20150812-DBS_Group-Auto_sales_to_remain_weak_in_3Q_19页_861kb

Auto Sales Summary: 3Q and Outlook for 4Q

Core Content

The Chinese auto market experienced continued weakness in the third quarter of 2015, with sales volumes declining more sharply than in June. The overall sales volume for July fell by 7.1% year-over-year (YoY), marking the largest drop in the past two years. This decline was primarily driven by a significant drop in passenger vehicle (PV) sales (-6.6%) and commercial vehicle (CV) sales (-9.9%).

The SUV segment was the only one showing growth in volume, with a 34.2% YoY increase in July. However, price competition in this segment intensified, with the SUV price index dropping by approximately 4 percentage points. In contrast, sedan sales dropped by 19.7% YoY, the biggest decline of the year, and MPV sales also showed a contraction of 5.3% YoY.

The CV segment has been weak since April 2015, and the decline continued in July, with a 9.9% YoY drop. For the first seven months of 2015, CV sales fell by 13.7%. The truck segment was particularly affected, with a 6.8% YoY decline in July. The overall auto sales growth for the year is expected to slow to 3%, down from 6.8% in 2014, due to the slow year-to-date (YTD) performance.

Key Market Trends

• Passenger Vehicle (PV) Sales:

  • July 2015 PV sales declined by 6.6% YoY, with a 16.6% month-over-month (MoM) drop.
  • The Chinese PV brands saw a 5.1% YoY growth in sales, capturing a 39% market share.
  • Foreign PV brands faced weak sales, and sino-foreign joint ventures are expected to increase price competition.

• Commercial Vehicle (CV) Sales:

  • CV sales declined by 9.9% YoY in July and by 13.7% for the first seven months of 2015.
  • The truck segment was the hardest hit, with a 6.8% YoY decline in July.
  • The Chinese government's efforts to stabilize the economy may help improve the CV segment in the fourth quarter (4Q).

• Market Outlook:

  • The auto market is expected to remain weak in 3Q but may see some improvement in 4Q due to the traditional peak sales season.
  • The overall auto sales for the year are projected to grow at 3%, down from 6.8% in 2014.

Key Players and Recommendations

Auto Manufacturers

Auto Dealers

Auto Parts & Components

FX Impact and Top Picks

• Minth (425 HK) is highlighted as the top pick due to its significant export sales and the potential benefit from a weaker RMB, which could boost its export competitiveness. A 5% RMB depreciation could lead to an 8% impact on post-tax profits.
• Nexteer (1316 HK) is expected to face FX losses due to a portion of its revenue coming from Europe, where the euro has depreciated against the USD, affecting its profitability.

Conclusion

The Chinese auto market remains weak in the third quarter, with both PV and CV segments experiencing declines. While the SUV segment shows strength, the broader market is under pressure from macroeconomic concerns and a volatile stock market. The fourth quarter may bring some improvement as the traditional peak sales season approaches. Key companies such as Dongfeng Motor and Guangzhou Auto are recommended for purchase, while Minth Group is highlighted for its export potential. The FX environment is a critical factor influencing the performance of companies with significant overseas exposure.