20140404-大和证券-Chinese_automobile_market_to_mature；_considerable,_albeit_silent,_shift_confirmed_20页_852kb

Summary of the Chinese Automobile Market Report

Core Content

The Chinese automobile market is transitioning from a phase of rapid growth to one of maturity. Over the next five years, the sector's long-term direction will be determined during this shift. While demand is expected to continue growing at an annual rate of 10%, the focus is shifting towards regional small cities and automation. The report highlights the strategic moves of Japanese automakers and their parts suppliers in response to these changes, including the potential for foreign investment rule reforms and increased exports.

Main Views and Key Information

• Market Transition: The Chinese automobile market is moving from a growth-driven model to a more mature one, with the direction of the sector to be decided in the coming years.
• Demand Growth: Annual growth is projected at around 10%, with the sales focus shifting to regional small cities and automation in production.
• Foreign Investment Rules: The current requirement for foreign automakers to form joint ventures with local firms (50% equity cap) may be reviewed, especially as China becomes a major auto exporter.
• Automation Trends: Rising labor costs are pushing firms to adopt automation, which is expected to progress sharply. This is crucial for maintaining lean cost structures and competing in the evolving market.
• Export Potential: China's automobile exports are currently around 1 million units per year, but with domestic demand exceeding 20 million units, there is potential for a significant increase in exports, which could influence future trade policies.

Impact of the Shift

• Sales Strategy: Companies are increasingly targeting smaller cities, as these areas show higher growth potential. Dongfeng Nissan Passenger Vehicle (DNPV) has launched initiatives such as the 100 cities program and the 1,000 county project to expand its presence in these regions.
• Dealership Expansion: DNPV plans to increase its dealership network in third- to fifth-tier cities, focusing on after-sales service and peripheral businesses.
• Brand Power: Improving brand recognition is a priority, with efforts including celebrity endorsements and sports sponsorships. DNPV's use of continuously variable transmissions (CVT) is helping to reinforce its reputation for advanced technology.
• Cost Management: With labor costs rising by around 10% annually, companies are focusing on automation and cost-cutting measures. Some firms are also facing challenges in securing workers in coastal regions due to increased employment opportunities in inland China.

Company-Specific Insights

Dongfeng Nissan Passenger Vehicle (Nissan Motor [7201])

• Market Position: Ranked 5th in 2013 with a 5.9% market share, but moved up to 4th by September 2013.
• Production Capacity: 1.07 million units/year as of 2013, with plans to increase capacity in 2014.
• Strategies for 2014:
  • Target 20% y/y sales growth.
  • Focus on small and mid-sized cities.
  • Introduce and expand the Venucia brand.
  • Revamp SUV models (Qashqai and X-Trail) to meet local preferences.
• Dealership Network: 670 dealerships as of end-2013, with plans to expand in lower-tier cities.

Toyoda Gosei (Shanghai) (Toyoda Gosei [7282])

• Operations: A wholly-owned subsidiary of Toyoda Gosei, established in 2006, managing sales and procurement in China.
• Challenges: Faced increased competition from local suppliers, especially in interior and exterior parts.
• Strategies: Streamlining operations, expanding business with local customers, and focusing on local staff development.

Dongguan Keihin Engine Management System (Keihin [7251])

• Production: Established in 2002, with a plant covering 70,000 m² and employing around 1,600 workers.
• Localization: Local procurement rates have increased from 50% to around 70%, with plans to further expand localization efforts.
• Automation: The company is integrating production processes and reducing reliance on expatriate staff.
• Challenges: Need to adapt to changes in Honda's engine lineup and rising automation demands.

NHK-Uni Spring (Guangzhou) (NHK Spring [5991])

• Sales: Has a wide range of customers, primarily Japanese automakers.
• Future Outlook: Expected to see significant sales growth and capacity additions.

Akebono Corporation (Guangzhou) (Akebono Brake Industry [7238])

• Growth Targets: Aiming to increase disc brake shipments from 2.9 million units in 2013 to 6.3 million by 2016.
• Customer Diversification: Seeking to expand beyond Nissan Motor.

Unipres Guangzhou / Unipres Precision Guangzhou (Unipres [5949])

• Business Expansion: Auto body parts business is expanding, with a new base in Zhengzhou.
• Transmission Parts: Likely to see increased sales to non-Jatco customers by FY16.

Jatco (Guangzhou) Automatic Transmission

• Operations: Makes continuously variable transmissions, mainly for DNPV.
• Cost Efficiency: Aims to maintain a lean cost structure through improved production methods.

Recommendations

• The report does not revise earnings forecasts or investment ratings for individual firms.
• NHK Spring is rated 2 (Outperform).
• Nissan Motor and Keihin are rated 3 (Neutral).
• No ratings are provided for Unipres, Akebono Brake Industry, and Toyoda Gosei.

Additional Highlights

• Chart 1: Chinese passenger car sales have expanded sixfold over the past 10 years.
• Chart 3: Sales of Japanese automakers dropped during the Senkaku Islands dispute but have since recovered.
• Chart 5: Counties and smaller cities show higher growth potential than major metropolitan areas.
• Chart 6: Second-tier dealerships are being expanded to reach smaller cities.
• Chart 7: Overview of Toyoda Gosei's Chinese bases and their operations.
• Chart 9: Main products of Dongguan Keihin include engine management systems, electronic control units, and air-conditioning components.
• Chart 10: Sales and operating profit breakdown for Keihin by region.

Conclusion

The Chinese automobile market is evolving rapidly, with a focus on automation, localization, and expanding into smaller cities. Japanese firms are adapting their strategies to maintain competitiveness, while potential changes in foreign investment rules and export policies could significantly impact the sector's future direction.