Have money, will travel
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10% passenger vehicle unit growth in 2013F. We see urbanization, rising disposal incomes and improvement in the domestic economy resulting in China passenger vehicle (PV) market growth of 10% YoY in 2013F. This would represent a big improvement on 2012 which saw 7% YoY unit sales growth according to China Association of Automobile Manufacturers (CAAM).
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Luxury PVs still the sweet spot. Despite slowing overall PV sales, China’s top-ten luxury vehicle brands recorded 37%/23% YoY growth in 2011/12. We are still positive on China’s luxury PV market because of the attractive price points of made-in-China luxury vehicles and the growing affluence of Chinese consumers, especially within the country’s burgeoning middle class. We look for 20% YoY growth for the top-ten luxury vehicle makers in 2013F. Our top pick within the luxury vehicle space remains Brilliance China (1114 HK, Outperform).
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GWM and Geely stand out among own-brand vehicle manufacturers. In contrast to China’s comparatively sedate luxury vehicle market, competition among China’s domestic own-brand automakers is intense. Within the listed own-brand PV space, we like Great Wall Motor (GWM, 2333 HK, Outperform) and Geely Auto (175 HK, Outperform) based on their compelling model lineups and superior export capabilities. Following a recent stumble, BYD’s (1211 HK, Neutral) recovery continues; however, its valuation looks stretched.
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Recovery on track for Japanese JVs. We believe Dongfeng Motor Group (DFM, 489 HK, Neutral) and Guangzhou Automobile Group (GAC, 2238 HK, Neutral) will continue to recover from their 4Q12 troughs, and we anticipate monthly sales will improve in 1Q13F. Yet the mid-end PV space remains precarious due to price competition among the local US, European and Korean JVs. Of the two, we prefer DFM over GAC on the former’s solid track record and better model lineup.
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Brilliance and Geely our preferred plays. We like Brilliance on its BMW PRC growth story and expect its luxury vehicle segment to continue to outperform the general PV market over the next two years. We also like Geely Auto for its improving SUV model lineup and export opportunities.