20170123-三星证券-China_s_vehicle_population_growing_exponentially_82页_3mb

Sector Update Summary

Core Content

This document provides an analysis of the Chinese automotive sector, focusing on the performance and future outlook of major automakers and parts suppliers. It highlights the significant role China plays in shaping global automotive trends due to its large market size and rapid growth in vehicle ownership and sales. The report also outlines key investment ideas, market dynamics, and strategic moves by both international and local players in the Chinese market.

Main Points

1. China's Dominance in the Global Automotive Market

• China's passenger vehicle sales reached 23.2 million in 2016, accounting for 28% of the global total.
• The Chinese market is expected to grow to 30 million vehicles by 2022, driven by an annual growth rate of 4–5%.
• China's vehicle ownership rate is 104 per 1,000 inhabitants, significantly lower than the US and Korea, indicating continued growth potential.

2. EV Market and Regulatory Shifts

• China is transitioning from subsidies to regulations to stimulate the EV market.
• EV subsidies are expected to decrease by 20% in 2017 and 25% in 2019, with CAFC and NEV credit programs to be introduced from 2018.
• The report forecasts 624,000 EVs in China in 2017, with a 23.1% increase compared to the previous year.

3. Automakers and Parts Makers in China

• The report recommends Hyundai Motor (HMC) and Kia Motors as top priorities, due to their planned new model launches and potential to regain market share.
• Undervalued parts makers like Seoyon E-Hwa, NVH Korea, and Hwashin are also highlighted for potential share price growth.
• Eco-friendly parts makers such as Hanon Systems, Dae-II Corporation, Kopla, and Woory Industrial are expected to gain attention from mid-2017 onward due to the introduction of regulatory incentives.

4. Market Competition and Model Launches

• The Chinese market is highly competitive, with 60–100 new models introduced annually, especially in the SUV segment.
• Geely has led in sales growth and share price appreciation, with new models and adoption of ADAS contributing to its success.
• HMC and Kia are lagging in model innovation, with a slow response to the rise of local competitors. They plan to launch four and five new models in 2017, respectively, which is their most aggressive agenda since entering the market.

5. Strategic Adjustments and Market Share Shifts

• HMC's strategy has been to sell new models in large cities and older models in the interior, but this approach has been challenged by local players offering cheaper, more technologically advanced models.
• HMC plans to gradually replace older models with localized versions and expand its eco-vehicle lineup to five by 2018.
• Utilization rates in the sector are estimated to be 62–65% in 2016, with automakers focusing on new model launches and technology upgrades to improve their market position.

Key Information

Target Prices and Growth Potential

Investment Ideas

• New Model Releases: HMC, Hyundai Mobis, Mando, Seoyon E-Hwa, NVH Korea, and Hwashin are expected to benefit from new model launches.
• CAFC and NEV Credits: Hanon Systems, Dae-II Corporation, Kopla, and Woory Industrial are likely to gain traction due to the upcoming regulatory changes.

Market Trends and Challenges

• Growth Drivers: Increased auto financing, rising disposable income, and a growing middle class.
• Challenges: Traffic restrictions in major cities and tightening environmental regulations.
• Competition: Local automakers are outperforming JVs, especially in the SUV segment, with well-equipped, affordable models.

HMC's Strategy

• HMC plans to replace older models with localized models to better compete in China.
• The company's fourth and fifth China plants are expected to benefit from new model launches and higher utilization rates.
• HMC's older models are less expensive but still profitable due to depreciation.
• The Verna redesign and Yuedong model are part of HMC's efforts to improve competitiveness.

Geely's Performance

• Geely has experienced the highest sales volume growth in China, with a 263% increase in share price from 2015 to 2016.
• The company is leveraging ADAS and new model launches to strengthen its market position.
• Geely plans to launch five SUVs in 2018, including the CX11.

Conclusion

The Chinese automotive market is a key driver of global trends, with continued growth in vehicle ownership and demand for new models and technologies. HMC and Kia are expected to improve their market position through new model launches and localized strategies, while parts makers are likely to benefit from the shift toward eco-friendly vehicles and regulatory changes. Local automakers are gaining ground due to their value-for-money strategies and technological advancements, which are reshaping the competitive landscape.