Post on 26-Jun-2020
transcript
Please refer to page 10 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
CHINA/HONG KONG
Shanghai VW’s Lavida – China’s top-selling sedan in 1H
Source: China Auto Web, September 2014
GWM Haval H6 – China’s top-selling SUV in 1H
Source: Macquarie Research, September 2014
Table of coverage, ratings and TPs in order of preference
Name Ticker Price Rating TP TSR
Great Wall 2333 HK 32.55 OP 52.00 65.3% Dongfeng 489 HK 14.36 OP 17.50 24.7% GAC 2238 HK 8.25 OP 11.50 43.9% Geely 175 HK 2.89 OP 3.80 32.9% Brilliance 1114 HK 13.80 N 15.60 14.2% BYD 1211 HK 56.00 UP 12.80 -77.0%
Note: share prices are as of market close 2 Sept 2014. All prices in HK$. Source: FactSet, Macquarie Research, September 2014
Analyst(s) Janet Lewis, CFA +852 3922 5417 janet.lewis@macquarie.com Zhixuan Lin +86 21 2412 9006 zhixuan.lin@macquarie.com Leo Lin +852 3922 1098 leo.lin@macquarie.com
3 September 2014 Macquarie Capital Securities Limited
China autos 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%.
Outlook is for continued strong sales in 2H
In the first 7 months of 2014 auto sales are up 8.2% YTD, with passenger
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
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
for servicing, and margins should remain unchanged.
Competition is intense but manageable
The international brands continue to launch more products customised for the
China market as well as more lower-priced products, which has resulted in
intensified pressure on domestic brand sales. OEMs like Great Wall and
Geely are responding with higher-quality products, including more equipped
with automatic transmission. The results of BCA and DFG would suggest that
so far the OEMs are not raising incentives to dealers, who have borne the
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
year to improve fleet fuel economy, but sales are likely to remain small as a
percent of the overall market.
Top picks remain Great Wall Motor and Dongfeng Motor
Our highest conviction recommendation remains Great Wall Motor, as we
believe it will have strong momentum into 2H and 2015, leading to a steady
stream of upgrades to earnings targets. Similarly, while Dongfeng’s share
price has been the best performer over the past 3 months, we believe
consensus upgrades will highlight its attractiveness.
Macquarie Research China autos
3 September 2014 2
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.
Macquarie Research China autos
3 September 2014 3
Fig 2 New models expected in 2H2014 by OEM
Model New or facelift Launch date Type
Macquarie 2H target volume Notes
Great Wall
H2 New 11/07/2014 Compact SUV 60,000
Could also relaunch H8 and launch H9 high-end SUVs but not in our numbers
H1 New Q3 Sub-compact SUV 20,000 C50 Facelift 1/07/2014 Compact sedan 27,000 C30 Facelift Q4 Compact sedan 28,000
Geely
Emgrand (old EC7) Facelift 26/07/2014 Compact sedan 90,000 GX9 New Q4 Fullsize SUV 3,000
GC9 (KC) New Q4 Fullsize sedan 3,000
Risk that it could be pushed into 2015
BYD
S7 New Q4 Fullsize SUV 10,000 G5 New Q4 Midsize sedan 10,000
Tang New Q4 PHEV SUV
No launch date given; likely small volume initially
Dongfeng Motor
Nissan Qashqai New Q4 Compact SUV 56,131
Honda Spirior Facelift Q3 Midsize sedan 3,359
Upside risk depending on pricing
Honda X-RV New Q4 Compact SUV -
May launch in Q4 but deliveries not expected until 2015
GAC Toyota Levin New 28/07/2014 Compact sedan 20,000 Honda Vezel New Q4 Compact SUV 15,000
BMW Brilliance PHEV 5 Series New Q4 Fullsize sedan Low volume
Brilliance China Jinbei MPV New Q4 or early 2015
Luxury MPV 500 May be delayed into 2015
SAIC
Buick Envision New 1/09/2014 Midsize SUV Chevrolet Cruze Facelift 22/08/2014 Compact sedan Cadillac ATS L New 15/08/2014 Full size sedan VW Lamando New Q4 Compact sedan
Changan Ford Escort New Q4 Compact sedan 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.
Macquarie Research China autos
3 September 2014 4
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
301 New model Peugeot
3008 37%
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
XT/GT 24% Regal 11%
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.
Macquarie Research China autos
3 September 2014 5
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 vehicle, sells for Rmb44.8-60.8k
Fig 7 Geely hopes its new Emgrand (old EC7) can return to position as best-selling domestic sedan
Source: China Auto Web, Macquarie Research, September 2014 Source: China Auto Web, Macquarie Research, September 2014
Macquarie Research China autos
3 September 2014 6
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
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.
By the end of 2015 Total NEV target Public Private
Beijing 35,000 25,000 10,000
Tianjin 12,000 11,500 500
Shanghai 13,000 6,500 6,500
Chongqing 10,000 na na
Shenzhen 35,000 19,000 16,000
Guangzhou 10,000 6,000 4,000
Total of 88 cities 252,200 167,800 84,400
By the end of 2015 Charging stations Charging poles
Beijing 5 35,700
Tianjin 66 6,700
Shanghai na 6,000
Chongqing 16 275
Shenzhen 218 39,500
Guangzhou 105 9,970
Total of 88 cities 1,705 211,700
Macquarie Research China autos
3 September 2014 7
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
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
Source: FactSet, Macquarie Research, September 2014 Source: FactSet, Macquarie Research, September 2014
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Macquarie Research China autos
3 September 2014 8
Fig 14 Brilliance China FY1 PER trend – at bottom but decelerating growth suggests rerating lower
Fig 15 BYD FY1 PER trend – clearly earnings don’t matter for BYD investors
Source: FactSet, Macquarie Research, September 2014 Source: FactSet, Macquarie Research, September 2014
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Fig 16 Macquarie global autos coverage valuations and performance summary
Source: Closing prices as of 2 Sept 2014; FactSet, Macquarie Research, September 2014
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 LewisBYD 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
Macquarie Research China autos
3 September 2014 10
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – Asia/Europe
Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or
down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
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)
Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
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Macquarie Research China autos
3 September 2014 11
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Alex Pomento (Philippines) (632) 857 0899
Conrad Werner (Singapore) (65) 6601 0182
David Gambrill (Thailand) (662) 694 7753 Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Email macresearch@macquarie.com for access
Asia Sales Regional Heads of Sales
Miki Edelman (Asia) (813) 3512 7857
Peter Slater (Boston) (1 617) 598 2502
Jeffrey Shiu (China & Hong Kong) (852) 3922 2061
Thomas Renz (Geneva) (41) 22 818 7712
Bharat Rawla (India) (9122) 6720 4100
Mark Chadwick (Japan) (813) 3512 7827
John Jay Lee (Korea) (822) 3705 9988
Nik Hadi (Malaysia) (603) 2059 8888
Eric Roles (New York) (1 212) 231 2559
Gino C Rojas (Philippines) (632) 857 0861
Regional Heads of Sales cont’d
Ruben Boopalan (Singapore) (603) 2059 8888
Paul Colaco (San Francisco) (1 415) 762 5003
Erica Wang (Taiwan) (8862) 2734 7586
Angus Kent (Thailand) (662) 694 7601
Ben Musgrave (UK/Europe) (44) 20 3037 4882
Julien Roux (UK/Europe) (44) 20 3037 4867
Sales Trading
Adam Zaki (Asia) (852) 3922 2002
Stanley Dunda (Indonesia) (6221) 515 1555
Sales Trading cont’d
Phil Sellaroli (Japan) (813) 3512 7837
Suhaida Samsudin (Malaysia) (603) 2059 8888
Michael Santos (Philippines) (632) 857 0813
Kenneth Cheung (Singapore) (65) 6601 0288
Chris Reale (New York) (1 212) 231 2555
Marc Rosa (New York) (1 212) 231 2555
Isaac Huang (Taiwan) (8862) 2734 7582
Dominic Shore (Thailand) (662) 694 7707
Mike Keen (UK/Europe) (44) 20 3037 4905