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Asia China
Automobiles & Components
19 February 2009
China passenger car sector
Revving up for re-rating; target
prices raised
Vincent Ha, CFA
Research Analyst
(852) 2203 6247
vincent.ha@db.com
Sector re-rating warranted by government support but volatility may remain
The stocks of China passenger vehicle (PV) manufacturers under our coverage
have risen 5-16% YTD vs. HSCEI's 9% decline. While we concur that the
government's supportive measures could boost the auto consumption sentiment,
we remain concerned about near-term auto sales growth given the high base in
1H08 and expectations of slower income growth. That said, the consoling fact is
that auto stocks still look cheap in terms of valuation. We therefore maintain Buy
ratings for Dongfeng Motor (0489.HK) and Denway Motors (0203.HK).
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Top picks
Dongfeng Motor (0489.HK),HKD2.90 Buy
Denway Motors (0203.HK),HKD2.53 Buy
Companies featured
Dongfeng Motor (0489.HK),HKD2.90 Buy
2007A 2008E 2009E
P/E (x) 12.6 5.8 6.3
EV/EBITDA (x) 7.2 3.2 3.1
Price/book (x) 2.6 1.0 0.9
Geely Auto (0175.HK),HKD0.67 Hold
2007A 2008E 2009E
P/E (x) 15.8 6.1 4.8
EV/EBITDA (x) – 4.1 1.8
Price/book (x) 1.9 1.4 1.1
Denway Motors (0203.HK),HKD2.53 Buy
2007A 2008E 2009E
P/E (x) 13.1 7.5 7.4
EV/EBITDA (x) – – –
Price/book (x) 3.2 1.3 1.2
Brilliance China (1114.HK),HKD0.47 Hold
2007A 2008E 2009E
P/E (x) 24.2 – 20.3
EV/EBITDA (x) 6.5 5.4 2.8
Price/book (x) 1.0 0.2 0.3
China auto sales
(m units) (YoY)
Source: CAAM, Deutsche Bank
Price target changes (HKD)
Dongfeng Motor From 2.30 to 3.40 +47.8%
Denway Motors From 2.20 to 3.05 +38.6%
Geely Auto From 0.50 to 0.70 +40.0%
Brilliance China From 1.85 to 0.55 -70.3%
Global Markets Research Company
Recent positive newsflow attributable to the sector rally
In January 2009, PV sales amounted to 610,600 units. Although the headline
number represents an 8% YoY decline, the market views it positively as it was
achieved in a month with a week-long Chinese New Year holiday. Besides, the
market also expects a YoY jump in February 2009 sales given the lack of holidays
and the release of pent-up demand after the government’s announcement of
supportive measures for the sector in January 2009. These measures include, but
are not limited to, the temporary reduction of auto purchase tax on small cars, the
abolition of road maintenance fees and a cut in gasoline prices.
Tough base to beat for the rest of 1H09 after February
We are still uncertain about the extent of impact of the supportive measures
given: 1) it may boost sales of small vehicles at the expense of larger PV sales;
and 2) a considerable portion of incremental sales would go to mini-cars, a
segment with ultra slim margins. Overall, the average monthly PV sales in March-
June 2008 amounted to 614,500 units, a number which is tough to beat, in our
view. We therefore maintain our stance that auto sales will improve from 2H09.
Sector’s outperformance is likely to sustain; TP changes; risks
With more sustainable auto sales recovery approaching in 2H09, we believe the
valuation of the PV sector could gradually come out of its most recent trough of c.
6x forward PE and test its previous trough of 8x PE during 2005 (when the sector
started its rebound after the country’s macro tightening). Therefore, we raise our
TPs for auto stocks despite our more cautious earnings outlook (see TP changes
to the right). We favour Dongfeng and Denway as their PV sales robustness
should sustain driven by popular model offerings. Our top pick is Denway given its
pure exposure in the PV segment and its b/s strength. The key downside risks to
our call include further deterioration of the macroeconomic environment which
hurts sales and an aggressive price war that evaporates margins.
Table of Contents
Recent developments ....................................................................... 3
A glimpse of sector recovery? Not a sure thing yet..................................................................3
Several supportive measures announced, perhaps more to come...........................................3
Other near-term worries in sight...............................................................................................5
Conclusion: stay cautious near term but optimistic long term..................................................6
Stock implications............................................................................. 8
Lowered forecasts with a more conservative sales outlook.....................................................8
But sector re-rating warranted given government support .......................................................8
Near-term top pick is Denway; cautious on domestic names...................................................9
Risks.................................................................................................. 11
Demand could get worse again ..............................................................................................11
Panic pricing may re-emerge ..................................................................................................11
Company pages ............................................................................... 12
Dongfeng Motor .............................................................................. 14
Denway Motors ............................................................................... 20
Geely Auto........................................................................................ 24
Brilliance China ................................................................................ 28
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[此贴子已经被作者于2009-3-12 16:49:44编辑过]
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