CHINAPASSENGERVEHICLESECTORRECENTCHANNELCHECKTAKEAWAYSSHOULDBEABETTERYEAR0131

1、buybuybuyholdbuysellupside16.0%deutsche bankmarkets researchasiachinaautomobiles &componentsindustrychina passengervehicle sectordate31 january 2013forecast changevincent ha, cfanora minrecent channel check takeaways -2013 should be a better yearresearch analyst(+852) 2203 research associate(+85

2、2) 2203 fasten seatbelt for fy12e surprises; 2013e ride should be smootherin our january conference and tour, we met with the ir teams of two autooems and three auto dealer groups. we also paid visits to three auto/autoparts manufacturing plants. in addition, an expert from the state informationcent

3、re made a presentation about the auto sector outlook. the major takeawayis that as oems in general have prudent 2013 targets, there is likely to be afavourable demand-supply balance, benefiting both oems and dealersprofitability. nonetheless, 2h12e operations could be worse than expected fortop pick

4、sbrilliance china (1114.hk),hkd10.26baoxin auto group (1293.hk),hkd8.19companies featureddongfeng motor (0489.hk),hkd12.782011a 2012e 2013edealers and fy12 results could lead to short-term share price shocks. our topp/e (x)9.010.88.3picks are still brilliance for oems and baoxin for dealers.reiterat

5、ing our above-consensus passenger vehicle sales growth forecastsguangzhou auto (2238.hk),hkd6.712011a 2012e 2013eafter attending the experts presentation and noting the upbeat targets set byp/e (x)10.319.910.1geely and beijing hyundai, we maintain our above-consensus passengervehicle (pv) sales grow

6、th forecast of 11% in 2013. we are particularly upbeaton the suv and luxury segments and believe they will continue to outperformthe overall pv sales growth rate in the near to mid term. we also expect localbrands to outperform the average chinese auto market due to ongoingurbanisation in lower-tier

7、 regions. last but not least, we expect a furthergeely auto (0175.hk),hkd4.18 buy2011a 2012e 2013ep/e (x) 11.7 14.4 11.8brilliance china (1114.hk),hkd10.262011a 2012e 2013erecovery in demand for japanese brands, although a full recovery is unlikely inp/e (x)17.317.113.3early 2013 given the overhang

8、from the sino-japanese island dispute.inventory levels and price discounts on easing trends in 4q12byd (1211.hk),hkd26.052011a 2012e 2013ethe oems and dealers we recently talked to said that inventory levels hadp/e (x)53.0 730.443.7declined and discounts had been narrowed in general in 4q12. this de

9、mand-supply balance should indicate a better operating backdrop for oems anddealers for 2013e. nevertheless, as 1) the pace of the luxury brand dealershipsnew car sales margin recovery appears slower than expected, and 2) thebaoxin auto group (1293.hk),hkd8.19 buy2011a 2012e 2013ep/e (x) 22.8 24.7 1

10、4.6negative margin impact on the japanese brand dealers due to the islanddispute was worse than expected in 4q12, we think that the 2h12 dealershipmargin recovery did not materialise as we originally expected.zhengtong auto services(1728.hk),hkd6.98p/e (x)hold2011a 2012e 2013e27.1 18.6 13.2maintaini

11、ng oem outlook but a bit more prudent on dealers outlookwhile maintaining our stance for the oems at the moment, we cut fy12-14eearnings for dealers due to a slower-than-expected new car sales marginrecovery. however, as we remain upbeat on the outlook for auto after-salesservice business, which has

12、 not been affected so far, we keep ourrecommendations and raise our dcf-derived target prices by lowering ourwacc in expectation of less market risk aversion to the dealership names.zhongsheng group (0881.hk),hkd11.62 buy2011a 2012e 2013ep/e (x) 16.2 24.9 12.3auto dealers target price revisioncompan

13、y new tp old tpbaoxin 9.5 7.5oem top pick is brilliance; dealer top pick is baoxinamong the chinese oems, we like brilliance the most, as its bmw jv salesare on track for a better 2013, with more capacity to produce the new 3 series.zhengtongzhongsheng7.68.9%15.3%in the dealership space,

14、we like baoxin the most after its completion of theacquisition of yanjun and it becoming the largest bmw dealer group in china.key downside sector risk: a weaker-than-expected macro recovery draggingdown sales growth. key upside sector risk: faster-than-expected realisation ofthe macro recovery, boo

15、sting auto demand.the report changes target prices andestimates for several companiesunder our coverage. for a detailedlisting of the estimate changes, seefigure 14 on page 10._deutsche bank ag/hong kongdeutsche bank does and seeks to do business with companies covered in its research reports. thus,

16、 investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors shouldconsider this report as only a single factor in making their investment decision. disclosures and analystcertifications are located in appendix 1. mica(p) 072/04/

17、2012.1606031 january 2013automobiles & componentschina passenger vehicle sectorkey takeaways from channelchecks with auto oemslist of ir teams/companies that we met and visited in januaryauto/auto part manufacturers: beijing benz, beijing hyundai, geely auto,hyundai mobis, volkswagen chinaauto d

18、ealership groups: baoxin, yongda, zhengtong and zhongshengindustry expert: mr. xu changming, general director and senior economistfrom state information centreindustry expert thinks that industry fundamentals will improvemr. xu changming, general director and senior economist specialising in auto se

19、ctorstudies at chinas state information centre, made a presentation to our clients in mid-january regarding the outlook for the chinese auto market in 2013. to recap, mr. xuexpects the 2013 passenger vehicle (excluding mini-cars) demand growth rate toaccelerate to 10%, based on an underlying 2013 gd

20、p growth assumption of 8%. hiscore rationale is a warm-up in economic growth. in terms of segmentation, mr. xu alsosees stronger growth in 1) the low-price segment with third/fourth-tier city developmentand 2) the high-price segment with the rise in upgrade demand in first/second-tier cities.mr. xu

21、also notes that as lots of auto manufacturers conservatively guide for single-digitgrowth in 2013 production, demand and supply should be in better balance and theindustry fundamentals could therefore improve vs. 2012 (when manufacturersoptimism countered lukewarm market demand, leading to inventory

22、 and pricingpressure). in the long run, even though additional capacity and retreating utilisationwould imply weaker bargaining power for manufacturers, mr. xu is not too concernedabout the risk of severe market over-capacity as he believes that auto manufacturerswill fine-tune their china capacity

23、plans after recent years slower auto sales growth.figure 1: china vehicle sales forecastcomparisonfigure 2: china passenger vehicleownership trend (# cars per 1,000 people)similar to db, mr. xu fromthe state information centresic forecastdb forecastalso has a relatively upbeatpassenger vehiclecommer

24、cial vehicleaggregate vehicle10.0%5.0%8.0%11.5%10.3%11.3v sales growth forecast for2013. he also expects autoownership to continue tosurge in 2011-20.402002000200520102015e2020esource: state information centre, deutsche bankpage 2source: state information centredeutsche bank ag/hong kon

25、gjan-09apr-09jul-09oct-09jan-10apr-10jul-10oct-10jan-11apr-11jul-11oct-11jan-12apr-12jul-12oct-12jan-09apr-09jul-09oct-09jan-10apr-10jul-10oct-10jan-11apr-11jul-11oct-11jan-12apr-12jul-12oct-1231 january 2013automobiles & componentschina passenger vehicle sectorregarding the sino-japanese island

26、 dispute, mr. xu thinks that european brands inchina have benefited the most at the expense of the japanese brands sales, followedby the korean brands and us brands. he expects the japanese auto brands chinamarket share to recover to a level somewhere in between their current market sharelevel and t

27、he recent peak before the dispute escalated, but the extent of recovery willrely on the time it takes to repair the two governments relationship.in general, we think that mr. xus optimistic tone on the china auto sector echoes ours.at the moment, our 2013 vehicle sales growth estimate of 11% is also

28、 at the high endof consensus, backed by our optimism on a china gdp growth recovery (to 8.2% in2013e) and improving auto consumption sentiment.geely auto eyes sales growth outperformance in 2013geely auto had meetings with our clients in mid-january. after beating its 460k-unit2012 sales target with

29、 483k-unit sales (up 15% yoy), the company is aiming high with a560k-unit 2013 sales target (up 16% yoy), well ahead of industry growth. to elaborate,geely will rely on three key drivers for growth:boost in export from about 102k units in 2012 to about 150k units in 2013ramp-up of suv sales with the

30、 existing gleagle gx7, 1h13e launch of anenglon suv model and 2h13e launch of an emgrand modelintroduction of geely cars equipped with its own dsi automatic transmissionsthe company does not expect much capex for fy13 given that it has sufficient capacityin place and sees room for margin expansion w

31、ith 1) higher production utilisation and 2)better economies of scale. regarding inventory trends, the company expects totalinventory levels to ease further when it gets closer to the chinese new year, which is astrong selling season. last but not least, geely continues to expect the stable receipt o

32、fgovernment subsidy inflows in fy13.geelys 2012 sales volume and its 2013 sales target are slightly higher than our originalexpectations. considering the companys sales resilience in 2h12, with new modelsales and booming exports, we think that the companys volume expectations aredefinitely not out o

33、f reach. geelys optimism reaffirms our view that even though thechina auto sales growth rate has slowed down in recent years, companies with popularproducts, such as geely, can still achieve solid growth in the foreseeable future.figure 3: geely auto monthly domesticvehicle sales trendfigure 4: geel

34、y auto monthly exportsales trendgeely has recently showedstrength is both local and(units)60,00050,00040,00030,00020,00010,0000(yoy%)200%150%100%50%0%-50%(units)14,00012,00010,0008,0006,0004,0002,0000(yoy%)800%600%400%200%0%-200%export sales. we expect thisstrength to continue on betterlocal economi

35、c growth andfurther urbanisation.source: company datadeutsche bank ag/hong kongsource: company datapage 3sep-11sep-12dec-12nov-10feb-12mar-11oct-12apr-1231 january 2013automobiles & componentschina passenger vehicle sectorvolkswagen group china stays upbeat on the chinese marketour clients had a

36、 lunch meeting with volkswagen chinas ir team in mid-january. thevolkswagen brand maintained its top-ranked market share among auto brands in chinain 2012. for 2013, the company conservatively targets 8-10% sales growth but it has ahigh conviction of achieving that. at the moment, its jvs are produc

37、ing at 100%utilisation and the company is adopting a very cautious approach in terms of capacityplanning. within the pv segments, volkswagen is very optimistic about the outlook forthe suv sub-segment and believes that this segment still has huge potential in china.therefore, it plans for the local

38、production of audi q3 in 2013. in the luxury carsegment, audi a3 will start its local production in the new foshan plant in 2013according to the companys “go south” strategy.last but not least, volkswagen china has been tracking the dealership inventorysituation in the industry and it mentioned that

39、 inventory levels have showed signs ofeasing across the industry since 4q12.figure 5: volkswagen brands and industrys dealership inventory levels in chinaas tracked by volkswagen,(months)3.02.5industryshanghai vwaudiskodafaw vwtheir brands inventory andthe industrys inventory levelin china seemed to

40、 ease in4q12, which should beperceived as a positive2.01.51.00.50.0source :volkswagen group china, cpca deutsche bankall in all, we think that volkswagens plan in china demonstrates that major oems arewell aware of the actual china market growth prospects and are ready to match thosewith well-planne

41、d capacity expansion. therefore, the risk of over-capacity is likely to beoverstated by the market, in our view.beijing hyundai plant visitwe visited beijing hyundais plant no. 2 in mid-january. its annual production capacityexpanded to 900k units in mid 2012 and the brand sold 859,595 units in 2012

42、 (up16.9% yoy and beating its original target of 800k units). beijing hyundai currentlymanufactures 11 kinds of models and more than 90% of the components it sources arelocally made in china. for 2013, the brand aims to sell 970k units of cars (up 12.8%yoy), to be driven by newer models such as elan

43、tra langdong compact sedan andsanta fe suv. it appears that the company is confident about reaching this ambitiousgrowth target and has hopes of beating it. at the moment, beijing hyundais dealershipinventory level is healthy at about 1.7 months.page 4development for both oemsand dealers.deutsche ba

44、nk ag/hong kong2007 2008 2009 2010 2011 201231 january 2013automobiles & componentschina passenger vehicle sectorfigure 6: beijing hyundai annualpassenger vehicles sales trendfigure 7: beijing hyundai 2012 salesvolume breakdownbeijing hyundai has beenoutperforming market growth(units)1,000,00090

45、0,000800,000700,000600,000500,000400,000300,000200,000100,0000(yoy%)100%80%60%40%20%0%-20%-40%modelaccentvernaelantraelantra yuedongelantra langdongi30sonatamoincaix35santa fetucsontype sales volumesub-compact sedan 3,200sub-compact sedan 204,963compact sedan 64,368compact sedan 214,753compact sedan

46、 81,827compact hatchback 1,645mid-size sedan 100,478mid-size sedan 16,903suv 108,241suv 7,033suv 56,184in the past five years withpopular models in thepopular compact and suvsegments. the companyremains upbeat on 2013 witha growth target of 12.8%.total859,595source: china association of automobile m

47、anufacturers (caam)source: caamconclusion 1 a better 2013e in sightafter discussions with major oems that outperformed in 2012 (in terms of sales), suchas volkswagen and hyundai, our impression is that while they in general provideconservative 2013e volume targets after a lukewarm 2012, they are ind

48、eed moreupbeat about 2013 demand growth vs. 2012. with cautious production growthplanning and demand warming up, we foresee improvements in industry pricing andinventory conditions, which bodes well for both oems and dealers.whats more, we believe that with an appropriate product mix for 2013e, cert

49、ainmanufacturers could beat market expectations of single-digit volume growth this year.as such, we reiterate brilliance as our oem top pick given our optimism on the bmw 3series sales ramp-up in the fast-growing luxury segment. we also like geely, which willbenefit from the local brand demand recov

50、ery, driven by urbanisation and export, andthe beefing up of its suv product portfolio. last but not least, we have a buy rating ondongfeng in expectations of a gradual japanese brand models sales recovery, furtherboosted by its late 1q13e launch of the dongfeng nissan teana mid-size sedan.deutsche

51、bank ag/hong kongpage 5sep-12jun-12jul-12aug-12nov-12 dec-12oct-12jan-130%31 january 2013automobiles & componentschina passenger vehicle sectorkey takeaways from channelchecks with auto dealerszhongsheng hit hard by island dispute in 2h12 but recoveringzhongsheng had meetings with our clients in

52、 mid-january. the company observed anoverall improvement in inventory and retail price discounts in 2h12 in general.however, its japanese car sales and business margins were badly impacted by thesino-japanese island dispute in september and october 2012, although sales hadalready recovered to about

53、80% of normal levels by the end of 2012. moreover, sales ofluxury japanese brand lexus recovered faster than those of zhongshengs mass marketjapanese brands, with lexus inventory currently below the companys average ofroughly 1.5 months.in 2013, zhongsheng aims to expand its 4s store network by 20-3

54、0 stores, with ninestores already under construction, via organic growth and m&as. management believesthat the sales performance of mercedes benz, which is lagging audi and bmw in chinaright now, will be on the path to recovery in 2013 after the consolidation of itswholesale network in china.fig

55、ure 8: mercedes benz 2012 salesgrowth in china as compared tozhongsheng50%45%40%35%30%25%20%figure 9: actual retail price trend of amercedes benz s300l in china(suggested price starting at rmb930k)rmb780,000760,000740,000720,000700,000besides the island dispute,zhongshengs fy12 businesswas also scar

56、red by the slowsales of mercedes benz. eventhough benz sales withinzhongsheng surged with newstore openings, pricing hasbeen under pressure. the15%10%680,000companyexpectsan5%660,000improvement in 2013 withbenz sales growth in china (yoy)zhongsheng benz sales growth (yoy)morenewmodelsource: company

57、data, deutsche bank estimatesource: deutsche bank estimatecontributions to drive sales.for the japanese brands, zhongsheng still thinks that they can stay competitive inchina as long as the island dispute does not deteriorate, since there are still lots of greatjapanese car models not launched in ch

58、ina. last but not least, zhongshengs after-sales service continues to expand healthily, with about 2m service visits in 2012. goingforward, the company expects the earnings contributions from after-sales service tofurther balloon with 1) the maturing of more stores and 2) the continual development o

59、fbusinesses such as used car sales.to sum up, zhongshengs tone on its 2012 business review makes us feel that weunderestimated the negative new car sales margin impact in 2h12e due to the islanddispute. nevertheless, we remain comfortable with the companys outlook in fy13econsidering 1) a recovery i

60、n japanese brand sales, 2) a potential pick-up in mercedesbenz sales, and 3) an increasing after-sales service contribution.page 6deutsche bank ag/hong kongfeb-12may-12jan-12jun-12aug-12sep-12oct-12apr-12jul-12nov-12dec-12mar-1231 january 2013automobiles & componentschina passenger vehicle sectoryongda echoes luxury car sal