China A-Share Autos

CHINA/HONG KONG China A-Share Autos A-share companies under coverage with EV exposure Electric logistics vehicles on fire Company Ticker Price Rating TP Yutong Bus 600066 CH 20.04 OP 28.00 Event King Long 600686 CH 14.80 OP 18.00 SAIC 600104 CH 20.13 OP 27.70 . The A-share listed electric vehicle (EV) producers and suppliers had a strong Jiangling Motors 000550 CH 24.17 OP 30.00 rally in share prices this week (see Fig 1 on page 2), as the electric logistics JAC Motor 600418 CH 13.17 N 11.50 vehicles (mainly electric light duty trucks) is emerging as a new and fast- BYD-A 002594 CH 59.42 UP 21.70 growing market segment and has got a lot of traction from investors. Note: share price and target prices are in listing currency; updated as of 16 June 2016 market close. Jiangling Motors (000550 CH) is our top pick among the truck producers for Source: Bloomberg, Macquarie Research, June 2016 its leading position in China’s light duty truck (LDT) market and a strong line- up of electric logistics vehicles. We reiterate our Outperform rating on Yutong Bus (600066 CH) and King Long Motor (600686 CH) as they should continue to benefit from rising profit contribution from fast-growing electric bus (E-bus) sales. Impact . Electric logistics vehicles are set to grow at high speed. As highlighted in our recent report China Truck Market, we believe the rising demand from the logistics industry will drive LDT demand in coming years. Electric trucks or electric light buses are ideal products for short-distance transportation services and demand should rise quickly on the back of strong growth in e- commerce. China sold a total of 47.8k new energy logistics vehicles (including 44.5k electric logistics vehicles) in 2015 and we expect the market should grow at 44% CAGR to 300k units in 2020. Jiangling Motors has a strong line-up of electric logistics vehicles. Eight electric logistics vehicles from Jiangling and its parent company have been qualified for the government subsidies. We believe Jiangling will have competitive advantages in this new market by leveraging its renowned brand, extensive distribution and large customer base. JAC investing Rmb2bn for electric trucks. JAC’s electric trucks mainly target urban garbage transportation and logistics service markets and a number of products have been launched since 2014. In July 2015, JAC announced it would invest Rmb2bn for high-end electric truck projects and it has started the construction of a new factory in Wuhan. King Long and its subsidiaries have 39 electric logistics vehicles (mainly derived based on the light buses) qualified for government subsidies and the drive range varies from 110 to 320 kilometres. Yutong has one electric logistics vehicle qualified for government subsidies and we believe it will continue to focus on the bus market. Analyst(s) Outlook Zhixuan Lin +86 21 2412 9006 [email protected] . Electric logistics vehicle represents a new and fast-growing market and it will Allen Yuan +86 21 2412 9009 [email protected] continue to be the focus of China A-Share investors in coming years in our Leo Lin view although the volume and profit contribution remains limited at this stage. +852 3922 1098 [email protected] Janet Lewis, CFA . Companies with strong R&D capability and sustainable business model (i.e. +852 3922 5417 [email protected] recurring profit) will be the long-term winners. Jiangling Motors and Yutong 16 June 2016 Bus are our top picks. King Long Motors and JAC should also benefit from Macquarie Capital Limited the rising demand of electric logistics vehicles. Please refer to page 3 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. Macquarie Research China A-Share Autos Fig 1 Share price performance of EV manufacturers and suppliers Ticker Company Share price performance Rating Target price OEM 13-16 June 2016 600066 CH Yutong Bus 3% Outperform 28.00 600686 CH King Long Bus 18% Outperform 18.00 600418 CH JAC 11% Neutral 11.50 000550 CH Jiangling Motor 4% Outperform 30.00 002594 CH BYD-A 3% Underperform 21.70 1211 HK BYD -3% Underperform 26.10 600104 CH SAIC 0% Outperform 27.70 600006 CH Dongfeng Auto 8% NR 601777 CH Lifan Industry Group 19% NR Average 7% Battery Raw materials 002466 CH Sichuan Tianqi Lithium Industries 5% NR 002460 CH Jiangxi Ganfeng Lithium 8% NR 000762 CH Tibet Mineral 8% NR Average 7% Battery 002074 CH Guoxuan High-tech 12% NR 000559 CH Wanxiang Qianchao 8% NR 300068 CH Narada Battery 15% NR 1043 HK Coslight Group 4% NR 000049 CH Desay Battery 11% NR 600869 CH Fast East Smart Energy 25% NR 300088 CH Token Science 9% NR Average 12% Battery materials 300073 CH Easpring Material Tech 10% NR 600884 CH Shanshan Corporation 20% NR 300037 CH CAPCHEM 10% NR 002407 CH Do-Fluoride New Energy 8% NR 300014 CH EV Energy 15% NR 002108 CH Cangzhou Mingzhu 12% NR 002709 CH Tinci Materials 19% NR 000839 CH CITIC Guoan 3% NR 002340 CH Green Eco-manufacturer 6% NR Average 12% Battery management system 002533 CH Gold Cup Electric 5% NR 600699 CH Ningbo Joyson Electronic 14% NR 300207 CH Sunwoda Electronic 10% NR 600303 CH SG Automotive 8% NR Average 9% Electric motor and control system 300224 CH Yantai Zhenghai Magnetic Material 8% NR 002176 CH Jiangxi Special Electric Motor 12% NR 002196 CH Zhejiang Founder Motor 17% NR 600580 CH Wolong Electric 9% NR 002056 CH DMEGC Magnetics 20% NR Average 13% Operation and charging pile suppliers 002227 CH Shenzhen Auto Electric Power Plant 15% NR 002276 CH Wanma Group 13% NR 300001 CH TGOOD 6% NR 300141 CH Heshun Electric 10% NR 002441 CH Zhongyeda Electric 11% NR 300153 CH Cooltech Power 33% NR Average 15% Note: share price and target prices are in listing currency; updated as of 16 June 2016 market close; NR = not rated Source: Bloomberg, Macquarie Research, June 2016 16 June 2016 2 Macquarie Research China A-Share 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 – 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 31 March 2016 AU/NZ Asia RSA USA CA EUR Outperform 50.34% 59.09% 46.67% 44.76% 60.66% 46.12% (for global coverage by Macquarie, 3.72% of stocks followed are investment banking clients) Neutral 34.14% 25.66% 32.00% 49.90% 30.33% 35.10% (for global coverage by Macquarie, 4.79% of stocks followed are investment banking clients) Underperform 15.52% 15.26% 21.33% 5.33% 9.02% 18.78% (for global coverage by Macquarie, 2.31% of stocks followed are investment banking clients) Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities.

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