China / Hong Kong Industry Focus China Auto Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 1 June 2016

Cheaper luxury in the offering HSI: 20,761 • Rollout of cheaper second-liner premium brands in China broadens consumer choices ANALYST Rachel MIU +852 2863 8843 • Among German players, Mercedes-Benz and BMW are [email protected] launching many new models to boost sales Keith TSANG • Switch to Brilliance (1114 HK) and Dongfeng (489 HK) [email protected] from GAC (2238 HK) Recommendation & valuation New second-liner premium brands changing supply Company Price Target Recom FY16F Mkt dynamics. Following the localisation of (), DS Price PE Cap (PSA Peugeot Citroen), and Volvo, more are expected to enter HK$ HK$ x US$m the Chinese market, changing the premium market landscape. Apart from Lexus (), (Honda) is Auto manufacturers expected to be localised soon in China. Although the German Brilliance China 7.70 9.10 Buy 8.4 5,002 auto players will still dominate the premium car market, the (1114 HK) entry of the second liners will expand the premium car market Dongfeng Motor 8.77 12.70 Buy 4.9 9,723 pie. In our view, despite diluting the premium car players’ (489 HK) market share, these second liners will also compete with the Auto 4.12 3.60 Hold 10.5 4,665 (175 HK) high-end segment of the mass market, given their cheaper Great Wall Motor* 5.96 6.70 Hold 5.4 10,161 pricing strategy post localisation. (2333 HK) Widening disparity between German premium auto Guangzhou Auto 9.20 10.60 Buy 9.5 17,988 brands. Based on sales data, the three major German (2238 HK) automakers have sold about 500,000 units in 4M16, y-o-y BAIC Motor 5.43 n.a. NR 7.7 5,307 growth of c.15%. Among all, Mercedes-Benz remains the (1958 HK)^ leader since it turned around in 2013. The two other German CQ Changan 'B' 10.98 n.a. NR 3.9 6,589 brands posted slower growth, due largely to model cycle (200625 CH)^@ revamp and slow industry demand. BMW sales momentum SAIC Motor 'A' 20.20 n.a. NR 7.1 33,836 should improve following the launch of the new models in the (600104 CH)^@ coming months. Auto dealers China ZhengTong 2.85 3.60 Buy 6.5 811 New models crucial to drive sales during weak market (1728 HK) Based on sales numbers we tracked, sales of sentiment. ZhongSheng* 4.13 4.20 Buy 10.6 1,141 premium cars mostly grew by 2-42% y-o-y in 4M16. Among (881 HK) the German players, BMW Brilliance has three new models on Auto parts & components hand (X1, BMW 2 and BMW 3 series) and it will be phasing out Minth Group* 23.25 18.10 Buy 14.2 3,337 the BMW 5 series to make way for the new car. The product (425 HK) cycle revamp is important to drive future earnings. We suggest Nexteer Automotive 7.88 9.40 Buy 10.1 2,531 switching into Brilliance as post the product revamp cycle, the (1316 HK) company’s earnings momentum will start to pick up and its Xinchen China 1.05 1.60 Buy 4.6 173 current valuation is attractive. Although we still like GAC as a (1148 HK) mid-term play, its share price might subject to profit-taking Xingda Int'l 1.60 n.a. NR 7.5 306 after outperforming the market YTD and valuation is relatively (1899 HK)^ expensive compared to peers. Hence, switch to Dongfeng Motor for its attractive valuation and exposure to the second- ^ Consensus liner premium auto brand. Besides, the company’s various * TP & Rating under review foreign JVs have many new models to support sales growth. @ RMB Source: Thomson Reuters, DBS Vickers

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Industry Focus China Auto Sector

Second-liner premium brands' localisation strategy should support decent sales growth in coming few months. The passenger vehicle unit sales grew by c.7% y-o-y in 4M16. At the Localisation helps second-liner premium brands duck China’s same time, it also offers an opportunity to bottom fish certain 25% import tariff. The lower production costs allow the brand quality automobile names at cheaper valuations. owners to set competitive prices on their vehicles to capture a wider audience in China. Ultimately, localisation helps to Premium car players’ ranking. Among the premium car players, increase volume sales. Hence, there are rising number of new BAIC Motor stands out from peers, largely driven by the strong premium models being localised in China from both the Mercedes-Benz car demand in China. Mercedes-Benz has the existing players and the second-liner brands. In 2015, the new E-Class, C-Class coupe, and GLS SUV models in the premium car segment's share of the total passenger vehicle pipeline. In the 4M16, the JV with Daimler has sold 43% more market was around 7%, vs 8.6% in South Korea and >10% in Mercedes-Benz cars over the same period last year. However, developed countries. It implies China’s premium car market has the company's share price performance is being bogged down room for expansion. by the weak Hyundai car sales in China. This JV reported a 12% decline in vehicle sales in 4M16. Not all localisation strategy works initially. Land Rover suffered an initial setback when it first started the production of its We like Brilliance in the premium auto brand space. Although Range Rover Evoque. Sales slowed for this high-end premium the company is currently undergoing a product revamp cycle, brand as consumers were accustomed to the imported cars. we look forward to a stronger product portfolio in the mid- Similarly in 2015, total Jaguar Land Rover sales fell by c.24% y- term to boost earnings. Every automaker will experience some o-y. However, the sales volume has started to recover this year negative short-term impact when they undergo a major and for 4M16, it expanded 17% y-o-y. The JV with Auto product revamp programme. With three new models on hand, also produces the Land Rover Discovery Sport model. sales should improve.

Automakers increasing capacity, a possible risk. Many Mass-market auto brand pick. Dongfeng is the cheapest automakers are setting up new production capacity as they are among the automakers. We expect its Honda JV to continue to bringing more cars into China for local production. The rate of do well as the New Civic and Elysion models should drive capacity expansion in the near term outweighs the demand volume growth. Although sales at the Peugeot Citroen SA (PSA) growth. Hence, many automakers are cutting back on JV slowed YTD because of an ongoing major product revamp production output to avoid the repeat of inventory over- cycle, the sales momentum should start to pick up again going stocking at the dealer level. Other than Mercedes-Benz, the into the peak season, following the new model launches, such other premium car makers have raised sales at a more subdued as the new 3008 model in coming months. The Infiniti JV is rate. Mercedes Benz China has been doing very well since it also ramping up its operation in China. revamped its sales strategy in 2013. In 4M16, its sales volume grew by c.42% y-o-y, outpacing its rivals Audi and BMW by a Guangzhou Automobile has a strong sales outlook. More wide margin. Beneficiaries of Mercedes-Benz's success include importantly, the local production of the Jeep Cherokee has BAIC Motor (1958 HK; NR) and Zhongsheng (881 HK; BUY; TP produced positive results with over 23,000 units sold in 4M16. HK$4.20). Following the Jeep Renegade production in the pipeline, it should further boost the underlying fundamentals. In 4M16, Recent earthquake could lead to Lexus supply shortage. GAC recorded a c.30% increase in passenger vehicle sales, Localisation is not for every automaker. Toyota prefers to keep largely driven by SUV (+ 158% y-o-y for both foreign and its Lexus production in Japan. However, the recent earthquake in domestic brands). However, GAC's share price has Japan’s Kumamoto Prefecture on the Kyushu Island has affected outperformed the market YTD and there could be some short- some production facilities, which could lead to shortage of term profit-taking on this counter. We believe its mid-term supply, including the Lexus models in the near-term. earnings fundamental is intact.

We have Neutral rating on the Chinese auto brands, Geely Traditional slow months in the Chinese automobile (175 HK) and Great Wall Motor (2333 HK). For Geely, the market offer accumulation opportunity company targets to achieve volume sales growth of 18% this year but for 4M16, it has chalked around 188,000 units, Expect passenger vehicle sales to slow in coming months. The presenting a 4% y-o-y expansion and c.30% of its full-year automobile sales in China will slow on m-o-m basis. The market target. Great Wall Motor is facing rising competition from will only re-look at the Chinese auto sector in late 3Q when the other SUV players and for 4M16, its SUV sales increased by peak season starts. Given the low-base effect in the passenger only 9% y-o-y, far below the SUV market's growth of 46%. vehicle market last year, the vehicle purchase tax cut this year

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Industry Focus China Auto Sector

Monthly vehicle sales in China '000 units Apr-15 Mar-16 Apr-16 YoY MoM 4M15 4M16 YTD YoY As a % of growth growth growth total (%) (%) (%) vehicle (4M16) China total vehicle sales 1,995 2,440 2,122 6.4 (13.0) 8,148 8,644 6.1

Passenger Vehicles 1,669 2,056 1,779 6.6 (13.5) 6,974 7,440 6.7 100% Sedan 932 1,039 905 (2.9) (12.8) 4,036 3,722 (7.8) 50% MPV 167 234 180 7.5 (23.4) 750 849 13.3 11% SUV 462 693 609 32.0 (12.1) 1,754 2,565 46.3 34% Cross 108 90 85 (21.5) (5.1) 435 303 (30.2) 4% Commercial Vehicles 326 384 343 5.4 (10.6) 1,174 1,203 2.5 100% Bus 42 44 40 (6.2) (9.9) 162 147 (9.3) 12% Truck 214 254 229 6.9 (9.7) 783 809 3.2 67% Tow Truck 26 37 32 21.1 (14.3) 82 104 26.1 9% Unfinished Bus 6 6 5 (17.9) (9.6) 19 19 (0.6) 2%

Unfinished Truck 37 43 38 2.5 (13.5) 127 125 (1.5) 10% Source: CEIC

Monthly vehicle sales - Automakers units Apr-15 Mar-16 Apr-16 YoY MoM 4M15 4M16 YoY growth growth growth (%) (%) (%) BAIC 24,821 36,972 29,697 19.6 (19.7) 112,362 126,862 12.9 Brilliance 23,438 33,253 29,123 24.3 (12.4) 98,125 109,511 11.6 Changan 227,257 310,811 223,590 (1.6) (28.1) 1,032,015 1,062,109 2.9 Dongfeng 246,062 268,620 240,411 (2.3) (10.5) 882,045 923,622 4.7 GAC 103,950 133,427 127,561 22.7 (4.4) 348,505 459,719 31.9 Geely 40,120 49,903 44,590 11.1 (10.6) 180,643 187,913 4.0 Great Wall 78,255 83,531 79,607 1.7 (4.7) 299,107 313,033 4.7 SAIC 442,755 568,108 473,356 6.9 (16.7) 1,981,349 2,080,967 5.0

Source: Companies

Monthly vehicle sales – Premium brands units Apr/15 Mar/16 Apr/16 YoY MoM 4M15 4M16 YoY growth growth growth (%) (%) (%) Audi 45,296 50,986 49,576 9.4 (2.8) 178,612 189,116 5.9 BMW 37,976 46,890 35,116 (7.5) (25.1) 152,970 162,221 6.0 BMW Brilliance 22,310 25,431 23,443 5.1 (7.8) 93,738 89,630 (4.4) Mercedes Benz 27,069 38,133 35,625 31.6 (6.6) 105,252 142,266 35.2 BAIC - Benz 15,776 23,252 22,430 42.2 (3.5) 64,711 92,262 42.6 Cadillac 6,197 7,588 7,007 13.1 (7.7) 25,705 27,698 7.8 DS - Changan 2,472 1,355 1,516 (38.7) 11.9 8,229 6,495 (21.1) Infiniti - Dongfeng 2,519 2,217 583 (76.9) (73.7) 6,461 6,563 1.6 V olvo 6,732 7,542 6,280 (6.7) (16.7) 24,043 25,916 7.8 Jaquar Land Rover 8,289 10,403 9,135 10.2 (12.2) 31,815 37,214 17.0 Source: Companies

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Industry Focus China Auto Sector

Production capacity of premium brands new entrants Vehicle inventory alert index

Brand Units Location % 80 J eep - Cheokee 246000 Changsha 70 - Renegade 160,000 Guangzhou 60 Cadillac 160,000 Shanghai Land Rover 130,000 Changshu, J iangsu 50 Infiniti 60,000 Xiangyang, Hubei* 40 Volvo 120,000 Chengdu 30 DS 200,000 Shenzhen 20 10 0 Jul-13 Jul-14 Jul-15 Jan-13 Jan-14 Jan-15 Jan-16 Oct-13 Oct-14 Oct-15 Apr-13 Apr-14 Apr-15 Apr-16 * Factory has a 250,000-unit capacity p.a., of which 60,000 units are Source: CADA dedicated to Infiniti

Source: Companies

China M2 vs auto sales growth Global annual premium segment sales

Region ('000 units) 2015 2020 Chg. (%) YoY, % YoY, % 35 140 30 120 World 7,749 9,012 16 100 Rest of World 605 759 25 25 80 BRIKT* 475 612 29 20 60 China (Mainland) 1,793 2,345 31 40 15 J apan 225 229 2 20 10 0 North America 1,944 2,173 12 5 Western Europe 2,707 2,894 7 (20) 0 (40) Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 China M2 growth (LHS) China vehicle sales growth (RHS)

Source: CEIC * BRIKT refers to Brazil, Russia, India, South Korea and Turkey

Source: Global Insight 04/2016

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Industry Focus China Auto Sector

Premium car selling price range Monthly total vehicle sales in China

Brand ASP (Rmb '000) Capacity m units 3.0 BMW 2 series 236.9 - 331.9 1.5T, 2.0T Cadillac ATS-L 288.8 - 428.8 2T 2.5 DS 4S 149.9 - 229.9 1.2T, 1.6T, 1.8T 2.0 DS 5LS 149.8 - 240.8 1.6T, 1.8T Infiniti Q50L 279.8 - 429.8 2.0T 1.5 Infiniti QX50 349.8 - 449.8 2.5T 1.0 Lexus ES 298.0 - 398.0 2.0T, 2.5T Lexus IS 369.0 - 480.0 2.0T 0.5 Volvo 40 233.9 - 299.9 1.5T, 2.0T 0.0 Volvo S60L 266.9 - 390.9 1.5T, 2.0T Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Volvo XC60 354.2 - 676.9 2.0T, 2.5T

2011 2012 2013 2014 2015 2016

Source: Companies Source: CEIC

Share price performance

Share Price Performance (%) Company Code 1-day 1-month 3-month 6-month 1-year YTD 2014 2015 Baoxin Auto 1293 HK 0.0 0.2 1.4 51.7 (23.6) 1.6 (40.5) 8.3 China Harmony 3836 HK (1.1) (6.6) 12.8 (23.4) (59.0) (17.6) 18.4 (15.8) China Meidong 1268 HK 2.1 (3.0) 36.1 27.3 (49.5) (2.0) 9.8 (44.1) China Yongda 3669 HK 0.0 (10.1) (11.6) (28.7) (37.5) (36.2) (26.8) 14.7 China ZhengTong 1728 HK 0.7 (10.4) 2.9 (11.2) (46.6) (20.2) (30.6) 3.5 Dah Chong Hong 1828 HK 4.6 12.1 17.2 (9.5) (22.0) (7.7) (27.8) (6.7) Sparkle Roll 970 HK 0.0 (1.1) (8.2) 0.0 (11.8) (31.8) (47.7) 97.0 Zhongsheng 881 HK (1.0) 3.5 11.9 8.1 (35.7) (11.9) (34.6) (33.0) Minth 425 HK 1.8 14.5 66.1 53.2 23.7 51.0 0.0 (4.3) Nexteer 1316 HK 0.6 (3.7) 4.4 (8.2) (15.0) (8.6) 49.9 29.8 2338 HK (1.0) (4.0) 19.4 12.8 (39.6) 4.8 4.6 (47.5) Xinchen China 1148 HK 1.0 (13.9) (9.5) (40.0) (70.0) (41.0) (53.1) (27.0) BAIC Motor 1958 HK (0.2) (17.0) (1.6) (30.7) (50.1) (30.0) n.a. (13.6) Brilliance China 1114 HK 2.0 0.1 19.6 (24.1) (37.1) (21.0) (1.4) (21.7) BYD 1211 HK (1.6) (3.2) 13.2 5.2 (18.8) 3.8 (20.1) 40.5 Dongfeng Motor 489 HK 1.3 2.9 (3.9) (17.7) (31.3) (15.3) (9.6) (5.6) Geely Auto 175 HK 0.2 6.5 38.7 0.7 (0.2) (0.2) (34.1) 67.2 Great Wall Motor 2333 HK (0.3) 1.4 4.0 (38.4) (66.1) (34.0) 3.0 (38.6) Guangzhou Auto 2238 HK 3.5 1.9 36.1 22.8 13.3 33.1 (16.7) (2.1)

HSI HSI (0.3) (1.5) 7.0 (7.2) (24.8) (5.3) 1.3 (7.2)

Source: Thomson Reuters

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Industry Focus China Auto Sector

Premium car models

Volvo XC90 DS4S Mercedes Benz New E-Class

Mercedes Benz New C-Class Coupe Acura ILX Acura RDX

Volvo XC90 Infiniti QX50 Lexus New IS

Source: Companies

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Industry Focus China Auto Sector

Peers valuation - Automakers Mkt PE PEYieldYield P/Bk P/Bk EV/EBITDA ROE ROE Currency Price Cap Fiscal 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F Company Name Code Local$ US$m Yr x x % % x x x x % % Hong Kong GZ Auto 'H'* 2238 HK HKD 9.2 17,988 Dec 9.5 8.3 3.2 3.6 1.1 1.0 5.3 4.5 12.7 12.7 (Hongkong) 3808 HK HKD 3.61 1,283 Dec 17.8 14.2 2.0 2.5 0.4 0.4 3.4 3.2 2.6 3.2 Dongfeng Motor 'H'* 489 HK HKD 8.77 9,723 Dec 4.9 4.5 2.7 2.7 0.7 0.6 2.6 2.2 14.5 13.9 Brilliance China* 1114 HK HKD 7.7 5,002 Dec 8.4 7.1 1.2 1.3 1.4 1.2 8.6 7.1 17.8 17.7 Great Wall Motor 'H'* 2333 HK HKD 5.96 10,161 Dec 5.4 5.2 5.5 5.7 1.1 0.9 3.5 3.5 20.6 18.7 BYD 'H' 1211 HK HKD 44.25 14,098 Dec 26.9 20.6 0.1 0.2 2.4 2.2 11.1 9.8 9.9 11.0 'H' 1122 HK HKD 2.53 808 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6.1 6.2 Geely Automobile* 175 HK HKD 4.12 4,665 Dec 10.5 9.2 1.2 1.4 1.4 1.2 5.3 4.6 14.0 14.1 BAIC Motor 'H' 1958 HK HKD 5.43 5,307 Dec 7.7 6.6 5.0 5.5 0.9 0.8 4.0 3.4 12.1 13.0 Average 9.2~ 7.9~ 2.6 2.9 1.2 1.0 5.5 4.8 12.3 12.3 China SAIC Motor 'A' 600104 CH CNY 20.2 33,836 Dec 7.1 6.8 6.9 7.5 1.2 1.1 4.6 4.4 17.1 16.9 Faw Car 'A' 000800 CH CNY 13.24 3,274 Dec 88.9 68.2 0.2 0.0 2.4 2.3 15.6 14.8 3.8 3.6 CQ Changan 'A' 000625 CH CNY 14.39 10,194 Dec 5.8 5.5 5.1 5.7 1.6 1.3 2.8 2.7 29.7 26.1 CQ Changan 'B' 200625 CH HKD 10.98 6,589 Dec 3.9 3.7 7.9 9.0 1.0 0.9 5.2 4.6 29.6 26.3 Beiqi 'A' 600166 CH CNY 5.46 2,766 Dec 17.9 39.0 1.6 0.7 1.0 1.0 11.7 18.5 1.8 2.4 Tianjin Faw Xiali 'A' 000927 CH CNY 7.12 1,726 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Dong Feng Auto 'A' 600006 CH CNY 6.4 1,945 Dec 21.3 n.a. 1.4 n.a. 1.9 n.a. n.a. n.a. n.a. n.a. Anhui Jianghuai 'A' 600418 CH CNY 11.21 2,492 Dec 13.5 11.2 2.4 2.8 1.7 1.5 3.6 3.3 12.8 13.8 Bus 'A' 600066 CH CNY 19.49 6,556 Dec 11.0 10.3 6.2 6.8 3.0 2.7 7.6 7.0 28.5 27.7 'A' 000572 CH CNY 5.05 1,262 Dec 23.0 n.a. 1.4 n.a. 1.1 n.a. n.a. n.a. n.a. n.a. Great Wall Motor 'A'* 601633 CH CNY 8.5 10,161 Dec 9.1 8.7 3.2 3.4 1.8 1.6 5.0 4.7 20.6 18.7 GZ Auto. 'A' 601238 CH CNY 23.96 17,988 Dec 24.5 20.7 1.0 1.2 3.5 3.1 36.0 31.2 15.0 15.5 BYD 'A' 002594 CH CNY 59.74 22,472 Dec 36.5 28.1 0.2 0.1 4.1 3.5 13.8 11.5 10.5 12.2 Average 21.9~ 20.2 3.1 3.7 2.0 1.9 10.6 10.3 16.9 16.3 US Ford Motor F US USD 13.49 53,596 Dec 6.5 6.4 6.3 6.5 1.6 1.2 4.4 4.3 29.2 23.6 General Motors GM US USD 31.28 48,166 Dec 5.5 5.3 4.7 5.0 1.1 0.9 2.4 2.3 22.2 19.3 Average 6.0 5.8 5.5 5.7 1.3 1.0 3.4 3.3 25.7 21.5 Korea Kia Motors 000270 KS KRW 46,500 15,832 Dec 6.2 5.9 2.7 3.1 0.7 0.6 2.9 2.7 11.8 11.3 Hyundai Motor 005380 KS KRW 138,000 33,089 Dec 5.4 5.2 3.3 3.7 0.6 0.5 5.5 5.3 10.2 9.8 Average 5.8 5.6 3.0 3.4 0.6 0.6 4.2 4.0 11.0 10.6 Japan Toyota Motor# 7203 J P JPY 5755 173,502 Mar 9.9 9.0 3.5 3.6 1.0 0.9 4.9 4.6 10.3 10.5 Honda Motor# 7267 J P JPY 3079 50,374 Mar 10.5 9.4 3.0 3.3 0.8 0.7 4.4 3.9 7.3 8.2 Nissan Motor# 7201 J P JPY 1109.5 45,041 Mar 8.0 7.3 4.2 4.6 0.8 0.8 4.0 3.7 11.0 11.3 Suzuki Motor# 7269 J P JPY 2920.5 12,951 Mar 12.4 11.1 1.2 1.4 1.1 1.0 2.8 2.6 9.8 9.9 Mitsubishi Motors# 7211 J P JPY 572 5,082 Mar 7.3 7.3 2.8 2.8 0.8 0.8 1.9 1.7 11.8 11.5 Average 9.6 8.8 2.9 3.1 0.9 0.8 3.6 3.3 10.1 10.3 Europe BMW BMW GR EUR 74.997 54,835 Dec 7.7 7.5 4.5 4.7 1.0 1.0 3.2 3.1 14.4 13.5 V olkswagen (Swx) V OW GR CHF 137.5 69,358 Dec 7.8 6.3 1.0 3.1 0.8 0.8 3.0 2.7 7.0 11.6 Saab 'B' SAABB SS SEK 275 3,593 Dec 20.4 16.6 2.1 2.4 2.1 1.9 10.3 9.2 10.7 12.4 Peugeot UG FP EUR 13.975 12,580 Dec 8.6 7.3 2.4 3.3 1.0 0.9 1.1 1.0 12.6 12.1 Porsche Aml.Hldg.Pref. PAH3 GR EUR 48.74 16,617 Dec 6.5 4.6 2.9 3.9 0.5 0.5 (7.9) (6.3) 3.4 8.5 Daimler DAI GR EUR 60.755 72,357 Dec 7.4 7.1 5.5 5.7 1.1 1.0 3.5 3.4 15.5 15.3 Fiat Chrysler Auto FCA IM EUR 6.39 9,140 Dec 4.6 3.7 0.3 0.5 0.6 0.5 1.8 1.7 13.8 14.6 Average 9.0 7.6 2.7 3.4 1.0 0.9 2.1 2.1 11.0 12.6

# FY16: FY17; FY17: FY18; ~ Exclude outliners Source: Thomson Reuters, *DBS Vickers

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Industry Focus China Auto Sector

Peers valuation – Auto dealers

Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE Currency Price Cap Fiscal 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F Company Name Code Local$ US$m Yr x x % % x x x x % % Hong Kong ZhongSheng* 881 HK HKD 4.13 1,141 Dec 10.6 8.1 1.9 2.5 0.6 0.6 7.8 6.9 6.1 7.5 China ZhengTong* 1728 HK HKD 2.85 811 Dec 6.5 5.4 3.9 3.7 0.6 0.5 6.4 5.7 9.2 10.0 Baoxin Auto Group 1293 HK HKD 4.93 1,622 Dec 13.7 11.3 1.1 1.3 1.7 1.5 6.8 5.9 12.9 13.4 China Yongda 3669 HK HKD 3.73 710 Dec 10.3 4.0 3.7 7.4 0.9 0.7 5.3 3.5 9.9 20.6 China Meidong Auto 1268 HK HKD 0.98 137 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Harmony Auto 3836 HK HKD 4.51 914 Dec 7.7 6.2 3.1 3.7 0.8 0.7 4.2 3.7 11.0 11.7 Sparkle Roll Group 970 HK HKD 0.45 173 Mar n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Auto Italia Holdings 720 HK HKD 0.179 120 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. New F ocus Auto 360 HK HKD 0.385 227 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Rundong Auto 1365 HK HKD 3.21 391 Dec 14.3 n.a. 0.0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sunfonda Group 1771 HK HKD 2.47 191 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average 10.4 7.2 2.4 3.7 0.9 0.8 6.3 5.4 9.4 11.9

Other Asia Tan Chong Intl TCM MK HKD 1.94 503 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Zhejiang Material 600704 CH CNY 12.25 4,110 Dec 38.3 n.a. 0.7 n.a. 4.0 n.a. n.a. n.a. n.a. n.a. Power Diversity Auto 601258 CH CNY 2.73 2,688 Dec 6.8 n.a. 4.4 n.a. 0.7 n.a. n.a. n.a. n.a. n.a. Wuhu Yaxia Auto 002607 CH CNY 11.02 763 Dec 58.3 33.6 0.2 n.a. 4.2 3.9 n.a. n.a. 9.0 11.4 Sinomach Auto 600335 CH CNY 12.26 1,752 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Grand Auto 600297 CH CNY 10.15 8,482 Dec 20.5 17.2 0.8 0.0 2.2 2.2 n.a. n.a. 12.3 13.1 Wuxi Coml.Mansion 600327 CH CNY 8.57 679 Dec 22.0 16.8 1.1 0.6 2.4 2.1 n.a. n.a. 9.9 12.3 Shanghai Shenhua 600653 CH CNY 3.93 1,162 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fujian Zhangzhou 000753 CH CNY 4.42 594 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Yulon Motor 2201 TT TWD 27.85 1,344 Dec 12.1 14.3 4.0 3.4 0.6 0.6 7.8 8.2 4.9 4.2 Hotai Motor 2207 TT TWD 314.5 5,271 Dec 17.2 16.8 3.9 4.6 4.1 3.7 12.8 12.0 23.3 20.1 Average 23.5 18.3 2.3 2.4 2.5 2.3 8.8 8.5 12.1 12.5

US Autonation AN US USD 50.44 5,201 Dec 11.9 10.7 0.0 0.0 2.2 1.9 7.0 6.6 18.9 18.6 Group 1 Auto GPI US USD 62.18 1,374 Dec 8.3 7.6 1.2 1.3 1.3 1.1 6.6 6.3 15.1 15.6 Asbury Auto ABG US USD 56.1 1,243 Dec 9.2 8.4 0.6 0.0 4.3 3.1 7.2 6.9 45.2 35.1 Carmax KMX US USD 53.66 10,388 Feb 16.1 14.8 0.0 0.0 3.1 2.8 10.9 10.3 20.2 20.4 Lentuo Intl LASLY US USD 2E-04 0.01 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average 11.4 10.4 0.5 0.3 2.7 2.2 7.9 7.5 24.8 22.4 Source: Thomson Reuters, *DBS Vickers

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Industry Focus China Auto Sector

Peers valuation – Auto parts

EV / Earnings Earnings Mkt PE PE P/Bk EBITDA ROE Growth CAGR Currency Price Cap 16F 17F 16F 16F 16F 16F 17F FY15-17 Company Name Code Local$ US$m x x x x % % % % Hong Kong listed Changan Minsheng 1292 HK HKD 6.9 144 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Metal Intl.Hdg. 319 HK HKD 2.45 317 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China V eh.Compns.Tech. 1269 HK HKD 5.91 505 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fortunet E-Commerce Gp. 1039 HK HKD 0.82 162 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 18.5 5,815 13.1 11.6 2.2 8.6 17.5 14.5 12.6 13.6 Huazhong In-V ehicle Hdg. 6830 HK HKD 0.9 186 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Launch Tech 'H' 2488 HK HKD 8.2 347 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Minth Group* 425 HK HKD 23.25 3,337 14.2 12.3 2.1 9.9 15.7 20.1 16.1 18.1 Nexteer Automotive Group* 1316 HK HKD 7.88 2,531 10.1 8.5 2.4 5.3 26.9 22.0 18.3 20.1 Perennial Intl. 725 HK HKD 2.05 52 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Shougang Ccrd.Cen.Hdg. 103 HK HKD 0.193 48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Weichai Power 'H' 2338 HK HKD 8.99 4,626 14.7 11.8 0.9 3.5 6.2 (62.3) 27.4 (30.7) Holdings 305 HK HKD 0.63 148 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Xinchen China Power Hdg.* 1148 HK HKD 1.05 173 4.6 4.2 0.4 3.1 8.9 10.8 9.3 10.1 Xingda Intl.Holdings 1899 HK HKD 1.6 306 7.5 7.1 n.a. n.a. n.a. n.a. n.a. n.a. Xinyi Glass Holdings 868 HK HKD 5.58 2,786 9.4 7.9 1.6 7.2 17.5 9.2 20.0 14.5 Average 10.5 9.1~ 1.6 6.3 15.4 15.3~ 17.3~ 7.6 China listed Anhui Quanchai Engine 600218 CH CNY 9.29 520 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Avic Aero-Engine Cntls. 000738 CH CNY 25.69 4,471 122.3 107.0 5.9 60.9 5.4 42.5 11.1 25.8 Beijing Wkw Autv.Pas.'A' 002662 CH CNY 14.15 1,612 13.9 12.7 2.1 n.a. 15.4 67.9 9.6 35.7 Changchai 200570 CH HKD 4.86 351 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fangda Special Stl.Tech. 600507 CH CNY 4.92 991 31.3 24.2 3.0 n.a. 9.4 96.1 28.0 58.4 Faway Auto Compns. 600742 CH CNY 27.03 869 6.9 n.a. 1.2 n.a. n.a. 49.3 n.a. n.a. Fengfan Stock 600482 CH CNY 32.11 6,277 64.0 57.3 3.2 (4.6) 6.8 195.0 111.1 149.5 Fuyao Glss.Ind.Group 'A' 600660 CH CNY 14.7 5,455 12.5 11.1 2.1 8.3 17.1 13.2 11.8 12.5 Guihang Auto Components 600523 CH CNY 16.39 719 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Harbin Dongan Auto Enn. 600178 CH CNY 8.45 593 169.0 31.3 2.2 n.a. 1.3 (1.9) 439.1 130.0 Huayu Automotive Sys.'A' 600741 CH CNY 14.74 7,060 8.7 7.9 1.4 4.6 17.7 12.2 9.4 10.8 J ialeng Songzhi Auto 002454 CH CNY 14.45 928 15.1 15.2 1.9 n.a. 13.4 47.3 (1.8) 20.3 J iangnan Mould & Plastic 000700 CH CNY 21.96 1,196 21.5 19.3 2.9 n.a. 13.7 48.7 12.0 29.0 J iangsu Pac.Precn.Frgg. 'A' 300258 CH CNY 23.07 946 35.6 29.3 4.4 n.a. 12.5 n.a. 21.3 n.a. Kunming Yunnei Pwr. 000903 CH CNY 6.95 844 19.5 14.0 1.4 n.a. 7.1 62.6 39.0 50.3 Liaoning Sg Autv.Gp. 'A' 600303 CH CNY 11.53 1,087 24.2 18.8 n.a. n.a. n.a. 185.3 29.2 91.9 Lingyun Industrial 'A' 600480 CH CNY 13.05 894 33.0 29.7 1.7 6.8 5.1 29.2 12.6 20.6 Ningbo Huaxiang Elt. 002048 CH CNY 20.79 1,674 24.4 17.8 2.4 n.a. 11.5 222.8 43.1 114.9 Shanghai Aerospace Auto 600151 CH CNY 10.57 2,008 40.0 30.8 3.1 n.a. 7.8 91.6 29.5 57.5 Shanghai Jiao Yun Group 600676 CH CNY 9.28 1,216 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Shenyang Autv. 600609 CH CNY 4.75 789 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sic.Chengfei Intg.Tech. 002190 CH CNY 35.54 1,864 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sichuan Haowu Erml.'A' Susp - S 000757 CH CNY 10.56 725 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Steyr Motors 'A' 000760 CH CNY 13.54 1,622 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Qiangchao 'A' 000559 CH CNY 14.83 5,169 37.5 32.6 7.0 n.a. 18.8 16.3 15.2 15.8 Weifu High Tech.Gp. 200581 CH HKD 15.88 2,062 7.9 6.9 1.1 8.5 14.6 31.9 13.7 22.4 Xuchang Ynd.Drive Shaft 002406 CH CNY 8.09 690 44.9 40.5 2.0 n.a. 5.0 8.1 12.0 10.0 Zhejiang Wanliyang Tnsm. 002434 CH CNY 9.78 1,516 30.9 24.8 3.8 n.a. 12.2 52.2 24.7 37.7 Zongshen Pwr. Machinery 001696 CH CNY 10.41 1,811 21.7 n.a. 3.0 n.a. n.a. 46.5 n.a. n.a. China Autv.Sy s. CAAS US USD 3.96 127 5.0 4.3 n.a. n.a. n.a. (1.4) 14.3 6.2 China Yuchai Intl. CYD US USD 11.07 435 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sorl Auto Parts SORL US USD 1.71 33 2.8 2.7 n.a. n.a. n.a. (7.8) 4.8 (1.7) Average 33.1~ 21.6~ 2.8 14.1 10.8 57.9~ 42.4 44.9

~ Exclude outliners Source: Thomson Reuters, *DBS Vickers

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Industry Focus China Auto Sector

DBSV 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

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Industry Focus China Auto Sector

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