CHINA/HONG KONG China autos Shanghai VW’s Lavida – China’s top- selling sedan in 1H Gearing up for peak season 1H results reflect bifurcated market favouring JVs . Results of the 6 Hong Kong listed Chinese auto OEMs were as bifurcated as recent market trends, with Dongfeng Motor (DFG), Brilliance China (BCA) and Guangzhou Auto (GAC) all reporting strong net profit growth in the 41-79% range, while the 3 domestic OEMs delivered YoY declines, with Great Wall (GWM) surprising with just a 3% decline in NPAT, followed by BYD down 15% and Geely’s NPAT falling 29%. Source: China Auto Web, September 2014 Outlook is for continued strong sales in 2H
GWM Haval H6 – China’s top-selling . In the first 7 months of 2014 auto sales are up 8.2% YTD, with passenger SUV in 1H vehicles (PV) up 11.0% and commercial vehicles slipping -3.5% reflecting sluggish FAI, especially in the property market and as concrete incentives to encourage replacement of yellow label vehicles have failed to materialise. We have tweaked our sedan forecast from 13.2% growth to 11.1%, mainly on the back of weaker sedan and minibus sales but better MPV demand. Anti-trust investigation – great headlines but limited impact . The NDRC-led anti-trust investigation of primarily premium brands like Mercedes-Benz and Jaguar Land-Rover but also Japanese parts suppliers led to nervousness among investors and hopes among consumers that luxury car prices might decline. We believe only a handful of high-priced imported cars will see price cuts; otherwise OEMs are cutting spare parts prices. As this Source: Macquarie Research, September 2014 improves the affordability of owning a car, we see it as a positive. Dealers also like the price cuts as consumers will be more likely to return to the dealer Table of coverage, ratings and TPs in for servicing, and margins should remain unchanged. order of preference Name Ticker Price Rating TP TSR Competition is intense but manageable Great Wall 2333 HK 32.55 OP 52.00 65.3% . The international brands continue to launch more products customised for the Dongfeng 489 HK 14.36 OP 17.50 24.7% GAC 2238 HK 8.25 OP 11.50 43.9% China market as well as more lower-priced products, which has resulted in Geely 175 HK 2.89 OP 3.80 32.9% intensified pressure on domestic brand sales. OEMs like Great Wall and Brilliance 1114 HK 13.80 N 15.60 14.2% BYD 1211 HK 56.00 UP 12.80 -77.0% Geely are responding with higher-quality products, including more equipped Note: share prices are as of market close 2 Sept 2014. with automatic transmission. The results of BCA and DFG would suggest that All prices in HK$. so far the OEMs are not raising incentives to dealers, who have borne the Source: FactSet, Macquarie Research, September 2014 brunt of higher discounts and inventory in the face of aggressive sales growth targets from the OEMs.
NEVs are years away from being meaningful to sales . Efforts from various levels of government to increase the penetration have resulted in big percent gains for new energy vehicles (NEVs); sales remain just 0.2% of total PV sales despite heavy government subsidies. Many mainstream OEMs will launch pure electric and hybrid plug-ins over the next Analyst(s) year to improve fleet fuel economy, but sales are likely to remain small as a Janet Lewis, CFA percent of the overall market. +852 3922 5417 [email protected] Zhixuan Lin Top picks remain Great Wall Motor and Dongfeng Motor +86 21 2412 9006 [email protected] Leo Lin . Our highest conviction recommendation remains Great Wall Motor, as we +852 3922 1098 [email protected] believe it will have strong momentum into 2H and 2015, leading to a steady 3 September 2014 stream of upgrades to earnings targets. Similarly, while Dongfeng’s share Macquarie Capital Securities Limited price has been the best performer over the past 3 months, we believe consensus upgrades will highlight its attractiveness.
Please refer to page 10 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Macquarie Research China autos
Fig 1 Snapshot of 1H14 performance – JVs outperform domestic brands Great Wall Geely BYD Brilliance Dongfeng GAC SAIC Changan
Unit sales - group 346,850 187,186 208,235 175,687 1,389,792 503,726 2,861,000 1,134,413 % chg YoY -6.3% -29.0% -20.1% 25.0% 14.8% 18.7% 11.6% 23.9% Revenue - group (Rmb m) 28,527 10,158 25,215 2,496 30,949 10,766 320,014 23,282 % chg YoY 8.0% -31.6% 4.0% -3.0% 217.4% 30.5% 13.9% 19.0% NPAT (Rmb m) 3,954 1,113 361 3,628 8,506 1,725 13,573 3,628 % chg YoY -3.3% -20.4% -15.5% 78.7% 53.6% 41.5% 18.4% 194.8% NPAT as % of 2014 consensus 44.7% 49.2% 29.7% 76.2% 65.0% 41.3% 48.8% 50.2% 1H dividend (Rmb) - - - 439 - 515 - - RoE 26.8% 13.4% 2.5% 52.0% 25.5% 9.8% 20.4% 30.4% Net debt/equity - listed entity -5.0% -30.0% 76.0% 5.0% 5.8% -14.2% -33.3% 31.9% Source: Company data, Macquarie Research, September 2014
Tale of two markets – international brands gain, domestic brands lose . Winners and losers: Looking at the results of 1H from the Chinese OEMs the winners were clearly the JV brands, while the losers were the domestic brands. Geely took the hardest hit among the companies in our coverage, with revenues down 19.6% YoY as it reorganised its brands and dropped weaker models. BYD’s auto business reported a 6.5% decline in revenues as the higher ASP on its NEVs helped to offset the 20% decline in unit sales. Great Wall posted an 8% increase in revenue despite a 6% volume decline helped by the improvement in model mix led by strong sales of the H6 SUV. BMW Brilliance reported the biggest volume increase among the JVs, up 33%, while revenue rose 29.5% YoY. Dongfeng Motor posted a 25.5% revenue increase for passenger vehicles (+28.3% for whole vehicles) on a 21.5% rise in PV volumes and 30.3% higher revenue including commercial vehicles. GAC’s revenues from its JVs rose 9.1% YoY and 13.7% for the group overall including its own vehicles as volumes increased 18.7%. . Outlook for 2H is more mixed – GWM likely to resume growth: We expect more varied performance in 2H due to product launches. Great Wall has the best momentum going into 2H on our view led by the July launch of the H2 SUV, the upcoming launch of the sub-compact H1 SUV and updated sedan models. It is in the process of making most of its vehicles available with automatic transmission (AT), which will broaden the potential customer base. Geely should benefit from the recent launch of the new Emgrand (previously known as the EC7), but overall volumes are likely to remain negative YoY. BYD is pinning its hopes on NEVs, as it ramps production of the Qin PHEV and adds the Tang PHEV SUV as well as a new S7 SUV, but overall volumes are likely to fall YoY. . New models support JVs: In the context of a PV market that is growing 11%, we expect the JVs to continue to exceed this growth rate. Due to a weak 2H, especially the 4Q around the launch of the facelift 5 Series, we believe BMW Brilliance’s volume growth could rise 44% YoY and 3.1% HoH. We are looking for GAC to post 12% YoY growth (up 26% HoH) in 2H helped by new models from Toyota – the Levin compact sedan – and Honda – the Vezel compact SUV and new Fit model. We forecast DFG’s JVs to post 14% YoY growth in 2H (13% HoH) helped by recent launches like the Peugeot 2008 compact SUV, the Nissan X-Trail and new Honda Spirior.
3 September 2014 2 Macquarie Research China autos
Fig 2 New models expected in 2H2014 by OEM Macquarie 2H Model New or facelift Launch date Type target volume Notes
Could also relaunch H8 and H2 New 11/07/2014 Compact SUV launch H9 high-end SUVs 60,000 but not in our numbers Great Wall H1 New Q3 Sub-compact SUV 20,000 C50 Facelift 1/07/2014 Compact sedan 27,000 C30 Facelift Q4 Compact sedan 28,000 Emgrand (old EC7) Facelift 26/07/2014 Compact sedan 90,000 GX9 New Q4 Fullsize SUV 3,000 Geely Risk that it could be pushed GC9 (KC) New Q4 Fullsize sedan 3,000 into 2015 S7 New Q4 Fullsize SUV 10,000 G5 New Q4 Midsize sedan 10,000 BYD No launch date given; likely Tang New Q4 PHEV SUV small volume initially Nissan Qashqai New Q4 Compact SUV 56,131 Upside risk depending on Honda Spirior Facelift Q3 Midsize sedan 3,359 pricing Dongfeng Motor May launch in Q4 but Honda X-RV New Q4 Compact SUV deliveries not expected until - 2015 Toyota Levin New 28/07/2014 Compact sedan 20,000 GAC Honda Vezel New Q4 Compact SUV 15,000 BMW Brilliance PHEV 5 Series New Q4 Fullsize sedan Low volume Q4 or early Brilliance China Jinbei MPV New Luxury MPV 2015 500 May be delayed into 2015 Buick Envision New 1/09/2014 Midsize SUV Chevrolet Cruze Facelift 22/08/2014 Compact sedan SAIC Cadillac ATS L New 15/08/2014 Full size sedan VW Lamando New Q4 Compact sedan Ford Escort New Q4 Compact sedan Changan DS 6 New 27/09/2014 Midsize SUV Source: Company data, Macquarie Research, September 2014
Margins generally being helped by improving mix, lower costs . Model mix helps GPM: Most of the OEMs reported an improvement in their gross profit margin for 1H (we don’t have details for BYD and BMW Brilliance at the GPM level for autos). Great Wall saw a modest decline YoY but there was a strong improvement QoQ to 29.1% in 2Q from 28.0% in 1Q helped by the strong sales of the H6 SUV, which carries a GPM of ~33%. BYD suffered the biggest deterioration in profitability. While GAC posted a solid gain in the GPM at its JVs, this mostly disappeared at the net level as other expenses left the net margin at just 5.1%, up 0.1% YoY. Geely’s gain in margin at both the GP and OP level is remarkable given the big drop in revenue and highlights the benefits of the restructuring of its sales network to eliminate low margin businesses.
Fig 3 GP and OP (segment margin) by OEM for 1H Great Wall Geely Dongfeng Group GAC JVs BMW Brilliance BYD GPM OPM GPM OPM GPM OPM GPM OPM OPM
1H13 29.0% 21.8% 19.2% 8.6% 19.2% 10.0% 15.0% 15.2% 3.9% 1H14 28.6% 19.8% 20.3% 9.0% 21.3% 12.7% 16.2% 20.5% 3.2% Note: For the operating profit margin (OPM) we have deducted SGA from gross profit. The GPM and OPM for DFG for JVs alone were 24.8% and 16.1%, respectively, vs 20.1% and 13.6%, respectively in 2013 (noting the CV business was still included with Nissan then). Source: Company data, Macquarie Research, September 2014
. SUVs helping the mix: Overall SUVs typically carry a higher gross margin than sedans, and we believe this has been a factor for the improving mix. Further, Great Wall and Geely are de- emphasizing their smaller models – or even dropping them in the case of Geely – and focusing on their higher-priced, higher-value-added models. We believe the increased launch of models equipped with AT by the domestic OEMs will further help them raise ASPs and help them claw back market share.
3 September 2014 3 Macquarie Research China autos
Fig 4 International brands – performance by JV (locally made models) Top 3 selling models Units sold % chg YoY Name % chg YoY Name % chg YoY Name % chg YoY
Brilliance China BMW Brilliance 140,012 32% 5 Series 13% 3 Series 44% X1 120% Dongfeng Motors DF Nissan 476,803 21% Sylphy 29% Teana 34% Tiida 1% DPCA Peugeot 183,632 31% Peugeot 308 1% Peugeot New model Peugeot 37% 301 3008 Citroen 159,538 16% Elysee 71% C4 Quatre -18% C4 L 74% DF Honda 171,859 23% CR-V 11% Jade New model Civic -12% GAC GAC Honda 181,556 2% Crider 2531% Accord -28% Fengfan -53% GAC Toyota 176,301 27% Camry 2% Highlander 7% Yaris L 416% GAC Fiat 33,380 80% Viaggio 34% Ottimo HB New model N.A GAC Mitsubishi Motors 29,538 110% ASX 99% Pajero Sport New model Pajero 8% SAIC Shanghai VW 803,445 22% Lavida -2% Santana 69% New Passat 8% Shanghai GM Buick 450,421 12% Excelle 0% Excelle 24% Regal 11% XT/GT Chevrolet 335,486 4% Sail -16% Cruze 16% Malibu 20% Cadillac 14,827 109% Cadillac XTS 367% na Changan Ford 400,454 39% Focus 8% Kuga 77% Mondeo 124% Mazda 41,553 67% CX-5 New model Mazda 3 -49% Mazda 2 -14% Suzuki 137,873 12% Beidouxing -9% New Alto -10% S-Cross New model Note: In instances where an older model is still on the market like for the Camry, Mondeo and Focus, we have combined them; we also include both notchback and hatchback when sold under the same name, as with the Focus. Source: Company data, Macquarie Research, September 2014
. Balance sheets are healthy other than BYD: As shown in Figure 1, the balance sheets are generally healthy other than at BYD. Despite an equity offering in 1H that raised Rmb3.3bn, BYD’s net debt-equity ratio remains high at 76%. It had a net operating cash outflow of Rmb544m and a further investing outflow of Rmb3,803m. Great Wall’s net cash position is enabling it to support its dealers with interest-free inventory for up to 90 days and low rates up to 180 days, which results in the lowest level of discounts in the industry. SAIC, with the highest net cash position helped by its mature JVs with VW and GM, has announced it will pay out 50% of profits as a dividend, making it the highest yielding stock in the sector. Only GAC and Brilliance announced dividends, with GAC likely to provide a year-end dividend as well. Geely’s balance sheet has been flattered by the shift of R&D and capex to the parent. Tweaking full-year forecasts lower – expect 11.1% PV growth for 2014 . Confident double-digit growth continues: Despite wobbles in the broader Chinese economy, personal income growth remained robust in 1H, rising 10.8% YoY. We believe this will continue to support strong demand for autos, which we believe will continue to grow at a double-digit pace in 2H. PVs: We have tweaked our PV forecast lower to 11.1% growth from 13.2%, mainly on lower sedan demand, which we have lowered from 11% growth to 5%. SUVs are growing in line with our initial forecast of 30%, while MPVs are better supported by the stellar demand for the SAIC-GM Wuling Hongguang, which sold 371,649 units in 1H alone, making it the best-selling vehicle in China. This reflects a shift of customer from minibuses, so we have raised our MPV growth to 55% from 5%, while cutting minibuses to a decline of 14% from growth of 5%. CVs: The CV market has been disappointing, as the impact of weak property development resulting in a lack of sustainability to the recovery seen in 2H 2013. Concrete measures to stimulate the replacement of yellow label (high emission) vehicles have not materialised. As a result we have lowered our CV forecast to a decline of -2.8% YoY vs a previous expectation of 10.8% growth. There are pockets of growth, including buses and heavy duty trucks, but medium- and light-weight trucks have been weak. We do expect some recovery in 2015 as property markets stabilise and policy supports replacement of high-emission vehicles.
3 September 2014 4 Macquarie Research China autos
Fig 5 China auto sales volume forecasts ('000 units) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E
Passenger vehicle Sedan 2,789 3,812 4,727 5,040 7,461 9,494 10,122 10,745 12,010 12,610 13,367 14,035 MPV 158 190 226 197 249 445 498 493 1,305 2,023 2,428 2,913 SUV 196 229 357 446 657 1,318 1,594 2,000 2,989 3,885 4,779 5,878 Mini-bus 831 918 988 1,064 1,948 2,492 2,258 2,257 1,625 1,398 1,328 1,261 Sub-total 3,974 5,149 6,298 6,747 10,315 13,749 14,472 15,495 17,929 19,916 21,901 24,088
Commercial vehicle Bus 174 191 247 245 272 356 403 426 477 515 567 623 Truck 1,170 1,312 1,510 1,641 2,247 2,820 2,702 2,653 2,726 2,535 2,839 3,095 Trailer 55 93 178 194 212 354 258 191 263 303 339 373 Bus-chassis 89 98 102 85 83 87 84 82 82 80 80 80 Truck-chassis 292 340 449 449 498 675 585 460 507 510 545 583 Sub-total 1,780 2,035 2,486 2,615 3,312 4,293 4,033 3,811 4,055 3,943 4,370 4,755
Grand total 5,754 7,183 8,784 9,362 13,627 18,042 18,505 19,306 21,984 23,859 26,272 28,843
YoY change (%) Passenger vehicle Sedan 36.7% 24.0% 6.6% 48.0% 27.3% 6.6% 6.1% 11.8% 5.0% 6.0% 5.0% MPV 20.3% 18.5% -12.5% 26.1% 78.9% 11.7% -0.9% 164.5% 55.0% 20.0% 20.0% SUV 16.8% 56.3% 24.8% 47.4% 100.4% 21.0% 25.5% 49.4% 30.0% 23.0% 23.0% Mini-bus 10.5% 7.6% 7.7% 83.2% 27.9% -9.4% -0.1% -28.0% -14.0% -5.0% -5.0% Sub-total 29.6% 22.3% 7.1% 52.9% 33.3% 5.3% 7.1% 15.7% 11.1% 10.0% 10.0%
Commercial vehicle Bus 9.9% 29.5% -0.9% 10.9% 31.1% 13.3% 5.5% 12.1% 8.0% 10.0% 10.0% Truck 12.2% 15.0% 8.7% 36.9% 25.5% -4.2% -1.8% 2.7% -7.0% 12.0% 9.0% Trailer 68.7% 90.8% 9.4% 9.1% 67.2% -27.3% -26.0% 38.2% 15.0% 12.0% 10.0% Bus-chassis 10.4% 4.1% -16.2% -2.4% 4.3% -2.8% -3.2% 0.0% -2.5% 0.0% 0.0% Truck-chassis 16.4% 32.1% -0.1% 11.0% 35.5% -13.3% -21.5% 10.3% 0.5% 7.0% 7.0% Sub-total 14.3% 22.2% 5.2% 26.7% 29.6% -6.1% -5.5% 6.4% -2.8% 10.8% 8.8%
Grand total 24.8% 22.3% 6.6% 45.6% 32.4% 2.6% 4.3% 13.9% 8.5% 10.1% 9.8% Note: Macquarie assumptions are in red. Source: CAAM, Macquarie Research, September 2014
. Increased focus on space: The key trend that is resulting in the strong demand for SUVs and MPVs is the desire for more space, both for passengers – with 7-seater SUVs growing in popularity – and cargo. Vehicles like the GWM Haval H6 and Wuling Hongguang offer the versatility of carrying people and/or cargo – perfect for small business owners.
Fig 6 Wuling Hongguang, China’s best-selling Fig 7 Geely hopes its new Emgrand (old EC7) can vehicle, sells for Rmb44.8-60.8k return to position as best-selling domestic sedan
Source: China Auto Web, Macquarie Research, September 2014 Source: China Auto Web, Macquarie Research, September 2014
3 September 2014 5 Macquarie Research China autos
Confusion but limited impact from anti-trust investigations . Both OEMs and dealers nonchalant: The recent raids on dealers and investigation by anti-trust authorities in China of new vehicle and spare parts pricing has made for some great headlines, but both the OEMs and dealers believe there will be limited impact. There have been a few token cuts to imported vehicle prices by OEMs like Audi and JLR, and most OEMs have announced or are planning price cuts for spare parts. The dealers estimate that on average spare parts prices are likely to drop 0-2%, and they expect to maintain or even expand the margin on after-sales services. As the installed base of cars is very young in China, the impact on sales at the OEMs is also likely to be no more than a percent or so. Longer term, car sales could be boosted by the lower cost of ownership of autos, but the near-term impact overall is likely to be negligible. . Reports of slower sales in August: We have heard that sales of premium cars were slow in early August as buyers were hopeful that new car prices would be cut. We heard from a premium OEM that sales people were spreading the word not to expect any major price cuts other than the very few announced already. In general August sales are likely to be slack, with a pick-up from September for the peak selling season sparked by the launch of new models like the Mercedes- Benz C-Class. . For further details see our notes Impact of anti-monopoly investigation (6 August 2014) Anti-monopoly investigation update – auto parts suppliers are next target (18 August 2014) NEVs are many years off from being meaningful . Big headlines, minimal sales: While various government organisations have given bullish targets for sales of new energy vehicles (NEVs), including pure electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs), the overall sales in China remain very low. Sales in 1H totalled 20,477 units, of which 57.5% were pure EV, more than double YoY; this nevertheless represented just 0.2% of the PV market. Further, most buyers continue to be public, such as for taxis and government department officials. Beijing has directed government bodies to have at least 30% of their vehicle purchases NEVs by 2016.
Fig 8 Major pilot cities implemented plans to promote NEVs Fig 9 Target for charging facilities
By the end of 2015 Total NEV target Public Private By the end of 2015 Charging stations Charging poles Beijing 35,000 25,000 10,000 Beijing 5 35,700 Tianjin 12,000 11,500 500 Tianjin 66 6,700 Shanghai 13,000 6,500 6,500 Shanghai na 6,000 Chongqing 10,000 na na Chongqing 16 275 Shenzhen 35,000 19,000 16,000 Shenzhen 218 39,500 Guangzhou 10,000 6,000 4,000 Guangzhou 105 9,970 Total of 88 cities 252,200 167,800 84,400 Total of 88 cities 1,705 211,700
Source: BYD, government websites, September 2014 Source: BYD, government websites, September 2014
. Public demand doesn’t provide a sustainable business model: Although the targets detailed in Figure 8 include private consumers, we see these as challenging. Even with the exemption of the vehicle purchase tax through the end of 2017 and generous subsidies, the vast majority of consumers are not attracted to the NEVs, especially as most for now come from domestic OEMs with a weak quality track record. The main barriers to NEV adoption globally include the high cost of the vehicles, the limited range of pure EVs, the heavy weight of the battery and lack of appealing models. . Big challenges with charging network: The targets for charging facilities noted in Figure 9 at least reflect an acknowledgement by the authorities that without easy charging, demand will remain limited. It does not address, however, the fact that most urban residents park their cars in a mall-like parking lot with no dedicated parking space, making it difficult to install a charging pole for overnight parking. There has been no unification of standards for charging, so a Tesla pole can’t be used for a BYD vehicle etc.
3 September 2014 6 Macquarie Research China autos
. Once market size is meaningful, big brands will enter: Later this year BMW Brilliance will launch a PHEV of the 5 Series and BMW is starting to import the i3 EV sedan, but volume expectations are limited. Volkswagen has indicated it will have PHEV versions of all its cars available from 2016. At this point it is not clear what the market size will be, but we are confident that once it begins to account for even a few percent of the total market, OEMs with strong brand equity will have their products on the market. With their superior quality and technology, this is likely to squeeze early domestic brand entrants, who lack brand equity and a track-record of quality. Conviction is strongest for Great Wall Motor . GWM – benefiting from new models: We believe Great Wall has the best momentum going into 2H and 2015 from new model launches that are likely to be accretive to margins. As a result, it is our highest conviction Outperform pick. Although for the moment there is more upside to our GAC TP than Dongfeng Motor, looking at 1H earnings, as a result of which our forecasts are under review for both stocks – there would appear to be upside risk to our DFG estimates and downside to our GAC estimates. We believe if Geely delivers the new product it indicated is on track for 2H/early 2015, the outlook for 2015 will be much better. We are not particularly a fan of it outsourcing costs to its parent to flatter earnings, but once growth returns, we believe its valuations, which are well below historic levels, will attract investors.
Fig 10 Great Wall FY1 PER trend bottoming out Fig 11 Dongfeng FY1 PER trend – range bound
X X 14 13.0
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Source: FactSet, Macquarie Research, September 2014 Source: FactSet, Macquarie Research, September 2014
Fig 12 GAC FY1 PER trend – underappreciated again Fig 13 Geely FY1 PER trend – modest uptick lately
X 18.0 20.0
16.0 16.0 14.0
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1-yr fw per avg. +1 stdev -1 stdev 1-yr fw per avg. +1 stdev -1 stdev
Source: FactSet, Macquarie Research, September 2014 Source: FactSet, Macquarie Research, September 2014
3 September 2014 7 Macquarie Research China autos
Fig 14 Brilliance China FY1 PER trend – at bottom but Fig 15 BYD FY1 PER trend – clearly earnings don’t decelerating growth suggests rerating lower matter for BYD investors
X 30.0 80
70 25.0 60
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20 10.0 10
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Source: FactSet, Macquarie Research, September 2014 Source: FactSet, Macquarie Research, September 2014
3 September 2014 8
3 September 2014 September 3 Research Macquarie Fig 16 Macquarie global autos coverage valuations and performance summary
Stock Code Rating Mkt cap Price TP +/- Price performance (in US$) FY1 EPS FY1 FY1 FY2 FY1 EV/ FY2 EV/ FY1 Lead analyst US$m (local) (local) 1-mth 3-mth 12-mth Cents P/E P/E EBITDA EBITDA ROE Dealers Baoxin 1293 HK Outperform 1,901 5.76 10.00 74% -8.1% -10.7% -13.9% 2014E 57.2 8.0 5.6 5.3 4.0 27.9 Janet Lewis
DCH 1828 HK Outperform 1,142 4.80 7.10 48% 2.3% -3.0% -18.7% 2014E 58.8 8.2 6.8 6.1 5.2 11.6 Janet Lewis
Yongda 3669 HK Neutral 1,371 7.18 7.40 3% 5.1% 2.8% -4.2% 2014E 59.2 9.6 7.0 5.9 4.5 22.3 Zhixuan Lin Zhengtong 1728 HK Outperform 1,206 4.19 7.30 74% 2.2% 4.5% -12.7% 2014E 44.1 7.5 5.7 4.5 3.6 12.3 Zhixuan Lin Zhongsheng 881 HK Outperform 2,382 8.60 10.30 20% -12.5% -11.5% -19.7% 2014E 56.3 12.1 8.7 8.8 6.9 12.6 Zhixuan Lin OEMs Great Wall 2333 HK Outperform 12,935 32.55 52.00 60% 0.9% 2.4% -18.5% 2014E 301.6 8.6 6.0 5.8 4.1 29.4 Janet Lewis Dongfeng 489 HK Outperform 16,009 14.36 17.50 22% 6.5% 20.7% 31.3% 2014E 126.4 9.0 7.2 7.6 6.2 16.1 Janet Lewis GAC 2238 HK Outperform 6,933 8.25 11.50 39% -3.6% 1.0% -1.6% 2014E 74.3 8.8 6.5 6.6 5.1 13.5 Janet Lewis Geely 175 HK Outperform 3,350 2.89 3.80 31% -6.5% -0.3% -29.3% 2014E 26.5 8.7 7.9 3.6 3.3 13.7 Janet Lewis Brilliance 1114 HK Neutral 8,936 13.80 15.60 13% -2.8% 7.4% 19.4% 2014E 95.9 11.4 9.7 10.5 8.8 31.6 Janet Lewis BYD 1211 HK Underperform 18,274 56.00 12.80 -77% 11.4% 47.4% 99.4% 2014E 40.7 109.2 86.9 18.0 16.0 4.2 Janet Lewis BMW BMW GY Neutral 75,774 87.99 93.00 6% -1.9% -7.2% 20.3% 2014E 929.1 9.5 9.8 3.8 3.9 16.2 C. Breitsprecher Daimler DAI GY Outperform 86,786 61.82 74.00 20% -0.7% -14.0% 15.9% 2014E 591.3 10.5 7.7 3.5 2.9 14.1 C. Breitsprecher Fiat SpA F IM Underperform 11,780 7.38 5.80 -21% 1.4% -7.3% 26.4% 2014E 67.2 11.0 6.9 2.0 1.7 9.7 J. Schattner Peugeot UG FP Underperform 10,654 10.54 8.90 -16% -4.6% -1.7% 17.9% 2014E (13.9) nmf 12.1 3.0 2.6 (0.5) J. Schattner Renault RNO FP Outperform 22,818 58.80 82.00 39% -4.5% -17.7% 8.2% 2014E 552.9 10.6 6.4 5.9 4.5 6.5 J. Schattner Volkswagen VOW3 GY Outperform 107,095 171.55 230.00 34% -3.1% -15.4% -3.1% 2014E 1,989.0 8.6 7.5 3.3 2.9 10.9 C. Breitsprecher Volvo VOLVB Outperform 24,092 83.25 108.00 30% -2.5% -17.2% -18.6% 2014E 285.6 29.1 12.2 10.4 7.1 7.6 J. Schattner Ashok Leyland AL IN Underperform 1,790 38.15 27.00 -29% 13.2% 13.2% 232.9% FY14/15E (56.0) nmf 37.8 26.7 15.1 (3.4) Amit Mishra Bajaj Auto BJAUT IN Underperform 10,775 2,258 1,850 -18% 10.5% 11.4% 32.7% FY14/15E 12,300.4 18.4 17.2 14.4 13.4 34.3 Amit Mishra Hero MotoCorp HMCL IN Neutral 9,225 2,802 2,500 -11% 8.6% 14.5% 50.7% FY14/15E 14,046.3 19.9 17.9 13.5 12.2 45.4 Amit Mishra M&M MM IN Outperform 13,591 1,396 1,475 6% 20.0% 9.7% 98.6% FY14/15E 6,170.6 22.6 17.3 16.1 12.5 21.0 Amit Mishra Maruti Suzuki MSIL IN Outperform 14,509 2,913 2,900 0% 13.4% 22.0% 144.3% FY14/15E 11,257.3 25.9 18.4 17.2 13.6 15.1 Amit Mishra Tata Motors TTMT IN Outperform 27,407 516 540 5% 18.3% 19.5% 87.9% FY14/15E 5,130.1 10.1 7.4 5.1 4.2 22.3 Amit Mishra Hyundai Motor 5380 KS Outperform 45,527 225,500 290,000 29% -5.7% 0.1% -0.3% FY14/15E 37,110.9 6.1 5.7 4.9 4.6 14.7 Michael Sohn Kia Motors 270 KS Outperform 23,548 60,100 72,000 20% 0.4% 3.9% -1.9% FY14/15E 8,753.0 6.9 6.6 3.8 3.5 16.2 Michael Sohn Source: Closing prices as of 2 Sept 2014; FactSet, Macquarie Research, September 2014
China autos China
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Macquarie Research China autos
Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand This is calculated from the volatility of historical All "Adjusted" data items have had the following Outperform – return >3% in excess of benchmark return price movements. adjustments made: Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for Underperform – return >3% below benchmark return Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging, expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense Benchmark return is determined by long term nominal – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property GDP growth plus 12 month forward market dividend speculative. revals, appraisal value uplift, preference dividends & yield minority interests Macquarie – Asia/Europe High – stock should be expected to move up or Outperform – expected return >+10% down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa* Neutral – expected return from -10% to +10% be aware this stock could be speculative. ROA = adjusted ebit / average total assets Underperform – expected return <-10% ROA Banks/Insurance = adjusted net profit /average Medium – stock should be expected to move up total assets Macquarie First South - South Africa or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds Outperform – expected return >+10% Gross cashflow = adjusted net profit + depreciation Neutral – expected return from -10% to +10% Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average Underperform – expected return <-10% move up or down at least 25–30% in a year. number of shares Macquarie - Canada Outperform – return >5% in excess of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks Neutral – return within 5% of benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial Underperform – return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks Reporting Standards). only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell Recommendations – 12 months 3000 index return Note: Quant recommendations may differ from Neutral (Hold) – return within 5% of Russell 3000 index Fundamental Analyst recommendations return Underperform (Sell)– return >5% below Russell 3000 index return
Recommendation proportions – For quarter ending 30 June 2014 AU/NZ Asia RSA USA CA EUR Outperform 51.67% 60.69% 34.67% 42.33% 55.41% 44.84% (for US coverage by MCUSA, 6.76% of stocks followed are investment banking clients) Neutral 33.00% 23.93% 38.67% 50.92% 38.51% 35.87% (for US coverage by MCUSA, 7.25% of stocks followed are investment banking clients) Underperform 15.33% 15.38% 26.67% 6.75% 6.08% 19.28% (for US coverage by MCUSA, 0.48% of stocks followed are investment banking clients)
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