Consumer Discretionary / China 18 June 2015 Initiation: pockets of strength China Autos Sector • Even though overall 2015 PV sales growth is likely to slow to just Positive 8% YoY, demand growth for SUV/MPVs should remain strong Neutral (initiation) • Local brands trump the foreign JV brands; among the foreign JVs, we prefer luxury marque Mercedes-Benz Negative • Initiating coverage with a Neutral sector view; our stock pecking order is Geely, BAIC, BYD, GWM and GAC How do we justify our view? local brands in price-sensitive lower- We like Geely as we expect its net tier cities over 2015-16. profit to rebound sharply YoY in 2015, and because it is reducing its 2. SUV makers are cashing in. exposure to Russia. Long term, we In 2015-16, we expect the OEMs to expect Geely to become one of the Kelvin Lau launch more new SUV models, the strongest local brands in terms of (852) 2848 4467 segment in which we expect demand technology and quality. Among the
[email protected] growth to be the strongest. We foreign JV brands, we like BAIC forecast SUV/MPV sales volumes for Motor (BAIC; 1958 HK, HKD9.30, Brian Lam 2015-16 to rise by 25-40% YoY (vs. a Buy [1]), due to the strong earnings (852) 2532 4341 3% YoY decline for sedans). Further contribution from Mercedes-Benz.
[email protected] out, competition in the SUV segment is likely to intensify. We think BYD Company (BYD, ■ Investment case 1211 HK, HKD49.50, Outperform 3. Selective luxury JV brands We initiate coverage of the China [2]) will appeal to investors looking still shine.