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BAIC Motor (1958 HK) Summary

Core Content

BAIC Motor is the second-largest HK-listed manufacturer of passenger vehicles (PV), following Dongfeng Motor. Its controlling shareholder, BAIC Group, is the fifth-largest auto group in terms of PV sales with an 8.2% market share in 2013. The company operates three main business segments: Beijing Motor (100%-owned), Beijing Benz (51%-owned), and Beijing Hyundai (50%-owned). Each segment serves different market segments, including economy, mid-to-high end, and premium.

Main Business Segments

• Beijing Motor: A self-owned brand with three product lines – Senova (mid-to-high end), BJ (economy), and Wevan (MPV and CUV). It has been loss-making since 2012 but is expected to break even within two years. The segment accounts for 20% of total sales in 2014.

• Beijing Benz: A premium brand with a 15.3% market share in 2013. It is the most profitable segment, contributing 75% of the top line sales. Sales volume grew by 25% in 2014, outperforming the overall PV market growth. The segment accounts for 9% of total sales in 2014.

• Beijing Hyundai: A 50:50 joint venture with Hyundai Motor. It focuses on mid-to-high end and SUV segments, contributing 71% of total sales in 2014. The segment has seen stable growth in 2012-2014, and is expected to maintain moderate growth in 2015.

Key Information

• Product Mix: The company's product range includes economy sedans, mid-to-high end models, and premium vehicles. It favors the premium and SUV segments, which are expected to drive growth.

• New Product Rollout in 2015:

  • Beijing Benz plans to launch 20 new or facelift models, including the new C-Class (RWB), GLA, and GLK, which are expected to attract younger consumers and boost short-term sales.
  • Beijing Motor will launch several models in 2015, including Senova C33, X65, and X55, as well as BJ40 and Wevan models.
  • Beijing Hyundai will introduce new models like New Tucson and New Santa Fe, with new factories expected to begin operations by the end of 2016.

• Growth Outlook: The company estimates 15% growth in aggregate sales volume for 2015, reaching 1.82 million units. The breakdown is:

  • Beijing Motor: 50% growth
  • Beijing Benz: 38% growth
  • Beijing Hyundai: 2% growth

• Technology and Innovation:

  • BAIC Motor has formed a 51:49 joint venture with Daimler's MBTech to develop electric vehicles (EV) and new energy vehicles (NEV), with the goal of introducing one new model per year after three years.
  • It has also partnered with LeTV to develop the "Internet of Smart Vehicles," integrating smartphone technology into its automotive offerings.

Valuation and Investment Summary

• Current Share Price: HK$11.38
• Target Price: HK$12.5 (based on 2015e EPS and 12x PE multiple)
• Upside Potential: 10%
• Rating: Accumulate
• Dividend Yield: 4.5% (2015E)
• PE Ratio: 11.1x (2015E)
• P/B Ratio: 1.5x (2015E)
• EV/EBITDA: 17.4x (2015E)
• Net Profit (2015E): Rmb6,212m
• EPS (2015E): RMB0.82
• Gross Margin: Expected to rise gradually for Beijing Motor and Beijing Benz due to localization and economies of scale.

Major Shareholders

• BAIC Group: 44.98%
• Daimler AG: 10.08%

Risks

• Beijing Motor may take longer than expected to break even, which could negatively impact overall profitability.
• Euro appreciation could lead to higher procurement costs from the Euro zone, potentially affecting margins.
• Vehicle purchase restrictions in more cities may slow down sales.

Industry Outlook

• The premium and SUV segments are expected to outperform due to consumer demand for higher-end vehicles and compact luxury models.
• The domestic brands and Japanese brands faced a decline in market share in 2014, but Great Wall and Geely have shown signs of recovery in 2015.
• The auto industry growth in China is expected to moderate from high growth rates in previous years.

Figures and Data

• Sales Volume by Brand (2009-13): Shows the growth of each segment over the years.
• Breakdown of Sales Volume by Brand: Highlights the proportion of sales contributed by each brand.
• Gross Margin Trend by Brand: Indicates the improvement in profitability for key segments.
• Profit Contribution from Beijing Hyundai: Shows the segment's contribution to the group's profits.

Conclusion

BAIC Motor is positioned for growth in the premium and SUV segments, supported by a robust product roll-out plan and strategic partnerships. While the Beijing Motor segment is still in the process of turning around, the company's overall valuation appears attractive, with a target price offering a potential upside of 10%. The investment rating is Accumulate, and the stock is expected to offer a strong dividend yield among HK-listed auto companies.