20140611-DBS_Group-Healthy_car_sales_YTD_17页_368kb

Summary of Healthy Car Sales YTD

Core Content

The document provides an analysis of the Chinese automotive market performance for the first five months of 2014 (5M14), with a focus on unit sales growth, market trends, and company-specific insights. It highlights the overall positive outlook for the industry, especially for passenger vehicles (PVs), and identifies key players with strong performance and potential for future growth.

Main Points

1. Overall Market Performance

• Chinese Auto Market:
  • Unit sales in May 2014 grew by 8.5% year-on-year (y-o-y), and 5M14 sales reached 9.0% YTD growth.
  • The PV market showed strong growth, with 13.9% in May and 11.1% in 5M14.
  • Sales are expected to remain strong in the second half (2H) of the year due to seasonality and positive market conditions.
  • The full year unit sales estimate is maintained at 24 million units, representing a 10% y-o-y increase.

2. Passenger Vehicle (PV) Market

• PV Growth Drivers:
  • Strong demand for MPVs (+54%) and SUVs (+40%) in May 2014.
  • Foreign brands like Volkswagen (+21%) and Ford (+32%) outperformed the industry.
  • Toyota also reported strong growth of 30% in May.
• Luxury Segment:
  • Mercedes Benz led the luxury car segment with 30% and 42% growth in May and 5M14, respectively.
  • The CLA model launch is expected to further boost sales.

3. Company-Specific Insights

• GAC (Guangzhou Auto):
  • Sales in May 2014 increased by >30% YTD, driven by new models from its Japanese joint ventures.
  • Expected to achieve at least 20% growth in full year sales.
• China ZhengTong:
  • Expected to benefit from the luxury car demand and potential in the after-sales market.
• Brilliance China:
  • Strong sales driven by BMW models, but the Buy rating is under review due to rising share prices.
• Dongfeng Motor:
  • Maintained at Buy rating, with 7.7x FY14 PE and 14.314 million market cap.
• Geely Auto:
  • Experienced a 26% drop in May 2014 due to model upgrades and sales channel restructuring, but long-term benefits from its partnership with Volvo are expected.
• Great Wall Motor:
  • SUV sales growth slowed from 42% in February to 12% in April, but total SUV sales for 5M14 grew by 22.6% y-o-y.
  • Sedan sales dropped sharply by 42% in 5M14, and the company is shifting resources to SUVs.

4. Inventory and Market Outlook

• Inventory Alert Index:
  • May 2014 index at 49.3%, down from 51.3% in May 13, but still above April's 46.3%.
  • Seasonal low in July is expected, with sales picking up in August and continuing to rise for the rest of the year.

5. Peer Valuations

• Auto Manufacturers:
  • Geely Auto has the highest upside potential at 50%.
  • Dongfeng Motor and GAC also show significant upside potential.
• Auto Dealers:
  • China Zhengtong has the highest upside at 38%.
  • Dah Chong Hong and Zhongsheng also show strong upside potential.
• Auto Parts & Components:
  • Minth Group has the highest upside potential at 50%, although its target price is below current price.

Key Information

• Government Policy:
  • China plans to scrap 6 million high-polluting vehicles to improve the environment.
• Market Growth:
  • The PV market is expected to grow at a low double-digit rate for the full year.
• Seasonality:
  • July is a seasonal low, with a recovery expected in August.
• Investment Recommendations:
  • Several companies are recommended as "Buy" based on their performance and valuation upside, including GAC, China ZhengTong, Geely Auto, and Brilliance China.
• Valuation Metrics:
  • Companies are evaluated using PE, P/Bk, and EV/EBITDA ratios, with some showing attractive valuations compared to peers.

Conclusion

The Chinese auto market is performing well, with strong PV growth and positive outlook for the remainder of the year. Key players such as GAC, China ZhengTong, and Geely Auto are showing promising performance and valuation potential. The government's environmental initiatives and consumer behavior changes are contributing to the market's strength. While some companies are experiencing short-term challenges due to model upgrades, they are expected to recover and benefit from the overall market trend.