20161222-招商证券_香港_-2017_Auto_Sector_Investment_Outlook_31页_1mb_1mb

2017 Auto Sector Investment Outlook Summary

Core Views

• 2017 Auto Sales Growth: Expected to grow at a moderate pace, with a projected 7% growth if the purchase tax policy is extended, or 5% if it is completely withdrawn.
• Market Characteristics: The auto market is expected to continue its recovery cycle, with strong consumer resilience and potential for growth due to replacement and first-purchase demand.
• Auto Penetration Rate: Still low in China compared to global levels, with a long-term target of reaching South Korea's level (300-400 units per 1,000 population).

Market Subsectors

• A-class Cars: Expected to be the main growth area due to purchase tax preferential policies, focusing on sedans.
• SUVs: Self-owned brands are rising, with a strong market share and potential for high-end breakthroughs. A0 and A-class SUVs are in high demand, especially in low-tier cities.
• C-class Cars: Experiencing growth due to consumption upgrades and product lines migrating downwards.
• Luxury Cars: First-tier brands are differentiating, while second-tier brands are gaining through dislocation competition. BMW's product lines are expected to enter a continuous upcycle.
• MPVs: Showed growth in 2016, but the trend is not as strong as SUVs.

Industry Focus Points

1. Competition on SUV Product Lines: SUVs are a key focus for auto manufacturers, with self-owned brands leading the market.
2. Lightweight Vehicles: Expected to help reduce fuel consumption and enhance performance, with auto aluminum products seeing high growth.
3. Smart Driving Technologies: ADAS (Advanced Driver Assistance Systems) are becoming more prevalent, with strong demand for related auto electronic components.
4. NEV Industry: Entering a policy adjustment period in 2016, with increasing technological barriers and industry consolidation in 2017.

Investment Strategy

• Focus on Growth Stocks: Select stocks with growth potential in the auto sector during the deceleration period.
• Key Recommendations:
  • Growth Stocks: Geely Auto (top pick), Brilliance China & Minth Group.
  • Undervalued & Turnaround Plays: Great Wall Auto & Zhengtong Auto.
  • RMB Depreciation Beneficiaries: Minth Group & Fuyao Glass.
• Sector Focus:
  • Auto Makers: Recommend Geely Auto and Brilliance China for their upcycle in SUVs and BMW product lines.
  • Auto Parts: Highlight Minth Group and Fuyao Glass for their strong expansion capabilities and brand advantages.
  • Auto Dealers: Focus on Zhengtong Auto, which is expected to benefit from BMW's strong cycle.
  • RMB Depreciation: Companies with significant overseas revenue, such as Minth Group and Fuyao Glass, are expected to benefit.

Key Recommendation Stocks

Geely Auto (175 HK, Buy, TP HK$13.0)

• CMA Platform: A key competitive edge, allowing for modular production and cost efficiency, incorporating Volvo's technology and brand.
• New Models: Boyue, Emgrand GS, and NL-4 launched in 2016, with more models to be released in 2017.
• Growth Drivers: Strong demand for SUVs, especially from the new LYNK&CO brand.
• Financials:
  • Revenue: RMB 21,738 mn (2014), RMB 30,138 mn (2015), RMB 53,634 mn (2016E), RMB 82,713 mn (2017E), RMB 105,088 mn (2018E).
  • Revenue Growth: -24.3% (2014), 38.6% (2015), 78.0% (2016E), 54.2% (2017E), 27.1% (2018E).
  • Net Profit: RMB 1,431 mn (2014), RMB 2,261 mn (2015), RMB 4,622 mn (2016E), RMB 7,330 mn (2017E), RMB 9,311 mn (2018E).
  • Net Profit Growth: -46.3% (2014), 58.0% (2015), 104.5% (2016E), 58.6% (2017E), 27.0% (2018E).
  • EPS (RMB): 0.16 (2014), 0.26 (2015), 0.53 (2016E), 0.83 (2017E), 1.06 (2018E).
  • DPS (RMB): 0.02 (2014), 0.03 (2015), 0.06 (2016E), 0.10 (2017E), 0.13 (2018E).
  • P/E (x): 43.0 (2014), 27.2 (2015), 13.3 (2016E), 8.4 (2017E), 6.6 (2018E).
  • P/B (x): 3.6 (2014), 3.2 (2015), 2.7 (2016E), 2.1 (2017E), 1.6 (2018E).
  • ROE (%): 8.3% (2014), 11.6% (2015), 20.2% (2016E), 24.6% (2017E), 24.1% (2018E).

Brilliance China (1114 HK, Buy, TP HK$13.00)

• BMW Product Cycle: Expected to enter a recovery phase in 2017-18E with the launch of new 5-series and 1-series/X3 models.
• Sales Recovery: Sales bottomed out in 1H 2016 and are expected to recover in 2H 2016, with 10% and 17% YoY growth in 2016-17E.
• Financials:
  • Revenue: RMB 5,515 mn (2014), RMB 4,863 mn (2015), RMB 5,052 mn (2016E), RMB 5,311 mn (2017E), RMB 5,757 mn (2018E).
  • Revenue Growth: -9.6% (2014), -11.8% (2015), 3.9% (2016E), 5.1% (2017E), 8.4% (2018E).
  • Net Profit: RMB 5,403 mn (2014), RMB 3,495 mn (2015), RMB 3,625 mn (2016E), RMB 4,483 mn (2017E), RMB 5,419 mn (2018E).
  • Net Profit Growth: 60.1% (2014), -22.2% (2015), 11.6% (2016E), 23.3% (2017E), 16.5% (2018E).
  • P/E (x): 12.8 (2017E), representing a 12x historical average forward P/E.
  • P/B (x): 2.3 (2015), 2.0 (2016E), 1.6 (2017E).
  • ROE (%): 17.6% (2015), 15.6% (2016E), 16.2% (2017E).

Sector Valuation Comparison

Analysis of Key Recommendation Stocks

• Geely Auto: Expected to grow significantly due to the CMA platform and new LYNK&CO brand, with strong revenue and profit growth.
• Brilliance China: Benefiting from BMW's product cycle and expected to see growth in 2017-18E.
• Minth Group: A top pick for auto parts, with strong expansion and brand advantages, and significant overseas revenue.
• Fuyao Glass: A key beneficiary of RMB depreciation and expected to see strong performance due to its overseas revenue.