate an EV in the US is US$485 per year, while the average cost for a Source: CAAM, Global EV outlook 2017, DBS HK gasoline powered vehicle is US$1,117.
DNV GL predicts EV prices to fall to the same price as Impact of EVs on value-chain combustion vehicles by 2022. More importantly, automakers EV critical mass breakthrough. The adoption rate of EVs largely such as General Motors are working towards lowering the depends on the cost parity to internal combustion vehicles battery cell cost by 30% by 2021. These actions should bring (ICVs). According to various market estimates, the price parity the price of EVs down to more affordable levels post 2020. between electric cars and gasoline cars is expected to narrow in the coming years, especially with falling battery costs.
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Impact on battery market. With the rise in EV developments, Global battery players. In 2017, total car battery demand demand for car batteries is expected to surge. Electric car amounted to 69GWh, representing 40% y-o-y growth. The top companies are looking at certain qualities for automotive ten global battery manufacturers accounted for approximately batteries, including car battery density, safety, charging time 70% of total market share. Among the major manufacturers, (quick charge), life span of battery, and travel distance per the Chinese battery companies have taken up seven of the ten charge etc. positions, with a 65% market share. This is due largely to the huge EV market demand in China underpinned by supportive As such, manufacturers are constantly looking at ways to government policies. In 2017, Contemporary Amperex enhance the performance and durability of the car batteries. Technology Ltd (CATL) became the largest EV battery Globally, the Lithium Nickel Manganese Cobalt Oxide (NMC) manufacturer in the world, eclipsing the more established batteries are widely used in EVs. Hence, the key raw materials international players. of the NMC batteries is an important consideration. These include copper, nickel and cobalt, which have seen a strong price surge in recent years, as demand is expected to outstrip supply, especially for cobalt.
Global car battery demand
(000) 30,000 1,600 1,400 25,000 1,200 20,000 1,000 15,000 800 600 10,000 400 5,000 200 0 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
EV - LHS GWh - RHS
Source: GGII; DBS HK
Top ten global EV battery manufacturers (based on 2017 sales)
CATL Panasonic BYD Optimum Nano LG Chem Guoxuan High-tech Samsung SDI Beijing Guoneng Batteries Technology CBAK Energy Technology, Inc Funeng Technology
0GWh 2 4 6 8 10 12
Source: GGII
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United States – Exit from Paris Agreement, California leads in advocating carbon emission reductions. The a potential setback state has set a mandate requiring automakers to sell a certain quantity of zero emissions cars after reaching certain ICE Transportation sector one of largest culprit to US GHG vehicle sales volume. California is working toward a goal of emissions. According to the US official statistics, transportation placing in service at least 1 million zero emission vehicles and generated about 29% of total GHG (Greenhouse gas) near-zero emission vehicles by January 1, 2023. There are other emissions in the US in 2016. Within the transportation sector, states following California’s footsteps in implementing stricter light duty vehicles formed the largest category (60% of GHG emissions standards and minimum quantity of zero emission emissions), while medium-heavy duty trucks accounted for car sales ratios, including Connecticut, Delaware, Maine, 23%. In fact, transportation GHG emissions share has been on Maryland, Massachusetts, New Jersey, New Mexico, New York, a rising trend compared to any other sector (electricity Oregon, Pennsylvania, Rhode Island, Vermont, and generation, industry, agriculture, residential or commercial) in Washington. absolute terms, due to rising demand for travel. It rose from Policy and incentives. The federal government and a number of 24% share of total GHG emissions in 1990 to 29% in 2016. states that do offer tax credits to encourage higher EV adoption rate. The tax credit on plug-in EVs is US$2,500 to Share of GHG emissions in the US by sector (2016) US$7,500 per new EV purchased. The size of the tax credit depends on the size of the vehicle and its battery capacity. This tax credit will be available until 200,000 qualified EVs have Electricity Residential been sold in the US by each manufacturer. At present, no 29% 5% manufacturers have been phased out yet.
Commercial California has separate rebate programs for buyers of green 6% cars. Consumers enjoys US$1,500 to US$5,000 of rebates for Agriculture Transportation 9% plug-in hybrid, battery EVs and hydrogen fuel cell EVs. The 29% state also has one of the most extensive charging infrastructure in the US. The California government also requires automakers to comply with the “zero emission vehicle regulation” by Industry 22% earning credits from sales of EVs or plug-in hybrid vehicles.
EV sales projections till 2030. The US EV market is largely Source: US Environmental Protection Agency dominated by California, which accounts for about half of the total EVs sold in the US. The overall EV adoption rate in the US is still low, at about 1.2% in 2017. We estimate total EV sales in the US will reach about 4m units by 2030, with a large Share of US transportation sector’s GHG emission (2016) portion coming from California.
Other 4% North America: EV sales projections Medium and Heavy Aircraft Rail Unit: 000 Duty 9% 2% Trucks 5000 23% 4500 Ships & 4000 Boats 2% 3500 3000 2500 2000 Light-Duty 1500 Vehicles 1000 60% 500 0 Source: US Environmental Protection Agency 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F
Source: Global EV outlook 2017; DBS HK
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Europe – Set timeline to exit from ICE Electric car sales by country (2017) vehicle productions units EU to phase out ICE vehicles. Several EU governments are 70,000 taking steps to phase out petrol and diesel cars. Currently, the 60,000 European Union has imposed CO2 emission taxes on vehicles 50,000 to discourage fossil fuel vehicles on the roads. 40,000 30,000 Timetable to phase out ICE vehicles in Europe 20,000 10,000
Norway 0 UK Italy Spain France
Switzerland Austria Norway Sweden Belgium Portugal Germany Switzerland The Netherlands Netherlands Source: ACEA Germany
UK EV growth projections, one of the fastest. Sales of electric cars in Europe have grown at a rapid rate in recent years, thanks to France the government policies and incentives to encourage the industry development. We project EV sales to reach 8m units 2015 2020 2025 2030 2035 2040 2045 by 2030, up from approximately 0.5m units in 2016. Source: European Governments EV projections Tax scheme. The EU member countries have a comprehensive tax exemption scheme to encourage car owners to switch to Unit: 000 EVs. The top European countries with the highest EV sales are 12000 France, Germany, the United Kingdom and Norway. Their governments have incentives in place for buyers to purchase 10000 electric vehicles and new electric and hybrid car sales have been rising in the past few years. 8000
6000 New electric and hybrid car registrations in Europe 4000
'000 2000 800 700 0 600 2016 2017 500 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F
400 Source: Global EV outlook 2017; DBS HK 300 200 100 0 2014 2015 2016 2017 1Q17 1Q18
ECV HEV
Source: ACEA
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Electric vehicle policy and incentive schemes in Europe
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV PV Registration AUSTRIA Electric vehicles are exempt from fuel 20% VAT on all vehicles 7,154 consumption/pollution tax and ownership tax. In addition, Fuel consumption/pollution tax for PV: [(CO2 a deduction of VAT is applicable for zero-CO2 emission emissions in g/km - 90) / 5] - NoVA deduction cars (eg electric and hydrogen-powered cars). €300 + NoVA malus fee €20 for each g/km of The Austrian automobile club ÖAMTC publishes the CO2 emission exceeding 250g/km incentives granted by local authorities on its website Ownership tax for vehicles < 3.5t: 30.62 × (kW (www.oeamtc.at/elektrofahrzeuge ). – 24) × f (for the first 66kW) + 0.66 × (kW – 24) × f (for the next 20kW)+ 0.75 × (kW-24) × f (for each exceeding kW) BELGIUM Electric vehicles pay the lowest rate of tax under the N.A. 14,299 annual circulation tax in all three regions. In the Brussels-Capital region, financial incentives apply to companies electric, hybrid or fuel-cell vehicles. Electric and plug-in hybrid (until 31 December 2020) vehicles are exempt from registration tax in Flanders. Incentives (“Zero Emission Bonus”) for the purchase of battery electric and hydrogen-powered cars and vans are granted. The deductibility rate from corporate income of expenses related to the use of company cars is 120% for zero- emissions vehicles. BULGARIA Electric vehicles are exempt from ownership tax. Ownership tax for PV: 106 BGN1.02/kW for engine power less than 37 kW, BGN1.20/kW for power between 37kW and 55 kW, BGN1.62/kW for power between 55kW and 74 kW, BGN3.30/kW for power between 74kW and 110 kW, BGN3.69/kW for power more than 110kW The above tax is multiplied by 1 for more than 14 years of production, 1.5 for 5-14 years of production and 2.8 for less than 5 years of production CYPRUS Vehicles emitting less than 120g CO2/km are exempt from Registration tax for PV: NA registration tax and pay the lowest rate of tax under the €0 for CO2 emission lower than or equal to 120 annual road tax. g/km, €25/g CO2/km emitted > 120 for CO2 emission 121-150g/km, €750 + €50/g CO2/km emitted > 150 for CO2 emission 151-180g/km, €2,250 + €400/g CO2/km emitted > 180 for CO2 emission more than 180 g/km Annual road tax: €0.5/g CO2/km for CO2 emission lower than or equal to 120 g/km, €3/g CO2/km for CO2 emission 121-180g/km, €8/g CO2/km for CO2 emission >180g/km Source: ACEA
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Electric vehicle policy and incentive schemes in Europe (con’t)
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV PV Registration CZECH Electric, hybrid and other alternative fuel vehicles are Road tax rates are assessed as annual fixed rates 307 REPUBLIC exempt from the road tax. and range: from CZK 1,200 for vehicles with engines up to 800cc, to CZK 50,400 for heavy-duty vehicles over 36t with three axles. Tax rates increase by 25% for vehicles that were first registered before 31 December 1989. DENMARK Electric vehicles (BEVs) pay only 40% of the registration tax N.A. 1,342 (in 2017). This percentage will be gradually increased at 65% in 2018, 90% in 2019 and 100% in 2020. Hydrogen and fuel cell-powered vehicles are exempt from registration tax until the end of 2020. FINLAND Pure electric vehicles always pay the minimum level of the Min registration tax rate for PV: 3.3 % 1,430 CO2 based registration tax. FRANCE Regions have the option to provide an exemption from the Registration tax: €27 - €51.2 36,835 registration tax (either total or 50%) for alternative fuel vehicles (ie electric, hybrids, CNG, LPG, and E85). Electric vehicles and vehicles emitting less than 60g CO2/km are not subject to the tax on company cars. Electric and hybrid electric vehicles emitting 20 g/km or less of CO 2 benefit from a premium of €6,000 under a bonus-malus scheme. An incentive scheme grants an extra €4,000 for switching an eleven year or more diesel vehicle for a new BEV (or €2,500 in case it’s a PHEV). GERMANY Electric vehicles are exempt from the annual circulation tax After the tax exemption, the car tax will amount 54,617 for a period of ten years from the date of their first to 50% of €11.25 (up to 2,000kg), €12.02 (up registration. to 3,000kg) or €12.78 (up to 3,500kg) for each From July 2016, the government granted an environmental 100cc or part thereof. bonus of €4,000 for pure electric and fuel-cell vehicles and €3,000 for plug-in hybrid and range-extended electric vehicles. GREECE Electric and hybrid vehicles are exempt from registration Registration Tax for PV = taxable value x basic 199 tax, luxury tax and luxury living tax. Electric and hybrid cars coefficient x CO2 emissions coefficient (with an engine capacity of up to 1,549cc and first Luxury living tax: registration date before 31 October 2010) are exempt 5% of presumed income annually for cars from circulation tax. with an engine capacity greater than 1,929cc andup to 2,500cc; 13% of presumed income annually for cars with an engine capacity greater than 2,500cc. HUNGARY Electric cars and plug−in hybrids are exempt from Company Car Tax: 7,700 HUF/month - 22,000 1,192 registration tax, annual circulation tax and company car HUF/month tax. Source: ACEA
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Electric vehicle policy and incentive schemes in Europe (con’t)
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV PV Registration IRELAND Electric vehicles qualify for VRT (purchase tax) reliefs of N.A. 948 €5,000 until 31 December 2021 (€2,500 for plug−in hybrids until 31 December 2018). In addition, electric vehicles and plug−in electric hybrids entitle the buyer to a grant of up to €5,000 on purchase until 31 December 2021 for electric vehicles and December 2018 for plug−in hybrid electric vehicles. Electric vehicles pay the minimum rate of the road tax (€120). ITALY Electric vehicles are exempt from the annual circulation tax N.A. 4,827 (ownership tax) for a period of five years from the date of the first registration. After this five-year period, they benefit from a 75% reduction of the tax rate applied to the equivalent petrol vehicles. LATVIA Pure electric vehicles pay the lowest fee for technical N.A. 56 annual inspections and the lowest amount for the company car tax (€10). LUXEMBOURG Electric and fuel cell vehicles benefit from a tax allowance N.A. NA on the registration fees of €5,000. Electric vehicles also pay the minimum rate of the annual circulation tax. Pure electric and hydrogen cars pay the lowest tax on benefit in kind for private use of a company car. MALTA Registration tax is based on length of vehicles, emissions Total Registration Tax = (X% x CO2 x RV) + (Y% NA and age. For pure electric vehicles the emission tax is zero. x length x RV) Where: X% is the percentage depends on the CO2 value Y% is the percentage depends on the length NETHERLANDS Zero emission cars are exempt from paying registration tax. Registration tax: €0 - €458 per g CO2/km 11,079 Passenger cars with zero CO2 emissions are exempt from motor vehicle tax up to and including 2020. Zero emission cars pay the lowest percentage (4%) of the income tax on the private use of a company car. POLAND Electric and plug-in electric vehicles exempt from Registration tax: PLN 180.50 1,068 registration tax. PORTUGAL VAT is deductible for electric vehicles (with acquisition cost VAT at the rate of 23% is calculated on the net 4,082 <€62,000) and plug-in hybrids (with an acquisition cost price after all discounts, but inclusive of ISV. <€50,000). Pure electric cars are exempt from the registration tax (Imposto Sobre Vehículos or ISV). Plug-in hybrid cars with all-electric mode up to 25km benefit from a 75% reduction of the tax. ROMANIA An incentive scheme grants €10,000 for the purchase of a Ownership tax for PV: RON 8 - RON 290 for 188 new pure electric vehicle (plus €1,500 for scrapping a each 200cc engine displacement vehicle older than eight years) and €4,500 for the purchase of a new hybrid vehicle. Electric vehicles are exempt from the ownership tax. Source: ACEA
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Electric vehicle policy and incentive schemes in Europe (con’t)
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV PV Registration SLOVAKIA Pure electric vehicles pay the lowest amount for the N.A. 209 registration tax (€33) and are exempt from motor vehicle tax. Hybrids and natural gas (CNG) vehicles benefit from a 50% reduction of the tax. SLOVENIA An incentive scheme grants: N.A. 456 • €7,500 for a new electric vehicle with zero emissions or a BEV (M1) • €4,500 for a new electric vehicle with zero emissions or a power-driven vehicle (N1 or L7e) • €4,500 for a new plug-in hybrid or a new electric vehicle with a range extender, with emissions < 50g CO2/km (M1 or N1) • €3,000 for a new electric vehicle with zero emissions or a power-driven vehicle (L6e) • €1,000 for a new electric vehicle with zero emissions (L3e, L4e or L5e) • €500 for a new electric vehicle with zero emissions (L1e-B or L2e) • €200 for a new electric vehicle with zero emissions (L1e-A) BEV's pay the lowest (0,5%) rate of tax on motor vehicle. SPAIN Main city councils (eg Madrid, Barcelona, Zaragoza, N.A. 7,476 Valencia etc) are reducing the annual circulation tax (ownership tax) for electric and fuel-efficient vehicles by 75%. Reductions are applied on company car taxation for pure electric and plug-in hybrid vehicles (30%), and for hybrids, LPG and CNG vehicles (20%). SWEDEN ‘Climate bonus’ (Klimatbonus) is available for the purchase N.A. 19,678 of new vehicles with CO2 emissions of maximum 60g/km. It ranges from SEK 60,000 for electric vehicles (BEV) with zero emission to plug-in hybrids (PHEV) with emission of 60g/km. Electric cars and plug-in hybrids are exempted from paying annual circulation tax for five years. 40% reduction is applied on company car taxation for electric cars and plug-in hybrids. UNITED From April 2018 until March 2021, cars that emit less than VED 12 months: £10 - £2,000 47,298 KINGDOM 50g/km qualify for 100% first year writing down allowances (FYAs). Zero emission vehicles attract a zero rate of vehicle excise duty (VED) Ultra-low emissions and electric vehicles pay reduced company car tax rates. Source: ACEA
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Asia –China leading in EV adoption
China leading Asia’s EV market development. Asia’s rapid CO emissions by vehicle sector in China (2017) economic development is pushing its eco-system to the rims, Low speed vehicles especially the transportation sector. The automobile market in 0.30% Motorcycles Asia is the largest in the world, and dominated by China, while 11.90% India and Indonesia, though both have a population size as big as China, their automobile markets are much smaller. Against this backdrop, China has been moving fast into the EV space in recent years, and its EV companies are emerging as one of the largest in the world in terms of production volumes.
Asia car population on the rise, pressing environmental issues ahead. Globally, demand for fossil fuel is rising, especially from the automobile market. China is also experiencing the same trend. China’s crude oil imports amounted to approximately Motor 420m tons in 2017, or 10.1% y-o-y expansion. As at end of vehicles 87.80% 2017, China had 210m vehicles, and we forecast the vehicle population to exceed 270m units by 2020 and hit about 500m Source: China Vehicle Environment Management Annual Report vehicles by 2030. To address the growing crude oil demand The Department of Atmospheric Environment Management from the automobile market, the Chinese government made a has released a document that shows that soot and vehicle big commitment to develop the EV industry several years ago. exhaust fumes from fast-growing vehicle population in China The Chinese government saw a window of opportunity in has contributed to air pollution. As shown in the chart below, green car development and launched the green initiative in some of the Chinese tier 1 cities have poor air quality in the 2009, when 13 cities were selective to pilot the electric car past three years. Shenzhen has a relatively low reading given program. Since then, there has been no turning back and the government’s strong promotion of EVs in the city. China became the largest EV market in the world in 2016. China PM2.5 index of major cities Under the Paris Agreement, China has also committed to reduce its carbon intensity to 60-65% by 2030 from 2005’s level of carbon emission. Part of the plan is to implement the 80 green car initiative vigorously. The rising number of vehicles on 70 the road has created a major environmental issue, especially in 60 tier 1 cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. As such, the governments in these cities have 50 imposed auto sales restrictions in place for several years already 40 to cap vehicle population growth. In addition, EV is highly 30 encouraged as part of the governments’ initiative to slow environmental pollution. 20 10 0 Beijing Shanghai Guangzhou Shenzhen Apr-16 Apr-17 Apr-18
Source: China National Environmental Monitoring Centre
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China: Proactive policy to accelerate EV development Latest EV subsidy scheme encourages technology upgrade.
Regulations and policies main tools to promote EV market From 2013 to 2017, the total subsidies on EVs amounted to development. Since 2009, the Chinese government has relied some Rmb50bn. In February 2018, the Chinese government heavily on various regulations and policies (carrot and stick released the latest subsidy scheme, which aims to encourage approach) to promote the EV market development. This carrot technology upgrades, shifting subsidies to the higher end of and stick approach in our view has successfully led to the EV market. Electric passenger cars must meet the minimum significant progress in the Chinese EV market. Since the start of driving range of 150km or above on a per charge basis to be EV development in 2009, the Chinese government has offered entitled for subsidy (100km previously). Also, the subsidies on generous financial incentives to electric car buyers. By the end electric passenger cars with driving range of 300km and above of 2017, there were approximately 1.2m electric cars in China, have been raised. making it the largest in the world.
New EV quota and carbon credit policy to accelerate EV 2018 electric car subsidy scheme development. The introduction of the EV dual credit policy (including meeting the minimum EV quota and carbon credit 2017 2018 scheme) in September 2017 signals another major subsidy subsidy Drive range (Rmb) (Rmb) % change transformation in the EV market. The latest electric car quota policy requires passenger vehicle manufacturers to generate EV Battery electric car credit points starting from 2019. Automakers are required to 100km ≤ R < 150km 20,000 0 -100% earn credit points from EVs, equivalent to 10% of the total 150km ≤ R < 200km 36,000 15,000 -58.3% passenger vehicles produced in 2019, and rising to 12% in 200km ≤ R < 250km 36,000 24,000 -33.3% 2020. 250km ≤ R < 300km 44,000 34,000 -22.7% Apart from the electric car quota policy, automakers have to 300km ≤ R < 400km 44,000 45,000 2.3% meet the stringent fuel standard policy. Based on the individual R ≥ 400km 44,000 50,000 13.6% gasoline car model, the automakers are required to generate sufficient carbon credits from meeting the minimum fuel Plug-in hybrid vehicle consumption standard. By 2020, they are required to meet the corporate average fuel consumption (CAFC) target of 5 litres R ≥ 50km 24,000 22,000 -8.3% per 100km (5L/100km), under a step-down system formally Note: R refers to drive range established in 2015. Meeting these two standards is a major Source: MIIT hurdle for the automakers. Based on 2017 sales statistics, To lift electric car battery technology, the government has also majority of the automakers have made only a small quantity of made changes to the battery density standard, as shown in the EV sales. Many automakers are lining up their EV pipelines to table below. So far, car batteries provided by the Chinese meet the EV quota that will be implemented in 2019. companies are entitled for subsidies.
CAFC becoming more stringent. China is moving to National Fuel Standard VI in phases as part of its effort to reduce CO2 EV subsidy based on battery density emissions. By 2020, the average fuel consumption target is Battery density Ratios 5L/100km (or 0.021 gallon per mile), as set out under the Corporate Average Fuel Efficiency Accounting Method for p < 105Wh/kg 0 Passenger Cars regulations released in March 2013. 105Wh/kg ≤ p < 120Wh/kg 0.6 120Wh/kg ≤ p < 140Wh/kg 1
Corporate Average Fuel Consumption policy 140Wh/kg ≤ R < 160Wh/kg 1.1
p ≥ 160Wh/kg 1.2 Ye a r Actual CAFC/target CAFC requirement 2016 134% Note: p refers to power density 2017 128% Source: MIIT EV purchase tax waiver extended to 2020. EV buyers will enjoy 2018 120% a 10% vehicle tax exemption until 2020. Assuming a 2019 110% Rmb200,000 price tag, the EV buyer will save about 2020 100% Rmb17,000 of purchase tax. The tax exemption covers battery Source: MIIT electric vehicles (BEV), plug-in hybrid vehicles (PHEV) and fuel cell vehicles (FCV).
Flexibility in usage and availability of licence plates. Tier 1 cities such as Beijing and Shanghai are providing EV car buyers with
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easier access to car plates and there is no restriction on EV China: EV sales projections usage during peak hours. As tier 1 cities are restricting the number of new licence plates each year, some buyers have Unit: 000 switched to EVs instead. 16,000 Huge potential in China’s EV industry 14,000
Huge investment poured in to develop EV market. The Chinese 12,000 government is making another big push into the EV market 10,000 with its latest policy announced in September 2017. Since the 8,000 EV initiative was first launched in 2009, the government has 6,000 poured over Rmb50bn into its EV industry, creating the largest EV market in the world in 2016. Sales of EVs soared from 4,000 about 2,000 units in 2009 to 777,000 units in 2017. Of this, 2,000 electric passenger and commercial vehicles comprised 0 75%/25% of the total EV market last year. To-date, China has
produced a total of approximately 1.7m units of EVs, including 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F both electric cars and buses. Source: CAAM; DBS HK Huge potential attracts tech companies to develop EVs. The huge potential in the electric car market has attracted some In 2017, Beijing Electric Vehicle Co topped the production list tech companies to venture into the Chinese EV market. New at over 100,000 units of electric cars, followed by BYD with start-ups such as NIO and Byton to launch their products in approximately 93,000 units. These two EV manufacturers are China. NIO has featured its first EV car, the ES8 model, in focused on the full size passenger car segment, while Zhejiang Shanghai recently. Also, following the government’s removing Geely Group produces mainly the small electric cars. the foreign ownership cap on EV companies this year, it should attract more players to enter the industry, such as Tesla. Electric vehicles productions by automakers Robust electric car market outlook. The EV penetration rate is still low in China, below 3% in 2017. Following the BAIC Group implementation of the new EV quota policy, the roll-out of EV BYD Auto models is expected to accelerate in the coming few years to Geely Group comply with the regulations as well as increase in proportion of SAIC Group energy efficient vehicles sales to meet the Corporate Average Zotye Auto Fuel Consumption (CAFC) target, which is getting more Jianghuai Auto Chery Auto Group stringent going forward. We estimate EV sales to reach 2m Dongfeng Group units in 2020 and by 2030, China’s EV sales are expected to Guangzhou Auto touch approximately 15m units, translating to penetration rate Great Wall Motor of around 33%. Huatai Auto Changan-Ford Auto FAW Group unit: 000 Changan Auto Group 0 20 40 60 80 100 120
Source: MIIT, Gasgoo
2017 automakers’ carbon credits ranking. Automakers unable to meet the credit points required would have to buy the credit points from the open market. This could increase the cost for these companies. For large automaker groups, they might be able to transfer some of the excess credits to business units within the group that are facing deficits.
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Chinese automakers’ credit points (2017) NEV sales in major Chinese cities
Units ('000) BYD Auto 70 SAIC 60 Zhejiang Geely Auto 50 Zhejiang Haoqing Auto 40 Cheery Auto 30 Beijing New Energy… 20 Changan Auto 10 FAW-VW 0 Jianghuai Auto Hefei Tainjin BAIC Beijing Qingdao Shanghai Shenzhen Changsha Hangzhou Chongqing Jiangling Motor Guangzhou FAW-Toyota BEV PHEV SAIC-GM-Wuling Source: CPCA BMW Brilliance Auto SAIC-GM Infrastructure network still lacking in China. Based on statistics SAIC-VW from China Electric Vehicle Charging Infrastructure Promotion GAC-Toytoa Alliance, at end 2017, there were 213,903 charging piles Beijing-Benz installed by the alliance members. These charging networks are GAC-FCA largely located in tier 1 and 2 cities. Including 231,820 Great Wall Motor charging points by private entities, total charging network in Changan-Ford China amounted to 445,723 units. This translates to an EV to charging point ratio of 4:1. Under the Chinese government’s -500,000 500,000 1,500,000 plan, the target is to have 4.8m charging points across China NEV credits Fuel consumption credits by 2020.
Source: MIIT Charging networks in major cities (2017)
EV supply chain Hubei Tianjin In China, electric car sales are highest in the tier 1 and 2 cities, largely due to auto sales restriction and limited supply of car Zhejiang plate licenses as the local government strives to cut car Hebei pollution. Buyers of electric cars have easier access to license Anhui plates, as the local governments want to promote the EV Shandong industry. Hence, Beijing, Shanghai, and Shenzhen were the top Jiangsu three on the 2017 EV sales list. Shanghai Guangdong Beijing units
0 10000 20000 30000 40000
Source: Government
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Energy source for EV. With an objective to ‘Make the skies blue 62% in 2016 and 60% in 2017, so China may very well again’, China has embarked on various policies to reduce the overshoot the target if this trajectory continues). Meanwhile, proportion of dirtier fuels in its energy mix, while boosting the China plans on ramping up usage of natural gas to 10% by usage of cleaner fuels. In particular, as part of the 13th Five- 2020 and 15% by 2030. Renewable energy percentage is also Year Energy Development Plan issued in January 2017 by the expected to increase from 13% in 2016 to 20% by 2030. NDRC and the NEA, a mandatory target was introduced for the first time for coal, with the aim of reducing its proportion of the energy mix to below 58% in 2020 (that number was about 2016 China energy mix 2030 China energy mix
Renewable Renewable s & Others s & Others 13% 20% Natural Gas 6%
Coal 50% Crude Oil Natural Gas 19% Coal 15% 62%
Crude Oil 15%
Source: BP Data Source: DBS Bank estimates
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New energy vehicle quota and fuel credit policy
NEV credit policy Fuel consumption credit policy i) The NEV credit policy is applicable to every passenger vehicle The fuel consumption credit policy is applied to passenger vehicle company in China which has a production volume or import volume makers and passenger vehicle importers in China. of over 30,000 units per year. ii) The required NEV credits in 2019 and 2020 are set at 10% and 12% Each PV maker is required to meet the fuel consumption target by of total volume production, respectively. Post 2020 NEV credit 2020. If actual fuel consumption is below the required fuel requirements will be announced at a later stage. The calculation of consumption standard, it creates a credit and vice versa. The fuel NEV credits is shown in the table below. consumption standard is based on the corporate average fuel consumption (CAFC) target multiplied by the CAFC ratio (see table below). The CAFC target is derived from the sales volume of every PV model and its fuel consumption target. iii) Automakers can use the excess NEV credits in 2020 to cover their Excess fuel consumption credits can be transferred within three deficit in 2019, or carry forward any excess credits in 2019 to 2020. years. Automakers unable to meet the NEV credit requirements by 2020, would have to purchase NEV points from the open market. iv) Excess credits can be transferred in full at 100%. The excess credits accumulated up till 2018 will be transferred at a 20% discount to cover the deficit in the earlier years; while credits generated post-2018 will be transferred at a 10% discount to cover the following years. V) NEV credits can be freely traded on the credit trading platform. Shortfall in fuel consumption credits can be offset by NEV credits. Companies with negative NEV credits should purchase NEV credits from the market to meet the requirement. Source: MIIT
NEV Credits calculation Corporate Average Fuel Consumption (CAFC) requirement
Actual CAFC/target CAFC Credits Max Year requirement NEV ty pe calculation credit Remark s 2016 134% Battery electric vehicle 0.012*R+0.8 5 R is the mileage of 2017 128% (BEV) BEV (unit km) HEV (Hybrid electric 2 2 2018 120% vehicle) 2019 110% FCV (Fuel cell vehicle) 0.16*P 5 P is the power of 2020 100% FCV (unit kW)
Note: R refers to drive range Source: MIIT Source: MIIT
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Detailed EV policies
Release Date Major Contents Feb-2018 Starting from August 2018, EV makers are required to set up centres to collect, process and recycle EV batteries. They may have to collaborate with battery companies and scrap operators to provide a proper channel for battery recycling. Feb-2018 Electric vehicle subsidies being adjusted down for the low-end EVs while the more advanced EVs will entitle to higher subsidy. Dec-2017 Waiver of 10% vehicle purchase tax on new energy vehicles (NEV) from 1 Jan 2018 till 31 Dec 2020. The NEVs (pure electric, plug-in hybrid and fuel cell) have to be approved by the government. Sep-2017 To implement a point-based system to car manufacturers with more than 30,000 traditional vehicles produced or imported. Credits will be given to all vehicles produced, with NEV getting higher points. By 2019 and 2020, car manufacturers are required to have at least 10 and 12 percent of credit score generated from NEVs. Sep-2017 To promote energy storage research, focus on tackling a number of key energy storage technologies and materials. Experiment on potential industrialised products, as well as improving energy storage products standard and quality assurance. Apr-2017 To develop new energy vehicles industry with technology breakthrough and enhanced industry facilitation. Target to produce 2 million new energy vehicles and achieve energy capacity of 300Wh/kg in single automotive batteries by 2020, as well as requiring new energy vehicles to account for 20% of all vehicles production and sales by 2025. Feb-2017 To develop the automotive batteries industry, including research and production of high quality lithium battery by 2018, industrialisation and new battery research by 2020, and revolutionary technology development by 2025. Jan-2017 To provide the definition for new energy vehicles, as well as the strengthening safety requirements, including manufacturing enterprises and products market access and legal responsibilities. Jan-2017 To kick-start the new energy vehicle batteries recycle pilot project, and establish a comprehensive automotive batteries recycle standard to enhance the re-use of batteries resources. Dec-2016 The 13th Five-Year Plan set the strategic direction for emerging industries growth and missions. The goal is a rapid expansion in the new energy vehicles industry and the establishment of a globally competitive vehicle batteries supply chain. Dec-2016 To update the requirement for NEV specifications (such as energy per 100 km driving range per full charge) for subsidy, provided the subsidy standard based on automotive battery cost and specification, and changed the subsidy payment from prepaid to yearly settlement. Nov-2016 To establish standard for the automotive vehicle battery industry. For example, lithium ion battery automotive battery manufacturers are required to have yearly production capacity of 8GWh. Jan-2016 To provide guidance on automotive batteries recycling technology development, requiring the establishment of coding system on automotive batteries and support upstream and downstream battery industry to achieve an orderly development on the industry. Sep-2015 To state the requirements for lithium ion battery industry, including production scale, technology, production specification, resources re-usage, environmental protection, safety management, health and social responsibility, and management supervision. Jun-2015 To play the role of market participant and support social capital and enterprises with technological innovation capacities in participating in the scientific research and production of pure electric passenger vehicles. May-2015 To reinforce the importance on new energy vehicles as a development area, providing continuous support on electric vehicles and fuel cell vehicles from parts to whole vehicles in order to establish Chinese brands competitiveness in the international market. Apr-2015 To continue the subsidy policy of promotion and application of new energy vehicles. The subsidy standards are mainly based on the effectiveness of energy conservation and emission reduction, and will gradually reduce, taking into account the production costs and economies of scale. Mar-2015 To regulate the automotive battery manufacturers including the requirements on production capability, technology, products, quality assurance, post-sales service and corporate management. Authorised automotive batteries manufacturer will be included in the official approved list. Mar-2015 To provide guidance on the development scale of new energy vehicles in the public transport industry. By 2020, NEV in public transport, taxis and lorries should reach 300,000 units. The infrastructure on NEV should also be established with high efficiency and safety. Jul-2014 To provide strategic direction on local government and corporate cooperation in order to develop a sustainable eco-system on new energy vehicles, and policies, including infrastructure network, new companies introduction and industry subsidy. Jan-2014 To adjust the subsidy standard on new energy vehicles, and ensure the sustainability of the industry after the current subsidy scheme ends. Sep-2013 To announce the continuous support on selected cities on the promotion of new energy vehicles, as well as the subsidy on NEV purchase. The subsidy is based on difference between NEV and traditional vehicle prices, as well as other factors such as technology advancement. Jun-2012 To establish a long term goal on the development on new energy vehicles. In particular, the industrialisation of pure electric vehicles and plug-in hybrid vehicles. Source: Government
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India: U-turn on full electric adoption by Lack of infrastructure support. India is no different from 2030 other countries in terms of lack of infrastructure support. For FY15-16 and FY16-17, the government has spent a Under the Automotive Mission Plan (AMP) 2026, the Indian total of US$4.5m on charging infrastructure for public automotive industry will be among the top three in the world buses. India has about 300+ public charging points as at in engineering, manufacture and export of vehicles and end of 2016, which is insufficient to support the EV components. The output value from the automobile industry in strategy. More funding is needed to encourage private car India is estimated to account for 12% of Gross Domestic owners to switch over to EV unless charging infrastructure Product (GDP) and generates some 65 million jobs for the at public places are being rolled out. The lack of charging population. stations is discouraging people from opting for EVs.
3. 2030 EV target 1. Fuel standard on emission cuts An ambitious target. A survey by the Society of Cleaner vehicle fuel as an interim solution. The Modi Manufacturers of Electric Vehicles (SMEV) shows that government has announced various measures to curb these five states in India are top in terms of retail of vehicular pollution. The Bharat Stage (BS) IV fuel emission electric vehicles - Gujarat, West Bengal, Uttar Pradesh, standard came into effect on 1 April 2017 for all new Rajasthan and Maharashtra. Around 25,000 EVs were sold four-wheelers sold in the country. The Indian government in the country in FY2016-17 and these five states is taking a firm stand and will jump from BS IV emission to accounted for about 14,000 EVs, or c.56% of the total. In BS VI by 2020. India, about 90% of the EVs sold are 2-wheelers and the balance 4-wheelers. Under NEMMP, the Indian 2. Policies and incentives on EV development government intends to achieve an EV population of 6-7 U-turn on full electric strategy by 2030. The Indian million (including hybrids) by 2020. government had earlier set an ambitious goal to convert Therefore, the government’s mission to go fully electric by all vehicles to electric and hybrid by 2030, in an effort to 2030 is a big challenge for the industry. Perhaps, the curb vehicular pollution. But in February 2018, the Indian immediate action is to bring forth more investments on government made a U-turn against formulating an EV infrastructure network. policy. Instead, certain action plans will remain to move the country towards 30% electrification by 2030. To push for EV adoption, the Delhi government plans to buy electric and hybrid vehicles for the central government EVs incentives ministries as well as public transport. To encourage the private sector participation, the Indian government has FAME II Allocated subsidy rolled out policies and incentive schemes to support the Electric buses US$370m industry development. 4-wheelers US$150m 3-wheelers US$110m Policies and incentive schemes. There are two major 2-wheelers US$90m policies – National Electric Mobility Mission Plan (NEMMP) Source: FAME and Fast Adoption and Manufacturing of Electric Vehicles (FAME) – and both aim at accelerating the electric car market development. Under the NEMMP that was unveiled in 2013, the Indian government intends to have approximately 6-7 million electric vehicles (including hybrid) by 2020. FAME was implemented on 1 April 2015 and under the Phase II implementation (effective from 1 April 2018), the government will spend US$1.3bn (Rs 8,730 crores) to provide support to EV buyers. For electric 4-wheelers, FAME II has allocated US$150m; electric buses US$370m; 2-wheelers US$90m; and 3-wheelers US$110m. As FAME also provides support for the EV eco-system, electric vehicle components manufacturers also stand to benefit from the scheme. FAME II is valid till 2020. Under FAME Phase I, the Indian government has set aside an annual budget to subsidise EV purchases. In 2017-18, US$26m has been allotted for this purpose.
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South Korea: EV market still in an early 2018, EV sales volume surged in 2017 as consumers wanted to stage but has huge potential buy EVs before 2018. Meanwhile, due to the heated competition for EV purchase grants, EV purchase reservations Accelerating EV market growth but still small exceeded the limit of 20k units even before the end of January 2018, indicating consumers’ increased interest in EVs. This led Rapid growth of Korea’s EV market in 2017, driven by to the government providing EV purchase grants for additional increased EV incentives from government. The number of EVs 8k units through a supplementary budget. sold in Korea amounted to 14k units in 2017, up 130% y-o-y. This satisfies the target set by the Korean government in early Korean EV market is still small, below the government’s goal. It 2017 (14k units), and is equivalent to 0.8% of newly-registered is true that monthly EV sales volume has increased to c.1.5k vehicles. Until 2016, annual EV sales had failed to meet the units since 2H17, but cumulative sales volume indicates that distribution target, but the pace of EV distribution has now the Korean EV market is still small. Until 2017, a total of 26k accelerated, attributable to the government’s increased units of EVs (PHEV + BEV + FCEV) had been sold in Korea, financial incentives for EV purchases. In 2016, the government which is just 1.1% of registered vehicles as of end-2017 provided EV purchase subsidies to 5k units of EVs, and the (22.53m units) and a far cry from the government’s EV number increased to 16k units in 2017. Also, the number of distribution target of 46k units. If this trend continues, the local governments providing EV purchase grants rose sharply target of 250k units by 2020 seems difficult to reach. from 31 in 2016 to 101 in 2017.
Consumers reacting sensitively to government’s EV support policies. With i) EV purchase grant per vehicle set to decline from KRW14m in 2017 to KRW12m in 2018 and ii) only 20k units of EVs (lower than expected) set to receive the grant in
Annual EV (PHEV+EV+FCEV) sales volume in Korea
Maker/Brand Mode l 2014 2015 2016 '17/01 '17/02 '17/03 '17/04 '17/05 '17/06 '17/07 '17/08 '17/09 '17/10 '17/11 '17/12 2017 '18/01 '18/02 '18/03 Audi Audi A3 PHEV 0 0 35 0 Porsche Panamera PHEV 0 3 0 0 Porsche 918 PHEV 0 3 0 0 Porsche Cayenne PHEV 0 12 19 0 Toyota Prius PHEV 0 0 0 17 6 8 12 3 11 3 4 3 67 3 6 5 Chevrolet Volt PHEV 0 0 40 0 27 10 16 7 60 0 0 0 Hyundai Ioniq PHEV 0 0 0 0 5 11 0 Hyundai Sonata PHEV 0 128 117 4 5 6 9 9 1 3 7 3 4 2 53 1 4 4 Kia K5 PHEV 0 0 0 1 2 1 2 2 8 2 0 3 Kia NIRO PHEV 0 0 0 2 39 58 37 25 17 22 25 225 27 12 43 Mercedes-Benz GLC PHEV 0 0 0 0 0 0 0 BMW i8 PHEV 0 127 70 1 5 6 2 5 2 10 4 10 45 78 10 22 BMW X5 PHEV 0 0 0 8 8 25 11 1 Plug-in Hybrid Subtotal 0 273 281 5 37 22 44 25 47 73 49 45 33 36 50 466 141 54 78 Hyundai Nexo FCV 0 0 0 0 11 Hyundai Tucson (ix35) FCV 0 0 80 5 9 1 6 18 10 4 1 7 61 17 0 0 Hydrogen Fuel Cell EV Subtotal 0 0 80 5 0 9 1 6 18 10 4 1 0 7 0 61 17 0 11 GM Spark EV 70 151 100 0 5 5 GM Bolt EV 0 0 0 121 120 39 55 57 24 41 82 24 563 0 5 160 Nissan Leaf EV 16 100 88 26 5 13 1 2 47 Renault Twizy EV 0 0 14 1 5 100 153 432 691 1 50 399 Renault Samsung SM3 EV 309 1,043 623 39 56 55 85 69 100 209 356 266 334 309 136 2,014 9 64 88 Hyundai Ioniq EV 0 0 3,749 255 304 732 607 517 524 810 959 846 649 961 768 7,932 1,086 949 886 Kia Ray EV 202 198 81 3 5 1 10 9 6 4 4 5 47 5 2 Kia Soul EV 414 1,166 729 37 116 86 49 138 206 121 117 259 161 663 98 2,051 7 97 215 BMW BMW i3 EV 170 367 369 8 3 91 51 23 15 191 2 10 3 Battery EV Subtotal 1,181 3,025 5,753 369 486 874 862 854 972 1,371 1,499 1,494 1,240 2,042 1,478 13,541 1,105 1,180 1,753 Gra nd Tota l 1,181 3,298 6,114 379 523 905 907 885 1,037 1,454 1,552 1,540 1,273 2,085 1,528 14,068 1,263 1,234 1,842 y-y growth 65% 179% 85% 673% 607% 499% 220% 292% 293% 111% 247% 343% 99% 44% 2% 130% 233% 136% 104%
Note: The table is based on factory shipment data, and may be different from actual retail sales data Source: Marklines, KTB Investment & Securities
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Number of EVs in Korea (until Mar 2018) and the South Korea EV policies, not harmonised and yet proactive government’s goals Korea’s EV purchase incentives are the world’s highest. Among (units, various EV promotion policies, purchase incentives, i.e. cumulative) purchase grants, are known to be the most effective. In Korea, 300,000 the central government provides a grant of KRW7m-12m for 250,000 an EV purchase depending on types of cars, and local governments provide an additional KRW4m-11m (as of 2018). 200,000 A subsidy of up to KRW23m can be provided depending on 150,000 the region and type of car, although only a small number of EV purchases would be eligible for the subsidy. Korea’s EV 100,000 purchase grants, along with those in Norway, are the world’s 50,000 highest (above US$10,000).
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 PHEV BEV FCEV Gov'ts Goal
Note: The table is based on factory shipment data, and may be different from actual retail sales data Source: Marklines, KTB Investment & Securities
EV purchase grant policies in Korea in 2018 (unit: KRW’000)
Central government's grants Local governments' grants (varies by type of cars) (varies by region)
Hyundai Kona EV (basic) 12,000 Seoul 5,000 Hyundai Kona EV (economic) 12,000 Busan 5,000 Hyundai Ioniq (18, HP) 11,260 Daegu 6,000 Hyundai Ioniq (18, PTC) 11,190 Incheon 6,000 Hyundai Ioniq (`17) N, Q trim 11,270 Gwangju 7,000 Hyundai Ioniq (`17) I trim 11,190 Daejeon 7,000 Kia Soul EV (18, PTC) 10,270 Ulsan 5,000 Kia Soul EV (`18) 10,440 Sejong 7,000 Kia Ray EV 7,060 Gyeonggi Province 5,000 Renault Samsung SM3 Z.E (`18) 10,170 Gangwon Province 6,400 Renault Samsung SM3 Z.E (`17) 8,390 North Chungcheong Province 800~1000 BMW i3 94ah (`18) 10,910 South Chungcheong Province 800~1000 BMW i3 (`17) 8,070 North Jeolla Province 6,000 Nissan Leaf 8,490 South Jeolla Province 440~1100 GM Bolt EV 12,000 North Gyeongsang Province 600~1000 Tesla Model P 100D 12,000 South Gyeongsang Province 600~900 Tesla Model S 75D 12,000 Jeju Province 6,000 Tesla Model S 90D 12,000 Tesla Model S 100D 12,000
Source: The Ministry of Environment, KTB Investment & Securities
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Shortage of EV infrastructure hindering EV distribution. In Therefore, we believe that its aggressive moves in promoting Norway, EVs account for over 25% of the car market thanks to EV distribution are for securing dominance in the EV market. the government’s active supports, including financial Battery companies, rather than carmakers, have the hegemony incentives. However, in Korea, the percentage is a mere 1%. over production of EVs that do not require engines and This is because the Korean government has been passive in powertrains, and thus the capability to source various materials establishing EV charging infrastructure so far, and there have is critical. This is why China has been aggressive in securing been a lack of incentives to lure consumers into EVs other than metals such as cobalt, lithium, and other resources. However, purchase grants. As of end-January 2018, public EV charging Korea is already a powerhouse in terms of finished cars, and stations in Korea amounted to 3,404. While this is quadruple production of internal-combustion vehicles contribute a great the number tallied last year (849), it is still not enough for the deal to the national economy, especially to employment. EV population in Korea (26k units in cumulative terms). Korea’s self-sufficiency rate for secondary battery-related Currently, a total of 5,773 chargers (2,369 slow chargers, resources is not high. As such, Korea shows weaker initiative in 2,495 fast chargers) are in operation, which equates to one EV policies and lower EV penetration compared to other charger per 4.5 EVs. Moreover, considering that some charging countries. stations are used by government cars or internal-combustion cars as their parking spaces, the number of EV chargers Huge potential for Korea EV backed by strong IT sector. actually in service would be even lower. Korean carmakers’ strategies to deal with the EV era: Beyond Why the Korean government is not aggressive in increasing EV BEV. Korean automakers are not posting high sales numbers in penetration. The government ministries are showing mixed pure EVs, but are doing well in the eco-friendly car markets stances towards EV subsidies: The Ministry of Environment of (including hybrid cars). According to IHS Markit, Hyundai Korea initially set the EV purchase grant quota for 2018 at 30k Motor/Kia Motors ranked 2nd in the eco-friendly car market in units, but due to opposition from the Ministry of Strategy and terms of sales volume in 1H17. Hyundai Motor Group has Finance, the quota was eventually set at 20k units. Moreover, recently announced its goal to increase BEV models from two there is no comprehensive control tower for EV policies. We to 14 by 2025 and to become the third-largest EV maker in the think that there are not enough incentives to encourage the world. Korean government to be more aggressive in EV penetration. What drive EV distribution and expansion policies are mainly Hyundai Motor is the only global carmaker to produce mass- two factors, as follows. production models for four types of green cars (hybrid vehicles, plug-in hybrid vehicles, electric vehicles, hydrogen fuel cell First, reducing greenhouse gas emissions? In the case of vehicles). Currently, only Hyundai Motor, Toyota, and Honda Norway, where renewable energy makes up 98% of energy produce hydrogen fuel cell vehicles. Toyota is expected to source, the government is aggressive in increasing EV launch its first all-electric vehicle in 2019, Honda to launch its penetration in line with its policy to wean away from oil. first plug-in hydrogen-powered hybrid EV in 2018. Hyundai However, Korea is heavily reliant on fossil fuels, with renewable and Kia plan to release a diverse range of eco-friendly cars, energy accounting for less than 8% of its power mix. launching 10 hybrid models, 11 plug-in hybrid models, eight Therefore, any increase in EV sales in Korea would mean higher EV models, and two hydrogen fuel cell car models until 2020. demand for electricity generated from thermal power plants, thus not amounting to an eco-friendly solution. As such, the Contrary to Tesla and Chinese automakers who are focusing argument that promoting EV penetration is good for the on EVs, Hyundai thinks that the most advanced form of eco- environment is not very convincing in Korea. friendly vehicles is hydrogen fuel cell vehicle and is making substantial investments to popularise them, while also Second, securing competitive edge in the future car industry? expanding its EV line-ups. Hyundai’s extensive green-car In the case of China, considering that coal makes up more than strategy may seem somewhat behind the industry’s moves 70% of China’s power generation mix, its active support for EV towards EVs. There are also concerns that diversified market growth is not intended for improving the environment. investments could lead to weak marketability for its individual Up until now, China has failed to have the upper hand in green-car model, a lagging response to industrial changes, or competition for internal-combustion vehicle production. an excessive investment overlap.
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Hyundai Motor Group’s eco-friendly vehicle roadmap Korea to benefit from EV market growth, supported by its strengths in the IT industry. EVs use 20% fewer components 2016 2020 than internal-combustion vehicles, and half of them would be HEV 6 models Sonata, 10 models To develop EVs with the automotive-electronics components. The EV market, in turn, Grandeur, best fuel economy will be a blue ocean for the semiconductor and electronic parts Ioniq, K5, industries. The roles of internal combustion engine parts will be K7, Niro replaced by motors, motor components, and motor controlling devices. Almost all major components such as electric current PHEV 2 models Sonata, K5 8 models To expand line-ups to mid- controllers, batteries, battery chargers, and auxiliary power size cars beginning with supply will require semiconductors. Applying self-driving 2015 Sonata PHEV BEV 3 models Ioniq, Soul, 7 models To develop EVs with function to EVs would also require more semiconductors to Ray higher milage on one enable driving information input/output and sensors. Vehicles charge, will increasingly adopt IT technologies like IoT (Internet of to increase next-generation Things) and transform into smart cars. Against this backdrop, battery research Korean IT companies are expected to benefit from the growth to release an EV with a of EVs in the long term. Some companies have already been milage over 300km in 2018 preparing for such EV expansion, and LG Electronics is the most advanced among them.
F CEV 1 model Tucson 3 models To develop next- generation fuel cell cars LGE Vehicle Component Revenue Trends
Source: Hyundai Motor, Kia Motors, KTB Investment & Securities (KRW bn) (%) 0.0568290 4,000 65 6% Hyundai Motor Group’s EV Launch Plan 3,500 5% 3,000 0.05 (no. of 4% models) 2,500 40 2 2,000 0.032 3% 35 1,500 2% 30 14 1,000 25 1% 500 20 0 0 0% 11 15 1 2014 2015 2016 2017 10 2 4 5 10 Revenue Revenue share (R) 6 0 2017 2025F Source: LG Electronics, KTB Investment & Securities
HEV PHEV BEV FCEV
Source: Hyundai Motor, Kia Motors, KTB Investment & Securities
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Oil sector – EV unlikely a demand shock Transport energy consumption by fuel type
Transport end-use sector is a major component of global MTOE energy demand. The industrial sector has been the biggest 3,000 consumer of energy over the last five decades, as can be seen 2,500 below, with a share of almost 50% to begin with, but the share of transport in the energy consumption pie has increased 2,000 from about 17% in 1970 to around 20% currently. The increasing prosperity in developing economies has been the 1,500 major driver for this, as the demand for transport has increased 1,000 manifold. Demand for both passenger and freight services has fuelled an increase in energy demand of close to 2.5% CAGR 500 since 1970 from the transport sector. 0 2000 2005 2010 2015 Primary Energy Consumption by end-use sector Oil Gas Electricity Other*
MTOE * includes bio-fuels, gas-to-liquids, coal-to-liquids, hydrogen 16,000 Source: BP Energy Outlook 2018, DBS Bank 14,000 Contribution to incremental energy demand over 2000- 12,000 2015 10,000 OECD 8,000 10% 6,000 4,000 2,000 - Other Non- 1970 1980 1990 2000 2010 2020 OECD China Industry* Non-combusted Buildings Transport 51% 31%
* Industry excludes non-combusted use of fuels Source: BP Energy Outlook 2018, DBS Bank
India Transport sector energy demand has been dominated by oil. 8% Energy sources for meeting demand from the transport sector, typically passenger vehicles, trucks, aviation, marine and rail, Source: BP Energy Outlook 2018, DBS Bank have been dominated by oil almost completely till the start of the 21st century, before the emergence of concerns over emissions that sparked the move towards cleaner options. Conversely, for oil, demand from transport sector makes up However, while the proportion of oil-powered transportation the majority of demand. As of 2015, BP estimates that close to has fallen from around 98% in 2000 to around 92% currently, 56% of oil demand is driven by transportation – which includes oil is still clearly the dominant fuel and electricity, as a power cars, trucks, and non-road transport (aviation, marine and rail). source, has not made much of a dent on oil’s dominance for Around 13% in used in industry, 15% as feedstock for now. The use of gas has picked up, though again not petrochemicals, 11% for buildings (heating) and 5% for power presenting much of a challenge to oil yet. As the adoption of generation. We do not expect demand from the trucks or electric vehicles increases over the next 10-15 years, this is aviation, marine, rail segments to be significantly affected by likely to change, especially as much of the increase in electric the electrification of vehicles, hence the cars segment or vehicle adoption is likely to be in China, which has been one of around 20% of oil demand will be vulnerable to the rise of the key drivers of transport energy demand over the last 15 electric vehicles, in our opinion. years.
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Contribution to demand for liquid fuels (oil and and hence, their share of the pie has been increasing. Demand condensates) from industry and buildings is largely flattish, while demand growth from the power generation sector has been negative, Industry owing to the high costs involved, and the increasing use of Cars 13% 21% natural gas.
Non- Strong growth in EV unit sales expected. Our autos analyst combusted Rachel Miu expects global EV yearly unit sales to grow from 15% c.1.26m units in 2016 to over 26m units in 2030, representing an almost 15x increase in yearly sales volumes. Much of the increase in sales will come from Asia, with China in particular Trucks Buildings being the dominant driving force, pun intended. 23% 11% Power EV impact to oil demand: 6% of annual oil demand could Aviation, 5% disappear by 2030. We estimate EVs will absorb c.285mtoe or Marine, Rail around 5.3mmbpd of oil demand by 2030, which represents 12% around 6% of the total demand for oil in that year, assuming that EVs were non-existent. That is not insignificant, but when Source: BP Energy Outlook 2018, DBS Bank you consider that global energy intensity is expected to improve every year from 2017 till 2030 – we expect a global energy demand CAGR of 1.7% compared to global GDP Demand from cars and trucks the highest growth drivers for growth of 3.2% over the same timeframe – we believe that oil. While global oil demand has risen at a CAGR of around changes in energy intensity trends and policies are as or more 1.4% over the last 15 years, demand from cars and trucks have important than sales of EVs, which tend to dominate news been rising faster at CAGRs of 2.5% and 2.0%, respectively, headlines with regard to future oil and energy demand.
Impact of Electric Vehicles on oil demand
(mtoe) 350.0 7.00%
300.0 6.00%
250.0 5.00%
200.0 4.00% 150.0 3.00%
100.0 2.00% 50.0 1.00%
0.0 0.00% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Oil demand impact from EVs: EV detraction from oil demand as a % of total demand
Source: DBS Bank forecasts
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Energy intensity trends are very important in determining oil expected to continue in the future and we believe will be a demand. Energy intensity is defined as the primary energy bigger driver for oil demand than the evolution of electric consumed per unit of GDP. A diverse number of factors can vehicles. In our estimation, oil demand from passenger vehicles influence energy intensity, including a secular shift away from will be flattish or slightly lower in 2030 than the reference energy-intensive industries in certain countries, technology 2016 levels of 18.7mmbpd (BP Energy Outlook data). improvement and evolution (e.g. the proliferation of smart meters, which enables more accurate control of consumption; Fuel economy of new cars or a shift to electric vehicles, which are more energy efficient), government policies and so on. Energy intensity has declined at a CAGR of 1.55% from 1990-2015 (based on World Bank Litres/100 Data), with that number accelerating to 2.4% from 2010- 10.0 km 2015, led by the middle- and high-income countries, and 9.0 notably China and Japan, which are two of the top 10 8.0 consumers of energy, and saw their energy intensity decline by 7.0 23% and 21%, respectively, over that 5-year period. Numbers 6.0 by the IEA indicate 2016 saw a further 1.8% decline in energy 5.0 intensity globally; that is US$2.2tr when translated to dollar- 4.0 3.0 savings – a sizeable figure. There is a similar trend in growth of 2.0 consumption of oil vis-à-vis global economic growth, and this 1.0 will increasingly be felt for passenger vehicles’ oil consumption, 0.0 which has been the key driver of oil demand in recent years, as 2000 2005 2010 2015 2020 2025 2030 highlighted earlier. EU China USA
Increasing fuel efficiencies of passenger vehicles will be a Source: BP Energy Outlook 2018, DBS Bank limiting factor for oil demand. Fuel efficiencies of cars have been improving in developed countries, especially the EU, with its tougher emission norms, as can be seen below. This trend is Oil demand from cars forecast to 2030 (all numbers in mmbpd)
2016 oil demand from Growth in demand for Tightening in vehicle Impact from switch to 2030 oil demand from cars travel till 2030 efficiency standards EVs cars 18.7 10.8 6.1 5.3 18.1
Source: BP Energy Outlook 2018, DBS Bank estimates
Thus, overall, we are projecting oil demand to be growing Global crude oil demand forecast quite slowly till 2030. Despite the impact on oil demand from cars/passenger vehicles owing to improving efficiencies, and (mtoe) shared mobility and electric vehicles, we must remember that 4,600 this accounts for only 21% of global oil demand and other drivers of oil demand – trucks, aviation, marine, rail and 4,500 petrochemicals – will continue to grow as the global economy 4,400 expands over time. India, for one, will be a bright spot for oil demand, and we see significant additions to oil demand from 4,300 India, on the back of the strong growth in energy demand as 4,200 its economy grows at a clip of close to 6% from 2017-2030, while efficiency gains remain modest. In addition, India’s Draft 4,100 National Energy Policy (2017) – which lays out the expected 4,000 energy mix until 2040 – actually sees oil assuming an
increasing role in the energy mix (from 24.5% in 2012 to 2013 2014 2015 2016 26.8% in 2040). Thus, we see slow growth in overall oil 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F demand, with no signs of decline or plateauing in the 2030 timeframe. Peak oil demand cannot be ruled out in the 2030- Source: BP Energy Outlook 2018, DBS Bank Forecasts 40 timeframe though.
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Demand growth being muted; supply will be the key eventually, though we were initially expecting 2017 capex to determinant for oil prices in medium to long term. We do not remain flat. In 2018, projections from global oil majors point to expect a huge spurt in oil demand growth over the 2030 only minor increases in capex – low single-digit growth, which timeframe, as explained above. Neither do we expect a is not exciting. In any case, we do not expect oil capex levels to demand shock from electric vehicles as the evolution, growth recover back to the highs seen in the 2012-14 timeframe and adoption of electric vehicles is unlikely to be an overnight anytime soon. This represents quite an unprecedented period phenomenon which would suddenly wipe out a couple of of low capex compared to the years preceding 2014, when oil million barrels of oil demand from the world. Thus, restraints or & gas capex grew at a CAGR of 12% between 2000 and 2014 constraints in supply as a result of industry investment trends for an almost five-fold increase. and geopolitics will be the major factor in determining oil prices in the future. As a result, industry consultant Wood Mackenzie believes close to US$1tr of capex meant for 2015-2020 timeline has been In the near term, we expect 2018 Brent crude oil price to taken out of the system so far, since the oil price crash of average in the range of US$70-75/bbl and our 2019 average 2014, and while project sanctions activities are seen to be forecast for Brent is slightly lower at around US$65-70/bbl, as picking up now, all the deferrals will mean that more than we expect some moderation from increasing US shale supplies 3mmbpd of supply that was supposed to come onstream by as well as a gradual exit from the OPEC production cuts in 2020 will now only come in the years after that. This will help 2019. Given that OPEC and its allies are likely to raise the supply-demand equation in the medium to long term. Also, production caps in its latest Vienna meeting to offset losses the need to develop oil production in more expensive areas – from Venezuela and Iran, we are unlikely to see supply as the most expensive last barrel may need to be called upon shortages in the near term, which could lead to the to meet incremental demand – will continue to support oil moderation of oil prices back to US$70/bbl levels, in our view. prices. According to estimates from independent oil & gas consultancy Rystad Energy, the marginal sources of supply in Longer-term forecasts remain sanguine owing to huge 2020 will be currently non-producing shale fields (new shale) underinvestment over 2014-18. Capex budgets worldwide and oil sands, with a weighted average breakeven price of have been cut substantially since the onset of the 2014 oil around US$63-66/bbl. Imputing some cost inflation to these price collapse. Capex budgets for 2015 and 2016 declined by numbers, we peg our longer-term oil price forecast to around an average of about 25% each year across our sample of super US$65-70/bbl. oil majors, and even 2017 saw around 10% decline in capex
Brent Crude oil price – DBS view
(US$ per barrel) 2013 2014 2015 2016 2017 2018F 2019F Average Brent crude oil price 109 99 54 45 55 70-75 65-70 Long-term Brent crude oil price 65-70
Source: Bloomberg Finance L.P., DBS Bank Forecasts
2016 Global energy mix 2030 Global energy mix
Renewable Renewable Coal s & Others Coal s & Others 25% 15% 28% 22%
Natural Gas 24%
Natural Gas 26% Crude Oil Crude Oil 27% 33%
Source: BP Data Source: DBS Bank estimates
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Metals sector: Key beneficiary from the EV requirement to reduce air pollutant emissions is not applicable growth to EVs.
Substantial impact on demand and prices expected Impact on metal demand:
Strong and positive impact on metal prices already being seen. Batteries Non-batteries The development of electric vehicle (EV) industry is set to Positive Lithium Aluminum substantially impact the metal market. In recent years, EV has Cobalt Copper been one of the most discussed topic in the metal market, Nickel triggering bullish sentiments for related metals. More Copper specifically, the price of lithium – the key raw material for Lead* lithium-ion batteries, has more than doubled (+135%) since Negative Platinum Steel the beginning of 2016. Similarly, cobalt prices have also Palladium explosively grown by more than triple (+278%) during the *Positive for near term but negative over the long term. same period, due to its importance in the manufacture of Source: DBS Bank batteries and expected growth in global EV market. Copper: demand growth powered by EV, from battery to infrastructure LME Cobalt price & Lithium price index More copper consumption along with more electricity (US$/to (pt) usage 100,000 300 Copper, batteries and the growing EV market. Copper, the 90,000 250 irreplaceable metal for electric conductivity, will enjoy greater 80,000 demand than ever in the production of EVs. This is because 70,000 200 EVs, which use an electric motor powered by batteries or fuel 60,000 cells, require more copper in their manufacture than the 50,000 150 conventional internal combustion engine vehicles (ICEVs), 40,000 which are powered by gasoline or diesel. The greater the 100 reliance on electricity, the more copper is needed to make the 30,000 vehicle. So, a battery-operated vehicle (BEV), which operates 20,000 50 exclusively on battery power, requires more copper than a 12.1 13.1 14.1 15.1 16.1 17.1 18.1 plugged-in hybrid electric vehicle (PHEV), which has a battery LME COBALT SPOT ($) Lithium Price Index that can be recharged by plugging into an external electric power source and also operates on gasoline or diesel. Among Source: Bloomberg Finance L.P., DBS Bank BEVs, buses would use up more copper than cars as they need bigger batteries to run.
BEVs consume four times more copper than ICEVs. According What are the winning and losing metals? We break down our to research commissioned by the International Copper analysis of the EV’s impact on metal market into two broad Association (ICA), EVs require a substantial amount of copper parts; metal demand arising from i) batteries and ii) non- in their batteries, windings and copper rotors used in their battery parts, the car chassis as well as the infrastructure electric motors, and in wiring, busbars and the charging needed in a scenario of full-fledged adoption of EVs globally. infrastructure. It takes 83kg of copper to make one BEV, and The biggest beneficiaries should be the metals used in batteries 40kg to make one HEV, which is four and two times including lithium, cobalt, nickel and copper. Meanwhile, steel respectively the amount required for an ICEV. The BEV battery will face a negative impact because of car body lightening, and pack alone contains 40kg of copper (half of its total copper platinum and palladium would see lower demand as the content) and is the single biggest component of copper consumption.
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Copper demand in EV
(k tons) 2,500 7.0% 6.0% 2,000 5.0% 1,500 4.0%
1,000 3.0% 2.0% 500 1.0% 0 0.0% 15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F Ebus hybrid (LHS) Ebus BEV (LHS) Car HEV (LHS) Car BEV (LHS) Car PHEV (LHS) Contribution to total copper demand((RHS)
Source: ICA; IDTechEX; BYD, DBS Bank
Copper usage per unit of car by component EVs, we also expect copper usage associated with infrastructure. First, each 3.3kW charger will add 0.7kg of Ebus Ebus (k g) ICEV HEV PHEV BEV copper demand with fast chargers, say a 200kW one, adding Hy brid BEV up to 8kg of copper each. On top of that, copper will be Battery 1.0 22.0 40.0 12.0 292.0 needed in power generation and grid infrastructure, and grid Inv erter 0.3 0.3 0.3 1.0 1.0 storage and charging infrastructure. Copper consumption in Electric Motor 5.0 5.0 9.9 20.0 20.0 HV Wire 5.0 5.0 5.0 11.0 11.0 these areas, although negligible in the early stages, is set to Others 5.0 5.0 5.0 5.0 5.0 5.0 grow strongly as EVs become more popular. According to LV Wire 18.0 23.0 23.0 23.0 40.0 40.0 industry experts, copper demand from EV infrastructure is likely T otal 23.0 39.3 60.3 83.2 89.0 369.0 to register 29% growth during 2020-30, with share of Source: Copper Alliance, IDTechEX; BYD, DBS Bank consumption expanding to 37% in 2030 from 29% in 2020.
Copper demand from EV to drive long term growth. Car body materials: Light weighting matters
Contribution of copper demand from EVs to rise to 6.6% in Lightweighting is rising in importance for EVs as the current 2030 from 0.9% in 2017. Based on our EV forecasts, we technology has limitations in driving range per charge because project that copper demand from EVs will rise from 208,000 batteries are still heavy. A lighter body would allow a vehicle to tons in 2017 to 1.91m tons in 2030, up 19% annually. Copper travel further on less power; generally, a 10% drop in vehicle demand from EVs is estimated to make up 8.2% of total weight leads to an 8% improvement in fuel economy. copper consumed in 2017 by 2030, up from an estimated 0.9% in 2017. For next five years, copper demand from EVs will register the strongest growth of 29% in CAGR, in line with our EV forecasts. In 2022, copper usage in EVs should contribute to 2.3% of total copper demand. In our pessimistic scenario, we have factored in the possibility of oil prices staying low and leading to slower adoption of EVs globally. We assume that HEVs’ contribution in terms of unit sales to the total HEV and EV market will gradually fall to 49% in 2030 from 64% in 2017. Where EVs’ contribution exceeds this premise, we expect a positive impact on copper demand.
EV infrastructure an additional spur to copper demand growth. Outside of the copper demand projections based on usage in
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Steel – intensifying competition but to remain as key Appealing to automakers as the lowest-cost option. Besides, autobody material steel boasts price competitiveness against other materials; to reduce 1kg of weight in car body and applications, it is Auto manufacturers’ efforts in lightweighting vehicles are estimated that AHSS would cost c.US$2-2.5, lower than the generally viewed as negative for steel, as they will continue to US$3-6 for aluminum alloys, US$5-12 for magnesium and explore alternative materials such as aluminium, magnesium US$16 or higher for carbon fibre. Especially amid the EV and carbon fibre. makers’ concerns over cost savings, steel will likely remain in Steel is fighting back with new and better products. However, demand as part of the material mix for vehicles. we expect continuous demand for steel in the auto sector, on the back of i) new steel products with high strength being Aluminium – the lighter the better developed to meet automakers’ requirements, and ii) steel’s Apart from steel, aluminium also appeals to automakers as an price competitiveness against other materials. Steel makers alternative car body material for its lightweight property vs. have been working to improve products; AK Steel, together steel, which allows cars to travel further on less power. with General Motors, are trying to use nanotechnology to Aluminium producers such as Alcoa, Novelis and Aleris, have make lightweight vehicle bodies, and ArcelorMittal and Tata developed aluminium alloys that are stronger than steel, at Steel Europe are also developing lighter, stronger alloys to fend only about one-third the weight. Aluminium producers are off the competition. Advanced high-strength steel (AHSS) is boosting capacity to meet the rising demand. not only lightweight but also engineered specifically to meet the stringent safety regulations, emission reduction and solid performance for use in vehicles.
ASIAN INSIGHTS Page 34 Asian Insights SparX Regional Automobile Sector
Automakers peer valuation
Mk t PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE ROE Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F Company Name Code Currency Local$ US$m Yr x x % % x x x x % % Hong Kong Guangzhou Automobile Gp. 'H' 2238 HK HKD 7.04 13,917 Dec 4.4 3.9 6.7 7.6 0.7 0.6 6.3 5.5 17.4 17.4 Sinotruk (Hong Kong) 3808 HK HKD 11.66 4,119 Dec 8.6 9.0 6.0 5.7 1.1 1.1 3.4 3.5 13.4 12.0 Dongfeng Motor Gp.'H'* 489 HK HKD 7.73 8,521 Dec 3.9 3.6 3.5 3.5 0.5 0.4 2.0 1.9 12.6 12.2 Brilliance China* 1114 HK HKD 11.4 7,358 Dec 7.0 5.7 1.1 1.4 1.5 1.2 7.7 5.9 23.2 22.7 Great Wall Motor Co.'H'* 2333 HK HKD 5.24 10,401 Dec 5.1 4.3 5.9 7.0 0.7 0.6 3.2 2.7 14.8 15.6 BYD 'H'* 1211 HK HKD 45.3 17,354 Dec 25.6 18.5 0.6 0.8 1.8 1.6 9.8 8.4 7.2 9.2 Geely Automobile Hdg.* 175 HK HKD 20.4 23,430 Dec 12.5 10.7 1.6 1.9 3.5 2.8 7.8 6.3 32.1 29.0 Baic Motor 'H'* 1958 HK HKD 6.52 6,686 Dec 6.2 5.1 5.6 6.9 0.9 0.8 2.3 1.9 15.5 16.0 A v erage 9.2 7.6 3.9 4.4 1.3 1.1 5.3 4.5 17.0 16.8 China Saic Motor 'A' 600104 CH CNY 35.05 61,933 Dec 10.9 10.0 5.5 6.1 1.7 1.5 7.0 6.3 16.0 15.9 Faw Car 'A' 000800 CH CNY 7.23 1,780 Dec 55.6 48.2 0.0 0.0 1.4 1.4 9.7 9.3 4.8 5.2 Chongqing Changan Autmb. 'A'* 000625 CH CNY 8 5,811 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 6.8 4,178 Dec 4.1 3.9 8.8 9.0 0.5 0.5 0.5 0.5 14.4 14.4 Beiqi Foton Motor 'A' 600166 CH CNY 1.95 1,967 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Tianjin Faw Xiali Autmb. 'A' 000927 CH CNY 3.49 842 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 3.87 1,171 Dec 15.4 12.3 2.0 2.4 1.1 1.0 n.a. n.a. 7.4 8.8 Anhui Jianghuai Automobile 'A' 600418 CH CNY 6.41 1,835 Dec 19.6 15.4 1.5 2.0 0.8 0.8 5.2 4.6 4.8 5.8 Zhengzhou Yutong Bus 'A' 600066 CH CNY 17.73 5,937 Dec 10.8 9.9 3.9 4.7 2.2 1.9 8.2 7.6 21.2 20.6 Haima Automobile Group 'A' 000572 CH CNY 3.12 776 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 9.13 10,401 Dec 10.5 8.9 2.9 3.4 1.5 1.3 6.7 5.8 14.8 15.6 Guangzhou Automobile Gp. 'A'* 601238 CH CNY 10.34 13,917 Dec 5.2 4.6 5.7 6.5 1.1 0.9 3.1 2.5 22.7 21.9 BYD 'A'* 002594 CH CNY 43.95 17,354 Dec 29.1 21.0 0.5 0.7 2.0 1.9 11.0 9.5 7.2 9.2 A v erage 17.9 14.9 3.1 3.5 1.4 1.3 5.7 5.1 11.3 11.7
US Ford Motor F US USD 10.85 43,238 Dec 7.0 7.1 6.2 6.0 1.1 1.0 2.2 2.1 18.9 16.0 General Motors GM US USD 39.56 55,749 Dec 6.2 6.1 3.9 4.1 1.4 1.2 3.0 3.1 26.0 22.3 Tesla TSLA US USD 310.1 52,653 Dec n.a. 115.1 0.0 0.0 10.8 10.0 46.9 18.5 (16.9) (2.0) A v erage 6.6 42.8 3.3 3.4 4.5 4.1 17.4 7.9 9.3 12.1
Korea Kia Motors 000270 KS KRW 32150 11,983 Dec 7.3 6.0 3.1 3.5 0.5 0.4 3.4 3.0 6.4 7.2 Hyundai Motor 005380 KS KRW 126500 33,204 Dec 8.4 7.0 3.4 3.8 0.5 0.5 8.6 7.9 5.5 6.3 A v erage 7.8 6.5 3.3 3.6 0.5 0.5 6.0 5.5 5.9 6.8
J apan Toyota Motor# 7203 JP JPY 7320 212,124 Mar 9.4 8.9 3.1 3.3 1.1 1.0 4.6 4.4 11.6 11.4 Honda Motor# 7267 JP JPY 3296 53,024 Mar 8.3 7.7 3.5 3.8 0.7 0.6 5.6 5.0 8.7 9.0 Nissan Motor# 7201 JP JPY 1032 38,684 Mar 7.3 6.7 5.5 5.7 0.7 0.7 2.0 1.9 9.8 9.9 Suzuki Motor# 7269 JP JPY 6389 27,861 Mar 12.4 11.5 1.2 1.4 1.9 1.7 3.6 3.3 16.1 15.1 Mitsubishi Motors# 7211 JP JPY 892 11,806 Mar 11.9 10.3 2.3 2.7 1.5 1.4 3.9 3.2 13.5 13.9 A v erage 9.9 9.0 3.1 3.4 1.2 1.1 3.9 3.6 11.9 11.9
Europe Bmw BMW GR EUR 79.4 61,747 Dec 6.9 6.7 5.1 5.3 0.9 0.8 2.4 2.2 13.6 13.1 Volkswagen VOW GR EUR 141 83,589 Dec 5.2 4.9 4.2 5.0 0.6 0.6 1.8 1.8 11.5 11.9 Saab 'B' SAABB SS SEK 376.3 4,621 Dec 22.8 18.0 1.6 1.8 2.6 2.4 12.2 10.2 11.9 14.0 Peugeot UG FP EUR 20.95 22,417 Dec 7.6 6.7 3.2 3.7 1.2 1.0 1.8 1.6 15.7 15.7 Porsche Aml.Hldg.Pref. PAH3 GR EUR 54.1 19,593 Dec 4.1 3.8 4.6 5.6 0.5 0.4 278.1 287.7 12.0 11.9 Daimler DAI GR EUR 57.15 72,305 Dec 6.3 6.1 6.3 6.4 0.9 0.8 2.7 2.6 15.9 15.3 Fiat Chrysler Autos. FCA IM EUR 16.534 30,300 Dec 4.9 4.7 2.0 2.4 1.0 0.8 2.1 2.0 20.6 18.8 Audi NSU GR EUR 730 37,122 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 73.64 25,753 Dec 4.7 4.5 5.2 5.6 0.6 0.6 0.7 0.7 13.4 13.0 Ferrari RACE IM USD 120.6 22,788 Dec 32.6 29.4 0.8 1.0 16.5 12.0 21.3 19.4 61.0 46.3 Volvo 'B' VOLVB SS SEK 148.65 35,592 Dec 11.9 11.4 3.4 3.5 2.4 2.2 5.6 5.5 22.5 20.8 Astra International ASII IJ IDR 6700 20,064 Dec 12.9 11.9 3.4 3.9 2.0 1.8 9.9 9.1 16.2 16.2 A v erage 10.9 9.8 3.6 4.0 2.7 2.1 30.8 31.2 19.5 17.9
# FY18: FY19; FY19: FY20 Source: Thomson Reuters, *DBS HK
ASIAN INSIGHTS Page 35
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
Auto parts peer valuation
Mk t PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE ROE Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F Company Name Code Currency US$m Yr x x % % x x x x % % Hong Kong Changan Minsheng Apll Logistics 'H' 1292 HK HKD 92 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China First Capital Gp. 1269 HK HKD 2,829 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fortunet E-Commerce Gp. 1039 HK HKD 174 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fuyao Glass Industry Gp. Co.'H' 3606 HK HKD 8,781 Dec 16.2 13.8 3.7 4.3 2.8 2.6 11.2 9.6 18.4 19.7 Huazhong In-Vehicle Hdg. 6830 HK HKD 317 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Launch Tech 'H' 2488 HK HKD 431 Dec 13.5 12.0 n.a. n.a. 2.2 2.2 n.a. n.a. 16.2 18.0 Minth Group 425 HK HKD 4,726 Dec 13.1 11.0 3.2 3.8 2.2 1.9 8.8 7.3 18.4 19.5 Nexteer Automotive Group* 1316 HK HKD 3,698 Dec 10.5 9.4 1.9 2.1 2.2 1.8 4.6 4.1 22.7 21.3 Perennial Intl.* 725 HK HKD 35 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0 Shougang Concord Century Holdings 103 HK HKD 46 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Weichai Power 'H' 2338 HK HKD 9,719 Dec 9.5 9.3 5.0 5.1 1.5 1.4 4.3 4.2 18.1 16.2 Wuling Motors Holdings 305 HK HKD 119 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Xinchen China Power Holdings 1148 HK HKD 125 Dec 4.0 3.2 0.0 0.0 0.3 0.2 n.a. n.a. 6.4 7.8 Xingda Intl.Holdings* 1899 HK HKD 425 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0 Xinyi Glass Holdings 868 HK HKD 4,423 Dec 7.6 6.8 6.4 7.0 1.7 1.5 8.2 7.4 22.9 22.3 A v erage 10.6 9.4 2.5 2.8 1.8 1.7 5.3 4.7 13.7 13.9
China Anhui Quanchai Engine 'A' 600218 CH CNY 278 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Aecc Aero Engine Control 'A' 000738 CH CNY 2,646 Dec 70.7 59.2 0.2 0.2 3.0 2.9 n.a. n.a. 4.3 4.3 Beijing Wkw Autv.Pas.'A' 002662 CH CNY 1,044 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Changchai 'B' 200570 CH HKD 206 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fangda Special Stl.Tech. 'A' 600507 CH CNY 2,504 Dec 5.9 5.6 4.5 6.3 2.3 1.8 n.a. n.a. 38.3 31.9 China Shipbldg.Ind.Gp. Pwr.'A' 600482 CH CNY 4,844 Dec 23.0 18.1 1.3 1.6 1.2 1.1 n.a. n.a. 5.0 5.9 Fuyao Glss.Ind.Group 'A' 600660 CH CNY 9,520 Dec 17.9 15.1 3.3 4.1 3.1 2.8 11.7 10.1 18.1 19.2 Guizhou Guihang Autv. Components 'A' 600523 CH CNY 512 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Harbin Dongan Auto Enn. 'A' 600178 CH CNY 342 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Huayu Automotive Sys.'A' 600741 CH CNY 10,871 Dec 9.0 8.9 5.5 5.7 1.6 1.4 5.0 4.6 17.9 15.9 Shai.Jialeng Songzhi Autmb.Aircondition 'A' 002454 CH CNY 516 Dec 6.5 5.8 n.a. n.a. 0.9 0.8 n.a. n.a. 11.8 11.7 Jiangnan Mould & Plastic Tech. 'A' 000700 CH CNY 452 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Jiangsu Pac.Precn.Frgg. 'A' 300258 CH CNY 826 Dec 17.2 13.5 0.9 1.1 2.8 2.4 10.8 8.8 16.8 18.0 Kunming Yunnei Pwr. 'A' 000903 CH CNY 748 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Liaoning Sg Autv.Gp. 'A' 600303 CH CNY 513 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Lingyun Industrial 'A' 600480 CH CNY 619 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Ningbo Huaxiang Elt.'A' 002048 CH CNY 1,149 Dec 10.0 7.9 0.8 1.0 0.9 0.7 4.8 4.3 10.4 11.1 Shai.Aeros.Autos.Elec. 'A' 600151 CH CNY 861 Dec 44.1 28.4 n.a. n.a. 1.0 0.9 n.a. n.a. 2.0 3.0 Shanghai Jiao Yun Group 'A' 600676 CH CNY 775 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Shenyang Jinbei Autv.'A' 600609 CH CNY 778 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sic.Chengfei Intg.Tech. 'A' 002190 CH CNY 973 Dec n.a. n.a. n.a. n.a. 4.0 4.6 73.9 (245.6) (8.9) (11.6) Sichuan Haowu Erml.'A' 000757 CH CNY 399 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Steyr Motors 'A' 000760 CH CNY 335 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Wanxiang Qiangchao 'A' 000559 CH CNY 2,831 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Weifu High Tech.Gp.'B' 200581 CH HKD 2,228 Dec 5.5 5.1 8.6 9.2 0.9 0.8 3.6 3.4 17.2 n.a. Xuchang Ynd.Drive Shaft 'A' 002406 CH CNY 490 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Zhejiang Wanliyang Tnsm. 'A' 002434 CH CNY 1,833 Dec 16.0 11.7 1.7 2.1 1.8 1.6 8.1 6.3 11.8 14.2 Chongqing Zongshen Pwr. Machinery 'A' 001696 CH CNY 810 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Weifu High Tech.Gp.'A' 000581 CH CNY 3,357 Dec 8.2 8.1 5.1 4.9 1.3 1.2 5.2 4.8 16.6 15.8 Zhejiang Yinlun Mch.'A' 002126 CH CNY 1,089 Dec 17.9 14.2 0.7 0.8 1.9 1.6 10.7 8.5 10.8 11.6 Changzhou Xingyu Autv. Ltg.'A' 601799 CH CNY 2,374 Dec 25.9 19.6 1.4 1.8 3.5 3.0 16.8 13.1 13.5 15.4 Zhejiang Asia-Pacific Mech.& Elect 'A' 002284 CH CNY 643 Dec 41.1 30.3 2.3 3.0 1.5 1.5 17.2 14.4 3.7 4.8 A v erage 21.3 16.8 2.8 3.2 2.0 1.8 15.3 (15.2) 11.8 11.4
US China Autv.Sys. CAAS US USD 129 Dec 5.9 4.6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Yuchai Intl. CYD US USD 816 Dec 6.4 5.6 7.0 7.7 0.6 0.5 0.2 0.2 13.2 13.8 Sorl Auto Parts SORL US USD 91 Dec 3.3 3.1 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5.2 4.4 7.0 7.7 0.6 0.5 0.2 0.2 13.2 13.8 # FY18: FY19; FY19: FY20 Source: Thomson Reuters, *DBS HK
ASIAN INSIGHTS Page 36
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
Auto batteries peer valuation
Mk t PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE ROE Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F Company Name Code Currency Local$ US$m Yr x x % % x x x x % % Contemporary Amperex 300750 CH CNY 83.9 27,566 Dec 55.1 40.7 0.1 0.1 5.8 5.1 26.5 20.1 11.0 12.9 Guoxuan High-Tech Co Ltd 002074 CH CNY 13.64 2,345 Dec 14.3 12.2 0.9 1.2 1.9 1.7 11.8 9.7 13.6 13.8 Sic.Chengfei Intg 002190 CH CNY 17.93 973 Dec n.a. n.a. n.a. n.a. 4.0 4.6 73.9 (245.6) (8.9) (11.6) Shaanxi J&R Fire Protc 300116 CH CNY 2.18 802 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Panasonic# 6752 JP JPY 1427.5 31,099 Mar 13.0 11.5 2.4 2.6 1.8 1.6 4.5 4.1 14.0 14.4 CBAK Energy CBAK US USD 0.9141 24 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. # FY18: FY19; FY19: FY20 Source: Thomson Reuters
ASIAN INSIGHTS Page 37
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
BYD (1211 HK) PE chart BYD (1211 HK) PB chart
x x 50 3.5 45 3.0 40 +1SD: 35x 35 2.5 +1SD: 2.5x Avg: 2.1x 30 Avg: 28.4x 2.0 25 -1SD: 1.7x 20 -1SD: 21.8x 1.5 15 1.0 10 5 0.5
0 0.0
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Minth (425 HK) PE chart Minth (425 HK) PB chart
x x 30 4.0 3.5 25 3.0 20 2.5 +1SD: 2.3x 15 +1SD: 15.4x 2.0 Avg: 1.7x 1.5 10 Avg: 11.6x -1SD: 1.1x -1SD: 7.8x 1.0 5 0.5
0 0.0
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Nexteer (1316 HK) PE chart Nexteer (1316 HK) PB chart
x x 4.0 20 +2SD: 3.3x 18 +2SD: 14.6x 3.5 16 3.0 +1SD: 2.9x +1SD: 12.4x 14 Avg: 10.2x 2.5 Avg: 2.5x 12 -1SD: 8x 2.0 -1SD: 2x 10 1.5 -2SD: 1.6x 8 -2SD: 5.8x 1.0 6
4 0.5
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Dec-18 Aug-14 May-16 Source: Thomson Reuters, DBS HK
ASIAN INSIGHTS Page 38
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
STOCK PROFILES
ASIAN INSIGHTS Page 39
Asian Insights SparX BYD Company
Bloomberg: 1211 HK EQUITY | 002594 CH Equity | Reuters: 1211.HK | 002594.SZ Refer to important disclosures at the end of this report
H: BUY Well positioned in NEV play Last Traded Price (H) ( 16 Jul 2018): HK$45.30 (HSI : 28,481) Strong new energy vehicle (NEV) products stand out amid Price Target 12-mth (H): HK$60.00 (32.45% upside) (Prev keen market competition and industry liberalisation HK$92.00) Latest NEV products that could benefit from higher subsidy A: HOLD Last Traded Price (A) ( 16 Jul 2018): RMB43.95 (CSI300 : 3,481) Anticipate better 2H18 earnings Price Target 12-mth (A): RMB49.00 (11.49% upside) (Prev Maintain BUY with TP of HK$60 RMB74.00) Potential Catalyst: Earnings recovery from 2H18 on new subsidy impact Expect better 2H18 earnings on new subsidy scheme. The cut in Where we differ: Market liberalisation has limited impact as business electric vehicle (EV) subsidy is expected to weigh on BYD’s 1H18 scale is large vis-à-vis peers earnings. But its 2H18 performance is expected to benefit from the Analyst new scheme which came into effect in June 2018. The new scheme Rachel MIU +852 2863 8843 [email protected] rewards companies with strong electric car technology. BYD’s high-end Price Relative EV such as the Yuan EV 360, Qin EV 450, Song EV400 have longer HK$ Relative Index RMB Relative Index 91.3 driving range. BYD has the highest NEV penetration rate of c.30% 82.5 206 205 81.3 compared to peers, and boasts one of the highest credit point levels. 72.5 186 185 166 71.3 165 62.5 These credit points can be monetised in the future when the new EV 146 61.3 145 52.5 126 125 dual system takes effect in 2019. 106 51.3 42.5 105 86 41.3 32.5 85 66 Can withstand NEV market liberalisation. The Chinese government has 31.3 65 22.5 46 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 scrapped the foreign ownership cap for the electric car market from
BYD Co Ltd - A (LHS) Relative HSI INDEX (RHS) BYD Company (LHS) Relative HSI INDEX (RHS) 2018 and reduced import tariffs from 25% to 15% on foreign cars (except from the US). BYD electric vehicle sales should cross the Forecasts and Valuation (H Shares) FY Dec (RMB m) 2016A 2017A 2018F 2019F 120,000-mark this year and 1H18 sales volume has hit 60% of our Turnover 100,208 102,651 117,326 127,882 2018 forecast. The remarkable sales volume despite lower subsidy in EBITDA 15,843 15,185 16,323 19,144 1H18 attests to BYD’s strong market position. Pre-tax Profit 6,568 5,621 5,700 7,766 Net Profit 4,836 3,791 4,120 5,701 Current valuation factored in 1H18 weak earnings. We cut our EPS (RMB) 1.77 1.39 1.51 2.09 FY18/19F earnings for lower margin assumptions. However, a police EPS (HK$) 2.08 1.63 1.77 2.45 EPS Gth (%) 57.7 (21.6) 8.7 38.4 investigation related to fraudulent marketing contracts by someone Diluted EPS (HK$) 2.08 1.63 1.77 2.45 posed as BYD employee could affect short-term sentiment. Its mid-term DPS (HK$) 0.64 0.17 0.27 0.37 earnings fundamentals remain unchanged. BUY on dips with new TP of BV Per Share (HK$) 22.04 23.65 25.36 27.65 HK$60, pegged to target PE 25x (historical 1SD) on FY19 earnings as it PE (X) 21.8 27.8 25.6 18.5 P/Cash Flow (X) (57.1) 16.5 10.0 8.7 should better reflect the new subsidy impact. P/Free CF (X) (15.8) (98.6) 23.1 17.1 At A Glance EV/EBITDA (X) 9.1 10.3 9.8 8.4 Issued Capital - H shares (m shs) 915 Net Div Yield (%) 1.4 0.4 0.6 0.8 P/Book Value (X) 2.1 1.9 1.8 1.6 - Non H shrs (m shs) 1,813 Net Debt/Equity (X) 0.6 0.8 0.8 0.7 H shs as a % of Total 34 ROAE (%) 11.6 7.1 7.2 9.2 Total Mkt Cap (HK$m/US$m) 142,738 / 17,354 Major Shareholders (%) Earnings Rev (%): (29) (20) Wang (Chuan Fu) 28.3 Consensus EPS (RMB) 1.73 2.23 Lv (Xiang-yang) 13.2 Other Broker Recs: B:14 S:6 H:8 Youngy Investment Holding Group Co., Ltd. 9.0 Principal Business: BYD produces and sells gasoline and new energy Xia (Zuo Quan) 5.9 vehicles, rechargeable batteries and also provides handset components & assembly services Major H Shareholders (As % of H shares) Source of all data on this page: Company, DBS HK, Thomson Berkshire Hathaway Energy Company 24.6 Reuters, HKEX Himalaya Capital, L.L.C. 8.2 H Shares-Free Float (%) 67.2 3m Avg. Daily Val. (US$m) 42.7 ICB Industry: Consumer Goods / Automobiles & Parts
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Asian Insights SparX BYD Company
Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 100,208 102,651 117,326 127,882 Net Fixed Assets 42,970 47,831 47,352 46,366 Cost of Goods Sold (81,189) (84,716) (98,821) (106,538) Invts in Assocs & JVs 2,245 3,065 2,807 3,100 Gross Profit 19,018 17,935 18,505 21,343 Other LT Assets 21,502 24,383 26,824 29,022 Other Opng (Exp)/Inc (9,574) (9,379) (9,751) (10,539) Cash & ST Invts 7,694 9,903 10,754 12,409 Operating Profit 9,444 8,556 8,754 10,804 Inventory 17,378 19,873 21,860 24,046 Other Non Opg (Exp)/Inc (629) (464) (469) (448) Debtors 45,733 53,277 57,539 62,717 Associates & JV Inc (600) (225) (258) (207) Other Current Assets 7,549 19,769 21,209 22,809 Net Interest (Exp)/Inc (1,647) (2,247) (2,327) (2,384) Total Assets 145,071 178,099 188,344 200,469 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 32,928 45,649 48,649 51,649 Pre-tax Profit 6,568 5,621 5,700 7,766 Creditors 34,663 39,527 41,504 43,579 Tax (1,088) (704) (855) (1,165) Other Current Liab 10,726 19,821 20,629 21,695 Minority Interest (428) (850) (484) (660) LT Debt 9,339 10,862 10,862 10,862 Preference Dividend (216) (275) (240) (240) Other LT Liabilities 2,005 2,283 2,283 2,283 Net Profit 4,836 3,791 4,120 5,701 Shareholder’s Equity 51,256 55,004 58,980 64,303 Net Profit before Except. 4,836 3,791 4,120 5,701 Minority Interests 4,153 4,953 5,438 6,098 EBITDA 15,843 15,185 16,323 19,144 Total Cap. & Liab. 145,071 178,099 188,344 200,469 Sales Gth (%) 29.1 2.4 14.3 9.0 EBITDA Gth (%) 45.1 (4.2) 7.5 17.3 Non-Cash Wkg. Cap 25,271 33,570 38,475 44,298 Opg Profit Gth (%) 55.3 (9.4) 2.3 23.4 Net Cash/(Debt) (34,573) (46,608) (48,757) (50,102) Net Profit Gth (%) 73.8 (21.6) 8.7 38.4 Effective Tax Rate (%) 16.6 12.5 15.0 15.0
Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Profit 6,568 0 0 0 Gross Margins (%) 19.0 17.5 15.8 16.7 Dep. & Amort. 7,028 0 0 0 Opg Profit Margin (%) 9.4 8.3 7.5 8.4 Tax Paid (1,152) (1,208) (704) (855) Net Profit Margin (%) 4.8 3.7 3.5 4.5 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 11.6 7.1 7.2 9.2 (Pft)/ Loss on disposal of FAs 0 0 0 0 ROA (%) 3.7 2.3 2.2 2.9 ChgFAFAsiaries/Investments in Wkg.Cap. (-/+) (17,331) (7,857) (5,057) (6,132) ROCE (%) 9.0 6.9 6.1 7.0 Other Operating CF 3,041 15,433 16,323 19,144 Div Payout Ratio (%) 30.7 10.1 15.0 15.0 Net Operating CF (1,846) 6,368 10,563 12,157 Net Interest Cover (x) 5.7 3.8 3.8 4.5 Capital Exp.(net) (4,839) (7,436) (6,000) (6,000) Asset Turnover (x) 0.8 0.6 0.6 0.7 Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 131.9 176.0 172.4 171.6 Invts in Assoc. & JV (927) (1,010) 0 (500) Creditors Turn (avg days) 160.7 174.4 162.9 158.8 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 81.5 87.6 83.9 85.7 Other Investing CF (7,655) (7,271) (3,856) (3,784) Current Ratio (x) 1.0 1.0 1.0 1.0 Net Investing CF (13,421) (15,717) (9,856) (10,284) Quick Ratio (x) 0.7 0.6 0.6 0.6 Div Paid (1,053) (539) (385) (618) Net Debt/Equity (X) 0.6 0.8 0.8 0.7 Chg in Gross Debt 5,128 17,583 3,000 3,000 Capex to Debt (%) 11.4 13.2 10.1 9.6 Capital Issues 14,369 (9) 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (2,174) (5,868) (2,471) (2,600) N.Cash/(Debt)PS (RMB) (14.87) (20.04) (20.96) (21.54) Net Financing CF 16,270 11,168 145 (218) Opg CFPS (RMB) 5.68 5.21 5.73 6.70 Currency Adjustments 97 6 0 0 Free CFPS (RMB) (2.45) (0.39) 1.67 2.26 Chg in Cash 1,100 1,825 851 1,655
Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F Turnover 43,745 56,462 43,817 58,834 Revenues (RMB m) Cost of Goods Sold (35,223) (45,967) (35,648) (49,068) Batteries & other products 7,103 8,442 9,708 10,873 Gross Profit 8,523 10,495 8,169 9,766 Mobile handset components 38,083 39,708 42,885 46,315 Other Oper. (Exp)/Inc (4,298) (5,276) (4,365) (5,014) Automobile & related prodts 55,022 54,501 64,733 70,693 Operating Profit 4,225 5,219 3,804 4,752 Total 100,208 102,651 117,326 127,882 Other Non Opg (Exp)/Inc (265) (364) (118) (346) Key Assumptions Associates & JV Inc (115) (485) (19) (206) NEV ('000 units) 96 109 126 145 Net Interest (Exp)/Inc (836) (811) (1,017) (1,229) Traditional cars (‘000 units) 394 296 311 326 Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 3,009 3,559 2,650 2,971 Tax (540) (548) (485) (219) Minority Interest (209) (218) (442) (408) Net Profit 2,146 2,690 1,605 2,186 Net profit bef Except. 2,146 2,690 1,605 2,186 Sales Gth (%) 43.7 19.7 0.2 4.2 Opg Profit Gth (%) 154.2 18.1 (10.0) (9.0) Net Profit Gth (%) 359.9 16.1 (25.2) (18.7) Gross Margins (%) 19.5 18.6 18.6 16.6 Opg Profit Margins (%) 9.7 9.2 8.7 8.1 Net Profit Margins (%) 4.9 4.8 3.7 3.7
Source: Company, DBS HK
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Asian Insights SparX Contemporary Amperex Technology
Bloomberg: 300750 CH Equity | Reuters: 300750.SZ Refer to important disclosures at the end of this report
Leader in global EV battery market NOT RATED Last Traded Price (16 July 2018):RMB83.90 (CSI300 : 3,472) Largest global player in EV battery; secured orders from various Price Target 12-mth: n.a. blue-chip automakers Potential Catalyst: Strong execution of NMC battery orders Rapid ramp-up of production capacity on industry uptrend, Where we differ: High valuation is warranted on robust future earnings expectations of strong earnings delivery outlook, especially following the commissioning of new capacity Scale efficiency mitigates potential impact from reduction in Chinese EV subsidies Analyst Rachel MIU +852 2863 8843 [email protected] Status as fastest-growing EV battery company vs peers should support high valuations Price Relative International automakers rushing to secure battery supply. RMB Relative Index Contemporary Amperex Tech Co. Ltd (CATL) is the largest EV battery 90 300 producer in China (market share of c.27% in FY17). Its lithium nickel 250 manganese cobalt (Li-NMC) battery, which is currently the mainstream 70 200 technology for many EV makers, is a key strength. The rapid rise of the 50 150 EV market, coupled with shortage in Li-NMC battery supply, has 100 enabled CATL to secure orders from international automakers, such as 30 50 Volkswagen, Daimler, and BMW. It was reported that BMW has signed 10 0 a US$4.7bn contract with CATL recently. In China, the company also 11-Jun 18-Jun 25-Jun 2-Jul 9-Jul supplies to BJ Electric Car Co, Geely, Jiangling Motor, and Guangzhou Contemporary Amperex Techn (LHS) Auto. To meet the growing demand, CATL is increasing its production Relative CSI300 (RHS) capacity in Ningde, Fujian Province, by 40% to 24GWh by 2021, up from 17GWh in FY17. By then, it will be able to support 300,000 units Forecasts and Valuation of EVs, based on average battery power of 80KWh. FY Dec (RMB m) 2015A 2016A 2017A Production efficiency to mitigate EV subsidy cuts in China. As the Turnover 5,703 14,879 19,997 production cost of EV battery comes down with higher efficiency, the EBITDA 1,239 3,997 5,176 Pre-tax Profit 1,100 3,400 4,848 benefit should ease the margin pressure due to the cut in EV subsidy in Net Profit 931 2,852 3,878 China, starting from June 2018. We expect gross margin to decline Net Pft (Pre Ex.) 931 2,852 2,839 from 35.8% in FY17 to 31.3% in FY19, yet core net earnings are EPS (RMB) 0.78 1.87 2.01 projected to grow at a comfortable CAGR of 24% from FY17-19F, EPS Gth (%) n.a. 141.6 7.2 riding on volume expansion. Earnings growth could accelerate on Diluted EPS (RMB) 0.78 1.87 2.01 ramping up of its production capacity. BV Per Share (RMB) 1.25 10.37 13.54 PE (X) 108.2 44.8 41.8 Valuation. CATL’s valuation is supported by its high earnings growth P/Cash Flow (X) 0.6 1.4 1.2 ability. Based on FY19PEG, it is trading at 1.2x vs the industry range of P/Free CF (X) 151.5 60.5 70.1 0.4x-1.0x. Given CATL’s strong market presence in the Li-NMC battery EV/EBITDA (X) 81.7 30.5 31.2 market and huge growth potential (riding on the world’s largest EV Net Div Yield (%) - - - market), we believe its high valuation is well justified. P/Book Value (X) 67.2 8.1 6.2 Net Debt/Equity (X) 0.2 Cash Cash At A Glance Issued Capital (m shrs) 2,172 ROAE (%) 33.0 18.4 Mkt Cap (RMB$m/US$m) 184,157 / 27,556 Major Shareholders (%) ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts NB MEISHAN RUITING INV 26.31 Principal Business: CATL is one of the largest car battery makers in Huang Shilin 12.01 the world, counting blue chip automakers as its customers. NB UNI INNO NEW ENER INV 7.65 Source of all data on this page: Company, DBS HK, Thomson Li Ping 5.15 Reuters, HKEX Free Float (%) 48.88 3m Avg. Daily Val. (US$m) Nil ICB Industry: Consumer Goods / Automobiles & Parts
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DBSV's discussion of the issuer in this report (Contemporary Amperex Technology (300750 CH)) will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBSV.
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Income Statement (RMB m) Balance Sheet (RMB m) F Y Dec 2015A 2016A 2017A F Y Dec 2015A 2016A 2017A Revenue 5,703 14,879 19,997 Net Fixed Assets 2,391 5,676 12,703 Cost of Goods Sold (3,539) (8,486) (12,836) Invts in Assocs & JVs - 170 791 Gross Profit 2,164 6,393 7,161 Other LT Assets 777 982 3,136 Other Opg (Exp)/Inc (1,010) (3,018) (3,997) Cash & ST Invts 1,293 2,457 14,081 Operating Profit 1,154 3,375 3,164 Inventory 1,042 1,360 3,418 Other Non Opg (Exp)/Inc 65 84 1,776 Debtors 2,816 7,886 12,377 Associates & JV Inc (10) 22 (50) Other Current Assets 354 10,059 3,158 Net Interest (Exp)/Inc (109) (80) (42) Total Assets 8,673 28,588 49,663 Exceptional Gain/(Loss) - - - Pre-tax Profit 1,100 3,400 4,848 ST Debt 577 1,227 2,245 Tax (149) (482) (654) Creditors 2,514 7,567 13,791 Minority Interest (20) (67) (316) Other Current Liab 2,259 1,389 1,854 Preference Dividend - - - LT Debt - 302 2,129 Net Profit 931 2,852 3,878 Other LT Liabilities 1,825 2,312 3,173 Net Profit before Except. 931 2,852 2,839 Shareholder's Equity 1,254 15,489 24,701 EBITDA 1,239 3,997 5,176 Minority Interests 245 302 1,770 Revenue Gth (%) - 160.9 34.4 Total Cap. & Liab. 8,673 28,588 49,663 EBITDA Gth (%) - 222.7 29.5 Opg Profit Gth (%) - 192.5 (6.2) Non-Cash Wkg. Cap 371 5,326 10,507 Effective Tax Rate (%) 13.6 14.2 13.5 Net Cash/(Debt) (216) 5,950 2,505
Cash Flow Statement (RMB m) Rates & Ratio F Y Dec 2015A 2016A 2017A F Y Dec 2015A 2016A 2017A Pre-Tax Profit 1,100 3,400 4,848 Gross Margin (%) 37.9 43.0 35.8 Dep. & Amort. 192 784 1,383 Opg Profit Margin (%) 20.2 22.7 15.8 Tax Paid (475) (1,560) (1,493) Net Profit Margin (%) 16.3 19.2 19.4 Assoc. & JV Inc/(loss) 10 (22) 50 ROAE (%) 101.5 33.0 18.4 (Pft)/ Loss on disposal of FAs - - - ROA (%) 10.7 10.0 7.8 Non-Cash Wkg. Cap. 1,433 (10,905) 6,867 ROCE (%) 28.0 15.5 12.2 Other Operating CF (1,568) 10,464 (9,211) Div Payout Ratio (%) - - - Net Operating CF 693 2,162 2,444 Interest Cover (x) 9.6 39.9 89.9 Capital Exp. (net) (1,554) (2,801) (7,180) Asset Turnover (x) 0.7 0.8 0.5 Other Invts. (net) (176) (9,705) (1,666) Debtors Turn (days) 153.2 179.5 126.3 Invts. in Assoc. & JV - - - Creditors Turn (days) 151.9 136.5 141.6 Div from Assoc. & JV - - - Inventory Turn (days) 107.4 58.5 97.2 Other Investing CF 1,089 62 759 Current Ratio (x) 1.0 2.1 1.8 Net Investing CF (641) (12,443) (8,087) Quick Ratio (x) 0.8 1.0 1.5 Div Paid (69) (54) (82) Net Debt/Equity (X) Net cash Net cash Net cash Chg in Gross Debt 202 993 3,055 Capex to Debt (%) 120.2 114.0 51.0 Capital Issues 151 11,132 6,179 N. Cash/(Debt)PS (RMB) 0.60 0.61 4.96 Other Financing CF 157 (1,100) (219) Opg CFPS (RMB) 0.58 1.42 1.25
Net Financing CF 440 10,971 8,933 Free CFPS (RMB) (0.74) (0.45) (2.48) Chg in Cash 491 690 3,290
Segmental Breakdown (RMB m) Interim Income Statement (RMB m) F Y Dec 2015A 2016A 2017A F Y Dec 1H17 2H17 Revenue 6,295 13,702 Rev enues Cost of Goods Sold (3,959) (8,877) Main Business 5,661 14,626 19,144 Gross Profit 2,336 4,825 Other Oper. (Exp)/Inc (1,477) (2,520) Power Battery System 4,981 13,976 16,657 Operating Profit 859 2,305 Lithium Battery Materials 591 611 2,471 Other Non Opg (Exp)/Inc 1,535 241 Energy Storage System 89 39 16 Associates & JV Inc (13) (37) Other Business 42 253 853 Net Interest (Exp)/Inc (48) 6 Disposal and Material Sales 32 182 397 Exceptional Gain/(Loss) - - Pre-tax Profit 2,333 2,515 Technology License 10 70 76 Tax (312) (342) R&D Service 365 Minority Interest (164) (152) Other 0 1 15 Net Profit 1,857 2,021 Net profit bef Except. 818 2,021 T otal 5,703 14,879 19,997 Grow th Revenue Gth (%) na na Opg Profit Gth (%) na na Net Profit Gth (%) na na
Margins & Ratio Gross Margins (%) 37.1 35.2 Opg Profit Margins (%) 13.6 16.8 Net Profit Margins (%) 29.5 14.7
Source: Company, DBS HK
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Asian Insights SparX Minth Group
Bloomberg: 425 HK EQUITY | Reuters: 0425.HK Refer to important disclosures at the end of this report
Moving in the EV direction BUY Last Traded Price (16 Jul 2018):HK$32.25 (HSI : 28,540) EV-related automotive parts business gaining traction Price Target 12-mth: HK$39.80 (23.41% upside) Market and customer diversification mitigate the US-China Potential Catalyst: Winning new orders to support earnings growth trade tension impact Where we differ: Diversification strategy to mitigate potential trade policy impact Market volatility should provide accumulation
Analyst opportunities; Maintain BUY with TP of HK$39.80 Rachel MIU +852 2863 8843 [email protected] Electric control systems and lightweight parts business Price Relative targeting the EV industry. With the growing demand for HK$ Relative Index lightweight automotive parts, Minth’s aluminium parts business 51.0 282 is getting good order sizes and we expect this success to be 46.0 41.0 232 replicated for its electric control systems as well, given the 36.0 global EV market is accelerating rapidly. Aluminium automotive 31.0 182 26.0 parts account for around 35% of the total Rmb90bn+ backlog 21.0 132 on hand. Margin expansion is possible as economies of scale 16.0 11.0 82 kicks in. Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Recent trade policy creates some uncertainty, but exposure is Minth Group (LHS) Relative HSI (RHS) within control. The exposure to the US-China trade and Trump Forecasts and Valuation factor is around 9-10% of Minth’s revenue. Its market and FY Dec (RMB m) 2016A 2017A 2018F 2019F Turnover 9,400 11,384 13,289 15,761 customer diversification strategy helps to mitigate some EBITDA 2,532 3,002 3,488 4,170 potential risk. Minth is working more with the European Pre-tax Profit 2,119 2,488 2,926 3,506 automakers (which accounts for 20-25% of total revenue) to Net Profit 1,719 2,025 2,377 2,848 EPS (RMB) 1.54 1.78 2.09 2.51 increase their penetration rate. Any share price corrections EPS (HK$) 1.80 2.09 2.45 2.94 arising from trade uncertainties should present an accumulation EPS Gth (%) 33.4 16.0 17.3 19.8 popportunity. Diluted EPS (HK$) 1.78 2.07 2.42 2.90 DPS (HK$) 0.74 0.87 1.02 1.22 Margin improvement post initial start-up. Minth suffered some BV Per Share (HK$) 11.38 13.01 14.69 16.73 margin compression on the back of higher costs in 2017 (from PE (X) 17.9 15.4 13.1 11.0 P/Cash Flow (X) 17.9 16.7 12.0 10.0 raw materials and automation of production processes). We P/Free CF (X) 52.2 (233.5) 52.6 23.4 expect the cost pressure to ease in 2018. For prudent reasons, EV/EBITDA (X) 11.7 10.1 8.8 7.3 we have tweaked our FY18/19F earnings. Its FY17-19F earnings Net Div Yield (%) 2.3 2.7 3.2 3.8 CAGR of around 20% makes the stock attractive, based on P/Book Value (X) 2.8 2.5 2.2 1.9 Net Debt/Equity (X) CASH CASH CASH CASH uncompleted orders of Rmb90bn+. We maintain our BUY call ROAE (%) 17.4 17.8 18.4 19.5 and TP of HK$39.80, based on 16x FY18 PE. Its strong cash Earnings Rev (%): (11) (10) generation ability implies a generous dividend payout is Consensus EPS (RMB) 2.06 2.52 Other Broker Recs: B:19 S:0 H:3 possible. Minth has maintained a dividend payout of 40% for ICB Industry: Consumer Goods the past seven years. ICB Sector: Automobiles & Parts Principal Business: A major automotive producer of exterior car body At A Glance parts, including trims, body structural parts, decorative parts and car Issued Capital (m shrs) 1,145 seat frames Mkt Cap (HK$m/US$m) 36,079 / 4,726 Source of all data on this page: Company, DBS HK, Thomson Major Shareholders (%) Reuters, HKEX Chin (Jong Hwa) 39.3 First State Investments (HK) Ltd. 7.1 Matthews Int’l Capital Management, L.L.C. 7.1 Free Float (%) 46.5 3m Avg. Daily Val. (US$m) 15.7 ICB Industry: Consumer Goods / Automobiles & Parts
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Asian Insights SparX Minth Group
Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 9,400 11,384 13,289 15,761 Net Fixed Assets 4,957 6,246 7,747 8,965 Cost of Goods Sold (6,150) (7,535) (8,744) (10,292) Invts in Assocs & JVs 298 461 492 524 Gross Profit 3,250 3,849 4,545 5,469 Other LT Assets 932 1,345 1,481 1,616 Other Opng (Exp)/Inc (1,179) (1,385) (1,601) (1,927) Cash & ST Invts 2,940 3,850 3,435 3,600 Operating Profit 2,071 2,464 2,943 3,542 Inventory 1,569 2,078 2,286 2,514 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 3,438 4,017 4,623 5,324 Associates & JV Inc 45 30 31 32 Other Current Assets 917 113 113 113 Net Interest (Exp)/Inc 2 (6) (49) (67) Total Assets 15,051 18,109 20,175 22,654 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 1,446 2,494 2,494 2,494 Pre-tax Profit 2,119 2,488 2,926 3,506 Creditors 2,529 2,890 3,236 3,628 Tax (339) (396) (468) (561) Other Current Liab 128 159 232 324 Minority Interest (60) (67) (81) (97) LT Debt 0 0 0 0 Preference Dividend 0 0 0 0 Other LT Liabilities 92 168 168 168 Net Profit 1,719 2,025 2,377 2,848 Shareholder’s Equity 10,598 12,113 13,680 15,577 Net Profit before Except. 1,719 2,025 2,377 2,848 Minority Interests 258 285 366 463 EBITDA 2,532 3,002 3,488 4,170 Total Cap. & Liab. 15,051 18,109 20,175 22,654 Sales Gth (%) 22.8 21.1 16.7 18.6 EBITDA Gth (%) 38.0 18.5 16.2 19.5 Non-Cash Wkg. Cap 3,267 3,159 3,553 3,998 Opg Profit Gth (%) 43.4 19.0 19.5 20.3 Net Cash/(Debt) 1,494 1,356 942 1,107 Net Profit Gth (%) 35.2 17.8 17.3 19.8 Effective Tax Rate (%) 16.0 15.9 16.0 16.0
Cash Flow Statement (RMB m) Rates & Ratio FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Profit 2,119 2,488 2,926 3,506 Gross Margins (%) 34.6 33.8 34.2 34.7 Dep. & Amort. 416 507 514 597 Opg Profit Margin (%) 22.0 21.6 22.1 22.5 Tax Paid (294) (403) (396) (468) Net Profit Margin (%) 18.3 17.8 17.9 18.1 Assoc. & JV Inc/(loss) (45) (30) (31) (32) ROAE (%) 17.4 17.8 18.4 19.5 (Pft)/ Loss on disposal of FAs 0 0 0 0 ROA (%) 12.2 12.2 12.4 13.3 ChgFAFAsiaries/Invest in Wkg.Cap. ments (-/+) (462) (529) (467) (537) ROCE (%) 14.6 15.1 15.6 16.8 Other Operating CF 49 67 0 0 Div Payout Ratio (%) 40.0 40.0 40.0 40.0 Net Operating CF 1,723 1,875 2,594 3,133 Net Interest Cover (x) NM 405.9 60.6 52.8 Capital Exp.(net) (1,133) (2,009) (2,000) (1,800) Asset Turnover (x) 0.7 0.7 0.7 0.7 Other Invts.(net) 80 57 0 0 Debtors Turn (avg days) 116.8 119.5 118.7 115.2 Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 131.1 140.7 135.8 129.2 Div from Assoc & JV 11 14 0 0 Inventory Turn (avg days) 88.0 94.7 96.8 90.3 Other Investing CF 566 510 (86) (92) Current Ratio (x) 2.2 1.8 1.8 1.8 Net Investing CF (477) (1,428) (2,086) (1,892) Quick Ratio (x) 1.6 1.4 1.4 1.4 Div Paid (520) (676) (810) (951) Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt (558) 1,194 0 0 Capex to Debt (%) 78.4 80.6 80.2 72.2 Capital Issues 236 135 0 0 Z-Score (X) 6.9 6.6 6.6 6.4 Other Financing CF (84) (138) (112) (125) N.Cash/(Debt)PS (RMB) 1.60 1.46 1.01 1.19 Net Financing CF (927) 515 (922) (1,075) Opg CFPS (RMB) 1.95 2.12 2.69 3.23 Currency Adjustments (147) (52) 0 0 Free CFPS (RMB) 0.53 (0.12) 0.52 1.17 Chg in Cash 173 910 (414) 165
Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F Turnover 4,196 5,204 5,266 6,119 Revenues (RMB m) Cost of Goods Sold (2,753) (3,397) (3,487) (4,048) Trims 3,196 3,734 4,294 5,153 Gross Profit 1,443 1,807 1,778 2,071 Decorative parts 2,905 3,450 3,967 4,522 Other Oper. (Exp)/Inc (492) (687) (534) (852) Body structural parts 2,096 2,334 2,614 3,084 Operating Profit 951 1,120 1,245 1,219 Car seat frame 160 262 327 393 Other Non Opg (Exp)/Inc 0 0 0 0 Others 658 820 1,066 1,332 Associates & JV Inc 21 24 17 14 Total 9,400 11,384 13,289 15,761 Net Interest (Exp)/Inc 14 (11) 4 (10) Key Assumptions Exceptional Gain/(Loss) 0 0 0 0 New contract 4,400.0 5,000.0 5,500.0 5,775.0 Pre-tax Profit 986 1,133 1,265 1,223 GP margin 34.6 33.8 34.2 34.7 Tax (145) (194) (180) (215) Minority Interest (28) (32) (31) (36) Net Profit 813 906 1,053 972 Net profit bef Except. 813 906 1,053 972
Sales Gth (%) 22.3 23.3 25.5 17.6 Opg Profit Gth (%) 39.8 46.7 30.9 8.9 Net Profit Gth (%) 30.6 39.6 29.6 7.2 Gross Margins (%) 34.4 34.7 33.8 33.8 Opg Profit Margins (%) 22.7 21.5 23.6 19.9 Net Profit Margins (%) 19.4 17.4 20.0 15.9
Source: Company, DBS HK
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Asian Insights SparX Nexteer Automotive Group
Bloomberg: 1316 HK Equity | Reuters: 1316.HK Refer to important disclosures at the end of this report
BUY Penetrating deeper into China Last Traded Price (16 Jul 2018):HK$11.54 (HSI : 28,540) Growing presence in China offers more EV business Price Target 12-mth: HK$15.60 (35.18% upside) opportunities Potential Catalyst: Winning new orders to boost backlogs Where we differ: Steady increase in new Chinese customer orders Anticipate 2H18 new orders to rise
Analyst Trade tension has limited impact on earnings, as Rachel MIU +852 2863 8843 [email protected] production is localised
Maintain BUY with HK$15.60 TP Price Relative HK$ Relative Index Wider application of electric power steering systems in EVs. 20.9 282 18.9 China has the largest EV market and Nexteer’s growing 16.9 232 presence could translate into more EV business opportunities. 14.9 12.9 182 Nexteer is stepping up its involvements with Chinese 10.9 8.9 132 automakers, such as BYD and Guangzhou Auto. For instance, 6.9 BYD is one of the largest EV players in China and this could 4.9 82 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 lead to more EV business opportunities, acting as a new growth Nexteer Automotive Group (LHS) Relative HSI (RHS) driver for Nexteer. Currently, the Chinese market accounts for Forecasts and Valuation about 20% of its total revenue and there is upside potential. FY Dec (US$ m) 2016A 2017A 2018F 2019F Turnover 3,842 3,878 3,990 4,233 New orders from China on the plate; trade policy impact is EBITDA 557 584 719 788 limited. Nexteer is negotiating for more business opportunities Pre-tax Profit 386 405 433 485 in China, which could help lift its order backlog in 2H18. Also, Net Profit 295 352 350 393 Net Pft (Pre Ex) (core profit) 295 312 340 393 as Nexteer’s production is highly localised, any trade war EPS (US$) 0.12 0.14 0.14 0.16 between the US and China is expected to have a limited impact EPS (HK$) 0.93 1.10 1.10 1.23 on earnings. With regard to NAFTA, the outcome is still Core EPS (HK$) 0.93 0.98 1.07 1.23 uncertain, though this segment accounts for about 20% of Core EPS (US$) 0.12 0.12 0.14 0.16 EPS Gth (%) 43.4 19.2 (0.4) 12.1 Nexteer’s revenue. But the real impact should be smaller as only Core EPS Gth (%) 43.4 6.0 8.8 12.1 a small portion of its products are shipped back from Mexico to Diluted EPS (HK$) 0.93 1.10 1.10 1.23 the US. DPS (HK$) 0.19 0.22 0.22 0.25 BV Per Share (HK$) 3.33 4.40 5.28 6.29 Electric-autonomous steering system a long-term strategy; mid- PE (X) 12.5 10.5 10.5 9.4 term earnings from strong contract flows. The successful Core PE (X) 12.5 11.8 10.8 9.4 P/Cash Flow (X) 7.2 5.9 4.9 6.8 implementation of such new products can boost Nexteer’s P/Free CF (X) 10.7 9.4 7.3 15.2 long-term development. Based on the new contract flows, it is EV/EBITDA (X) 6.8 6.2 4.6 4.1 expected to post strong earnings growth of 15-20% from FY19 Net Div Yield (%) 1.6 1.9 1.9 2.1 P/Book Value (X) 3.5 2.6 2.2 1.8 onwards, largely coming from the execution of contracts Net Debt/Equity (X) 0.1 CASH CASH CASH secured in FY16. At end-1Q18, the backlog on hand was ROAE (%) 31.2 28.6 22.7 21.3 US$24bn. We maintain our BUY call with an unchanged TP of Earnings Rev (%): Nil Nil HK$15.60, pegged to 14x FY18PE. Consensus EPS (US$) 0.88 0.99 Other Broker Recs: B:17 S:3 H:1 ICB Industry: Consumer Goods At A Glance ICB Sector: Automobiles & Parts Issued Capital (m shrs) 2,505 Principal Business: A leading steering systems producer with Mkt. Cap (HK$m/US$m) 28,909 / 3,698 international automakers as its customers Major Shareholders Source of all data on this page: Company, DBS HK, Thomson Aviation Industry Corporation of China (%) 67.1 Reuters, HKEX Free Float (%) 32.9 3m Avg. Daily Val. (US$m) 7.1 ICB Industry: Consumer Goods / Automobiles & Parts
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Asian Insights SparX Nexteer Automotive Group
Income Statement (US$ m) Balance Sheet (US$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 3,842 3,878 3,990 4,233 Net Fixed Assets 779 884 962 1,083 Cost of Goods Sold (3,181) (3,204) (3,280) (3,454) Invts in Assocs & JVs 11 11 9 7 Gross Profit 662 674 710 779 Other LT Assets 476 523 512 491 Other Opng (Exp)/Inc (246) (246) (253) (268) Cash & ST Invts 484 601 981 1,094 Operating Profit 415 428 458 511 Inventory 262 241 262 268 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 590 611 592 684 Associates & JV Inc 1 (2) (2) (2) Other Current Assets 92 108 119 130 Net Interest (Exp)/Inc (30) (21) (23) (23) Total Assets 2,693 2,979 3,436 3,757 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 75 77 77 77 Pre-tax Profit 386 405 433 485 Creditors 604 582 658 572 Tax (84) (49) (78) (87) Other Current Liab 180 209 256 284 Minority Interest (7) (4) (5) (5) LT Debt 489 414 464 514 Preference Dividend 0 0 0 0 Other LT Liabilities 253 256 256 256 Net Profit 295 352 350 393 Shareholder’s Equity 1,059 1,402 1,682 2,005 Net Profit before Except. 295 352 350 393 Minority Interests 32 38 43 48 EBITDA 557 584 719 788 Total Cap. & Liab. 2,693 2,979 3,436 3,757 Sales Gth (%) 14.3 0.9 2.9 6.1 EBITDA Gth (%) 28.4 5.0 23.0 9.6 Non-Cash Wkg. Cap 158 169 59 225 Opg Profit Gth (%) 32.7 3.1 6.9 11.5 Net Cash/(Debt) (80) 110 439 503 Net Profit Gth (%) 43.5 19.4 (0.4) 12.1 Effective Tax Rate (%) 21.8 12.1 18.0 18.0 Cash Flow Statement (US$ m) Rates & Ratio FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Profit 386 405 433 485 Gross Margins (%) 17.2 17.4 17.8 18.4 Dep. & Amort. 140 158 263 280 Opg Profit Margin (%) 10.8 11.0 11.5 12.1 Tax Paid (68) (33) (49) (78) Net Profit Margin (%) 7.7 9.1 8.8 9.3 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 31.2 28.6 22.7 21.3 (Pft)/ Loss on disposal of FAs 0 0 0 0 ROA (%) 11.4 12.4 10.9 10.9 ChgFAFAsiaries/Invest in Wkg.Cap. ments (-/+) 19 54 81 (175) ROCE (%) 17.9 18.4 15.9 15.4 Other Operating CF 33 41 28 31 Div Payout Ratio (%) 20.0 20.0 20.0 20.0 Net Operating CF 509 625 756 542 Net Interest Cover (x) 13.8 20.1 19.9 21.8 Capital Exp.(net) (165) (234) (250) (300) Asset Turnover (x) 1.5 1.4 1.2 1.2 Other Invts.(net) (1) (2) 0 0 Debtors Turn (avg days) 55.1 56.5 55.0 55.0 Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 69.8 71.1 75.0 70.7 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 31.0 30.1 30.4 30.5 Other Investing CF (118) (121) (80) (80) Current Ratio (x) 1.7 1.8 2.0 2.3 Net Investing CF (283) (357) (330) (380) Quick Ratio (x) 1.2 1.4 1.6 1.9 Div Paid (40) (60) (70) (70) Net Debt/Equity (X) 0.1 CASH CASH CASH Chg in Gross Debt (118) (111) 24 22 Capex to Debt (%) 29.2 47.7 46.2 50.7 Capital Issues 0 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF 3 2 0 0 N.Cash/(Debt)PS (US$) (0.25) 0.34 1.38 1.58 Net Financing CF (155) (169) (46) (48) Opg CFPS (US$) 0.20 0.23 0.27 0.29 Currency Adjustments (3) 18 0 0 Free CFPS (US$) 0.14 0.16 0.20 0.10 Chg in Cash 68 116 380 114 Interim Income Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F Turnover 1,924 1,918 1,974 1,904 Revenues (US$ m) Cost of Goods Sold (1,589) (1,591) (1,603) (1,601) EPS 2,384 2,482 2,454 2,574 Gross Profit 334 327 371 303 HPS 187 177 192 201 Other Oper. (Exp)/Inc (119) (127) (131) (115) Steering column (CIS) 635 637 696 758 Operating Profit 215 200 240 188 Driveline 637 582 648 700 Other Non Opg (Exp)/Inc 0 0 0 0 Others N/A N/A N/A N/A Associates & JV Inc 1 (1) 0 (2) Total 3,842 3,878 3,990 4,233 Net Interest (Exp)/Inc (16) (14) (13) (8) Key Assumptions Exceptional Gain/(Loss) 0 0 0 0 Revenue (US$m) - North 2,513.6 2,533.9 2,514.0 2,539.5 Pre-tax Profit 201 185 227 178 America Europe and South America 429.2 489.6 518.8 634.9 Tax (48) (36) (44) (5) Asia Pacific 899.4 854.5 957.7 1,058.1 Minority Interest (4) (3) (3) (1) Rest of World 0.0 0.0 0.0 0.0 Net Profit 149 146 180 172 Net profit bef Except. 149 146 180 172
Sales Gth (%) 17.1 11.7 2.6 (0.8) Opg Profit Gth (%) 44.3 22.1 11.5 (6.0) Net Profit Gth (%) 54.2 33.9 20.7 18.0 Gross Margins (%) 17.4 17.1 18.8 15.9 Opg Profit Margins (%) 11.2 10.4 12.2 9.9 Net Profit Margins (%) 7.7 7.6 9.1 9.0
Source: Company, DBS HK
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DBS Bank Ltd, 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: 17 Jul 2018 15:08:02 (SGT) Dissemination Date: 17 Jul 2018 15:50:39 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank, DBS HK. This report is solely intended for the clients of DBS Bank Ltd, 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 Bank.
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, 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.
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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.
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.
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, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), or their subsidiaries and/or other affiliates have a proprietary position in the DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Guangzhou Automobile Group Company Limited (2238 HK), Dongfeng Motor Group Company Limited (489 HK), Brilliance China Automotive Holdings Limited (1114 HK), Great Wall Motor Company Limited (2333 HK), Byd Company Limited (1211 HK) and Geely Automobile Holdings Limited (175 HK) recommended in this report as of 29 Jun 2018.
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.
Compensation for investment banking services: 3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Astra International Terbuka (ASII IJ) as of 29 Jun 2018.
4. 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.
Disclosure of previous investment recommendation produced: 5. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates 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 Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates 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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RESTRICTIONS ON DISTRIBUTION 6. General 7. 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.
8.
9. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.
DBSVS is 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. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
10. 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
This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
11. For any query regarding the materials herein, please contact Carol Wu (Reg No. 8283) at [email protected].
12. Indonesia 13. This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
14. Malaysia 15. 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.
16.
Wong Ming Tek, Executive Director, ADBSR
17. 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.
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18. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
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22. 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.
23. Dubai 24. This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, 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.
25. United Arab 26. This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined 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.
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DBS Regional Research Offices HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Limited AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong 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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