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摩根大通：亚太汽车行业研究报告 20090123【英文】
Auto WINRegional autos industry highlights
Asia Pacific Equity Research 23 January 2009
Auto WIN
Regional autos industry highlights
Key items this month Regional Autos
Team ? WFrank LiAC 2009. We analyze 1) the timing and the drivers of the third auto
boom in hat is changing? We focus on the regional auto sales outlook for (852)
2800-8511 China, and the potential short-term revival of heavy truck demand in
frank.m.li@jpmorgan.com China, as we believe China’s industrial production growth
will see a J.P. Morgan Securities (Asia Pacific) Limited sharp rebound by 2Q09 due
to aggressive monetary easing by the Jin Luo Chinese government in Sep-08; 2) Korean
auto sales, which are likely to (852) 2800-8516 fall below 1 million units for the
first time since the 1998 Asian jin.j.luo@jpmorgan.com Financial Crisis; 3) the
potential growth drivers for the Indian auto J.P. Morgan Securities (Asia Pacific)
Limited
market,
on
the
back
of
which
we
expect
a
revival
growthttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232h
of
sales
Bharat
Iyer
momentum in 2H08; 4) the Taiwanese auto market looking for signs of a (91-22) 6639-3005
recovery;
5)
the
rapid
deceleration
of
auto
sales
in
Indonesia,
which
bharat.x.iyer@jpmorgan.com should continue well into 2009; and 6) the reasons for
the negative J.P. Morgan India Private Limited outlook on the Malaysian auto sector,
including lower GDP growth, a Nick Lai rising unemployment rate and weakening consumer
confidence. (886-2) 2725-9864 nick.yc.lai@jpmorgan.com ? IJ.P. Morgan Securities
(Taiwan) Limited. Chinese government’s expected decision to expand consumer credit
into nformation: We discuss 1) 2008’s vehicle sales in China and the Jon Oh the auto
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sector in order to boost car sales; 2) the light small vehicle (60-3) 2270-4730 segment
gaining market share in Korea to about 37%; 3) the heating up jon.t.oh@jpmorgan.com
of competition in the executive segment with Bajaj and Hero Honda JPMorgan Securities
(Malaysiahttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232)
Sdn.
Bhd.
rolling out 125-135cc bike models; 4) the impact of commodity tax cut (18146-X) on
the auto sales in Taiwan; and 5) Daihatsu’s target to achieve 13% Aditya Srinath,
CFA
share
in
the
Indonesian
market
in
2009.
(62-21)
5291-8573
aditya.s.srinath@jpmorgan.com ? Non-consensus calls: We initiated coverage on
DongFeng Motor with PT J.P. Morgan Securities Indonesia an Overweight rating.
DongFeng Motor is our top pick in the China auto Wan Sun Park sector; we believe the
company is well-positioned to ride China’s third (82-2) 758-5722 auto boom. We are
Underweight on Astra International because we wansun.c.park@jpmorgan.com believe
current consensus earnings estimates are too high. A right time J.P. Morgan Securities
(Far East) Limited to accumulate Astra would be when vehicle sales start to stabilize,
rather than when interest rates start to decline, in our view. Aggregate SAAR sales
volume in Asia
New
vehicle
volume (SAAR)
salehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232s
Million units Market CY06 CY07 CY08E CY09E Y/Y(%) Japan 5.73 5.35 5.07
4.68 -7.8 China 7.22 8.79 9.38 8.78 -6.4 Korea 1.16 1.22 1.15 1.00 -13.2 India 1.87
2.25 2.48 2.58 4.0 Taiwan 0.37 0.33 0.24 0.21 -13.5 Hotai Motor, Taiwan Economic
Journal. Indonesia 0.32 0.43 0.60 0.37 -37.7 Total 16.7 18.4 18.9 17.6 -6.9
Source:
JAMA, KAMA, CAAM, SIAM, China Motor, Hotai Motor, Taiwan Economic Journal, Astra
International, J.P. Morgan estimates.
See page 81 for analyst certification and
important disclosures, including non-US analyst disclosures.
J.P. Morgan does and
seeks to do business with companies covered in its research reports. As a result,
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
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investment decision.
2
W:
What
is
changing?
In
this
sectiohttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232n,
analysts
summarize the changing trends in the industry or regulatory changes in the various
markets in the region. China Change 1: We expect China's next auto boom to kick off
in 2010/11 Given the worse-than-expected economic slowdown and worse-than-expected
car sales in the past two months, we recently cut our 2009 and 2010 sales forecasts
of domestically made sedans (cars) by 9% and 6% to 4,795 million and 5,370 million,
respectively. As a result, we expect sales to decline by 5% Y/Y in 2009 before rising
to 12% and 16% Y/Y in 2010E and 2011E, respectively.
Table 1: China—J.P. Morgan’s
forecasts for vehicle demand Sales units 2004 2005 2006 2007 2008 2009E 2010E 2011E
('000) Sedan 2242 2,787 3,829 4,727 5,047
200
220 246 SUV 163 196 238 357 448
4,795
5,370 6230 MPV 109 156 191 226 197
484 552 618 Minivan 757 831 918 988 1,064
1,091 1179 Total PV 3271 3970 5176 6298 6756 6489 7233 8273 (Y/Y % change)
2http://www.mianfeiwendang.com/doc/e419825b6848e34b740572322%
Bus 183 179 191 247 253
-4%
255 268 283 Truck 1121 1,163 1,317 1,516 1,641
1610 Trailer 99 57 93 178 194
175
Truck chassis 307 298 341 450 450
2,290
7%
183 202 Van chassis 91 91 98 102 88
382
2,409 2,651 (Y/Y % change)
1,010
21% 30%
11%
14%
1395 1464
84 92 101
401 455 Total CV 1,801 1,788 2,040 2,494 2,625
-0.7% 14.1% 22.3% 5.2% -12.7% 5.2% 10.1% Total
vehicles 5,072 5,758 7,216 8,792 9,381
8,779
9,642 10,924 (Y/Y % change) 17.2%
13.5% 25.3% 21.8% 6.7% -6.4% 9.8% 13.3% Source: CAAM, J.P. Morgan estimates. Due to
the comparison base effect, car sales might experience the sharpest Y/Y decline in
1H09 before tapering off in 2H09 due to the expected gradual recovery in demand in
2H09 and the reduced comparison base in 2H08. China’s next auto boom to kick-off
in 2010E/2011E Passenger vehicle sector characterized by low penetration rate The
passenger vehicle penetration rate in China is rather low, as low as 24 per 1,000
perhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232sons by 2007. Mature
markets such as the US, Europe and Japan already boast of high penetration rates and
offer less growth potential. Unlike these markets, China’s passenger vehicle market,
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which is increasingly driven by first-time buyers in tier-two and tier-three cities,
has a rather low penetration rate.
In tier-one cities such as Beijing and Shanghai, replacement demand has also become
a key driver in new demand, with second-hand vehicle sales quickly catching up with
primary market car sales.
This means that despite its already massive size, China’s passenger vehicle market
still offers a lot of growth potential in the next 5-10 years, due to its low
penetration
rate and large pool of potential buyers.
Table 2: China: Penetration rate of cars (Possession of passenger vehicles per 1,000
persons)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
20http://www.mianfeiwendang.com/doc/e419825b6848e34b7405723203 2004 2005 2006 2007
Passenger vehicles 1.93 2.41 2.92 3.45 3.99 4.7 5.25 5.88 6.74 7.79 9.36 11.44 13.35
16.31 19.93 24.19
Source: CEIC, J.P. Morgan.
Table 3: China—Number of second-hand vehicles by region in 2006
Region Truck Bus & Car Off-road Motorcycle Others Total
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coach vehicle
Beijing 14,941 71,418 169,955 5,905 7,369 52,701 322,289
Guangdong 48,506 49,180 138,505 5,875 55,295 9,895 307,256
Shanghai 33,970 51,724 117,730 1,326 12,893 4,652 222,295
Zhejiang 44,268 44,280 71,497 4,127 12,362 3,719 180,253
Others 218,387 236,737 321,576 17,224 54,740 25,118 873,782
Total 360,072 453,339 819,263 34,457 142,659 96,085 1,905,875
Source: China Auto Market, J.P. Morgan.
Source: China Auto Market, J.P. Morgan.
3
frank.m.li@jpmorgan.com
4
Table
4:
Car
penetration
rate
in
Europeanhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 countries and
the US (units/per 1000 persons)
492
2000 2001 2002 2003 2004 2005 2006 France 476 485
490
487
495 495 Germany 532 538 541
581
590 597 UK 464 470 480 504 506
546
550
509 508 Spain 431
559 566 Italy 563 583 588 592
441
448
437 452
459
462
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Avg*
1,160
493
503
509
513
516
1,190
522 526
US*
1,120 1,130 1,140 1,150
1,200 Source: Data for Europe is based on ACEA and
J.P. Morgan estimates, while US data is based on Wardsauto and J.P. Morgan estimates.
*European car penetration rate is based on car possession per one thousand population,
while car penetration rate in the US is based on car possession rate per one thousand
driving age population, which represents around 75% of the population. Looking for
the next auto boom in 2010/ 2011? Despite our cautious near-term view on car demand,
we have an optimistic view on the passenger vehicle sector’s medium-term
growthhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
prospects.
Unlike the mature markets such as the US, Japan or Western Europe, China’s car market
is still a growth market with much potential, especially in tier-three cities, to
be tapped in the next 5-10 years.
Just like China’s first two auto booms, which
were largely driven by the breakout of car demand in tier-one and tier-two cities,
we expect the next boom to be largely driven by the breakout of demand in tier-three
cities, which might happen in 2010 or 2011. The urban households’ average disposable
income in tier-three cities in 2007 was Rmb27,929, which was lower than in tier-one
and tier-two cities at Rmb52,448 and Rmb40,157, respectively. On the other hand, in
2007, tier-three cities’ disposable income growth rate of 16.2% was higher than
tier-one and tier-two cities’ 14.6% and 15.9%, respectively.
Assuming a
conservative forecast of a 10.5% CAGR in tier-three cities’ income growth from 2007
to
2010,
the
houshttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232eholds’
urban
average
disposable income in tier-three cities should rise to Rmb41,563 by 2011. Based on
China’s CPI discount factor of 1.5% in 2006, 4.5% in 2007, 6.1% in 2008, and estimated
CPI of 1%, 2%, and 3.5% for 2009, 2010, and 2011, respectively, we find that the above
estimated urban households’ average disposable income in tier-three cities of
Rmb41,563 is equivalent to purchasing power worth around Rmb34,637 in 2006—similar
to the urban households’ average disposable income in tier-two cities of Rmb34,654
in 2006, which sparked off China’s second auto boom. On the other hand, if we elect
to adopt a more aggressive forecast of a 13% CAGR in tier-three cities’ income growth
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from 2007 to 2010, we expect the urban households’ average disposable income in
tier-three cities to reach Rmb40,199 in 2010. Likewise, using China’s CPI discount
factor of 1.5% in 2006, 4.5% in 2007, 6.1% in 2008, and an estimated CPI of 1% and
2% in 2009http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 and 2010,
respectively, we find that the above estimated urban households’ average disposable
income in tier-three cities of Rmb40,199 is equivalent to purchasing power worth
around Rmb34,674 in 2006—similar to the urban households’ disposable income in
tier-two cities of Rmb34,654 in 2006. In short, we expect China’s third auto boom
to kick off in 2010 or 2011 when the average households’ disposable income in
tier-three cities is expected to reach the
Rmb40,199 or Rmb41, 563 level. This amount, when discounted back based on the
CPI factor, is similar to purchasing power of the urban households’ average
disposable income of Rmb32,250 in tier-one cities in 2003 and Rmb34,654 in tier-
two cities in 2006, which sparked off China’s previous two auto booms.
Figure 2: China—Breakout of car demand in tier-three cities in 2010 scenario
First tier city household
average
income
50
40
disphttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232osable
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30
20
10
0Third
tier
city
household
average
disposable
income
199419961998200020022004200620082010
Source: J.P. Morgan.
Figure 3: China—Breakout of car demand in tier-three cities in 2011 scenario
First tier city household
average disposable income
50
40
30
20
10
0Third
tier
city
household
average
disposable
income
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199419961998200020022004200620082010
Source: J.P. Morgan.
China’s demographics favor good medium-term growth
People in the age group of 40-45 years, who have highest disposable income and are
most likely to own cars, accounted for 16% of China’s total population in 2007.
By 2012, the income bracket of the 40-45 age group is estimated rise to 19% of
China’s
total
population,
bohttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232des
which
well
for
car
demand growth in 2012 to 2015.
5
6 Figure 4: China—Demographic breakdown by age group in 2007
Source: CEIC, J.P. Morgan. Figure 5: China—Demographic breakdown by age group in
2012E
Source: CEIC, J.P. Morgan. Upside from upcoming policy package to stimulate China’s
car consumption China’s three consumption growth engines: Housing, car and rural
consumer markets
In light of the sharp economic slowdown, China’s State Council
has noted the importance of activating domestic consumption, and has highlighted
three key markets for increasing domestic consumption—the housing market, the car
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market, and the rural consumer market. On January 14, 2009, China’s State Council
passed policies to boost the domestic auto sector, which are, in general, positive
for the sector, in our view.
1. From January 20-December 31, the government will cut the vehicle
purchase tax for cahttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232rs
with an engine size of 1.6 liters or below from 10% to
5%, which is charged at the consumer level.
2. The government will provide Rmb5 billion as a financial subsidy to help
farmers upgrade their three-wheeler and low-speed agricultural vehicles to
light trucks and mini-buses with an engine size of 1.3 liters or below.
3. Promote M&A in China’s auto industry.
4. The central government will spend Rmb10 billion to help auto companies
upgrade their technology and develop proprietary technology.
5. Adopt an “alternative energy car” strategy through measures such as
promoting the development of electric cars and boosting the development of
key auto parts of electrical cars.
6. Help auto companies develop their own proprietary brands and accelerate
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the construction of export bases for autos and auto parts.
7.
Develophttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
an
auto-related service industry.
We believe the above policies are encouraging and expect the government to take
additional measures to boost the automotive sector if the cyclical downturn proves
to
be more severe than expected.
We have summarized other possible policies and/or measures that the domestic
automotive sector has proposed to the governing authorities, and rate their chances
of
adoption by the government to stimulate car consumption in China:
(1) Allowing institutional customers with a legal person status who purchase vehicles
to obtain a VAT credit to offset VAT liabilities
We believe the above policy, if adopted, should encourage corporate customers to
purchase vehicles. Given its relative complexity, we believe the chances of its
adoption are medium.
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(2)
Allowing
individual
customers
who
purchase
vehicles
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232to obtain credit at a
certain
percentage of the vehicle purchase price that can be used to offset their individual
income tax liabilities
We believe the above policy, if adopted, would encourage individual customers to
purchase vehicles. Given its relative complexity, we believe the chances of its
adoption are medium.
(3) Including motorcycles, light trucks and small cars (engine size of 1.5 liters
or
below) in the list of “home appliances entering rural families” project that qualify
for 13% financial subsidy of the purchase price
Given the high recurrent usage cost, we believe the possibility of cars, even small
cars, being included in the list is low. However, motorcycles might well be included.
7
8 (4) Increasing credit support to auto producers, dealers and auto parts suppliers
We
believe
the
chances
are
Inhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
very
fact,
high.
China’s
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Import and Export Bank, on December 7, 2008, signed an agreement to provide a credit
line of Rmb10 billion to Chery, China’s largest local branded auto producer.
The
policy can help alleviate the cash flow problem suffered by auto producers, dealers
and auto parts suppliers amid the sales slowdown. (5) Loosening requirements on auto
loans and reducing lending rates for auto loans Unlike many developed countries, where
70-80% of the cars are bought with the help of loans, only less than 10% of the cars
sold in China are bought via loans, with most consumers buying cars on a lump-sum
cash basis. This is partly because the auto loan lending rate is set at a rather high
level of 1.4x the benchmark lending rate. In comparison, the mortgage rate on property
is set at 0.7-0.8x the benchmark lending rate. In other words, the borrowers of auto
loans for the same amount of money tend to pay twice as much interest as those
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232of
property
mortgage
loans. We believe chances of adoption of the above policy are high, as it could help
boost sales in China. We believe it might take some time for Chinese banks, which
have burnt their fingers in the previous down-cycles in 2005, to come up with auto
loans with as preferential a lending rate as that of the property mortgage rate.
(6)
Allowing consumers to borrow money from the public housing fund to purchase cars We
believe chances of allowing consumers to borrow auto loans from the Rmb400 billion
public housing fund to purchase cars are low, given the complexity of implementing
the policy and the fact that the housing market badly needs the full support of the
public housing fund. (7) Increasing the VAT rebate for auto parts and vehicle exports
China’s vehicle exports have suffered a sharp decline from 3Q08. We believe that
the chance of increasing the VAT rebate for vehicle exports is very high, which
shouhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ld be positive for
auto producers focusing on exports. (8) Increasing purchase of local branded vehicles
by the government We believe the chances are very high, which should be positive news
for local branded vehicle producers. (9) Providing financial subsidy for vehicles,
which are scrapped ahead of their lifespan The chances are medium, in our view, and
we see limited positive impact from the policy if it is adopted. We are Overweight
on DongFeng Motor and Neutral on Denway Motor If the government keeps coming up with
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aggressive policies to stimulate car consumption, there is a chance that the next
auto boom might kick off ahead of our originally forecast 2010/2011. We believe
DongFeng Motor (DFM) makes the best proxy to take advantage of the upturn in China’s
next auto boom because: (1) The company’s multi-strategic-partner
business model has enabled it to gain access to a steady flow of new models from its
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232three
strategic
partners—Nissan, Honda, and Peugeot Citroen. (2) DFM is a
consistent outperformer, with its market share expanding to 14.1% in FY08 from
12.9% in FY07. In comparison, Denway’s market share continues to decline, with its
market share down to 4.5% in FY08 from 4.7% in FY07.
We expect DFM to outperform Denway Motors from here. While we believe that
Denway Motors’ earnings for FY08 and FY09 could be disappointing and are
already fairly valued in the current price, we remain Neutral given its high cash
position and the possibility of returning cash to shareholders. By our estimates,
it
boasts net cash of HK$0.67 per share on its own balance sheet; the net cash on its
50%-owned Guangzhou Honda is equivalent to ~HK$0.52 per share attributable to
Denway’s shareholders. Its share price might trade above its fair value of HK$2.1
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if://www.mianfeiwendang.com/doc/e419825b6848e34b74057232r
the company returns cash to shareholders through a special dividend. Our
fundamental December 2009 price target of HK$2.1 is based on 10x FY10E P/E.
Key risks to our price target include more severe-than-expected price cuts amid a
sharp economic slowdown and weaker-than-expected sales volume.
Change 2: Heavy truck demand likely to stage a recovery in the short term; we
still forecast lower heavy truck demand for 2009
The heavy truck sector slipped into the red in 4Q08
According to the statistics released by China Association of Auto Manufacturing,
China’s heavy truck demand dropped to a low of 160,490 units, down 31% Y/Y and
58% H/H in 2H08. As a result, China’s heavy truck demand growth slowed to only
10.9% in FY08.
In 2008, Sinotruk Group (including listed vehicles and Jining Commercial Vehicle of
the parent) was http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232in the
No. 1 position with sales of 111,424 units, followed by FAW
(107,093 units) and DFM (106,490 units).
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Table 5: China—Heavy truck sales volume by companies in 2007 and 2008
Units 2008 2007 Y/Y % Sinotruk 111,424 99,819 11.6%
DongFeng Motor 106,490 88,731 20.0%
FAW 107,09396,247 11.35
Shanxi Auto 65,08460,090 8.3%
Beiqi Foton 57,10756,646 0.8%
SAIC Hongyan 22,33724,034 -7.1%
Baotou Beifang Benz 25,03815,068 66.2%
Anhui Jianghuai 10,78610,285 4.9%
Anhui Hualing 12,82811,233 14.25
Huibei Sanhuan 7,7585,946 30.5%
Others 14,50319,382 -25.2%
Total 540,448 487,481 10.9%
Source: CAAM.
9
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10 Figure 6: China—
Heavy truck producers’ market share in 2007 Source: CAAM. Figure 7: China—
Heavy truck producers’ market share in 2008
Source: CAAM. Figure 8: China—Monthly
hehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232avy truck demand in
2007 and 2008
Source: CAAM. We believe the collapse in heavy truck demand is due to the much
sharper-than-expected slowdown in economic growth. For example, according to
Commercial
Vehicle News, logistics companies in Shanxi and Liaoning provinces (China’s major
suppliers of coal and iron ore, respectively), which own over 50% of the heavy
trucks, have suspended operations due to the poor business environment.
Given the high operating leverage in the heavy truck sector, we believe China’s
heavy truck sector could have slipped into the red from 4Q08.
Recovery in heavy truck demand on the way due to lagged effect of monetary
easing
We hold the view that China’s heavy truck demand could see a short-term recovery
from the current depressed level due to the expected sharp rebound in China’s
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industrial
production
as
ohttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232f 2Q09 in response to
the aggressive monetary easing by
the government as of September 2008.
If China continues to pump liquidity into the economy, there might be a major
increase in industrial output growth, fueling a recovery in the property and
commodity sectors, which in turn should increase the demand for commercial
vehicles including heavy trucks.
As shown in Figure 9, China’s industrial production growth tends to exhibit a strong
correlation with that of China’s money supply (as reflected in M2 growth or loan
growth); although money supply growth tends to lead industrial output growth by
around one or two quarters.
We witnessed a sharp divergence between China’s money supply growth and
China’s industrial production growth in 4Q08 due to the lagged effect of China’s
money
supply
growth
and
the
de-stocking
Chttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232hina’s
4Q08.
effect
economy
in
in
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With consistent monetary easing, China’s industrial production growth could
rebound sharply, which in turn could result in recovery in heavy truck demand from
the current depressed level in the short term.
There is a big question over the sustainability of the expected demand recovery
unless the Chinese government’s Rmb4 trillion economic stimulus program is
successfully able to arrest the economic slowdown in China and the property and
mining sectors come out of the current doldrums.
This is because 50% of the demand comes from mining, 30% from logistics, 10%
from property, and 10% from infrastructural projects. The expected increase in
infrastructural spending, driven by the economic stimulus package, might not be
sufficient to offset the sharp slowdown in demand from mining (falling coal prices)
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232and logistics (related
to import and export trade), and property sectors.
As a result, we conservatively forecast a 30% decline in China’s heavy truck demand
to 378,000 in 2009.
Table 6: China’s heavy truck demand forecasts
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000 units
Heavy truck demand
2005 2006 2007 2008E 2009E 2010E 2011E 237 307 487 540 378 454 522
30% 59% 11% -30%
20% 15%
Source: CAAM, J.P. Morgan estimates.
11
12 The key risk to our bearish demand forecast for China’s heavy truck sector this
year is the turnaround in the property and mining sectors—which account for a large
part of the heavy truck demand in China—on consistent and aggressive monetary easing.
Figure 9: Correlation between China’s M2 growth and industrial production growth
%oya, 3mma, both scales
22252020181516101412510019981999200020012002200320042005200620072008 Source: CEIC.
Figure
10:
Correlation
behttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232tween China’s loan
growth and industrial production growth %oya, 3mma, both scales
2525232120191715151310119575019981999200020012002200320042005200620072008 Source:
CEIC.
Korea
Change: 2009 domestic auto sales likely to drop 14% Y/Y to below 1MM units
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We expect 2009 domestic auto sales to shrink by nearly 14% Y/Y to 998,000 units,
below 1 million units for the first time since the 1998 Asian Financial Crisis. We
expect No.1 player HMC’s domestic vehicle sales to fall by 13% Y/Y to below
500,000 units. However, market share should trend upwards to slightly over 50%,
due to hardships of other domestic makers including Ssangyong and GMDAT, and
the potential scale-down of capacity. HMC’s export shipment from Korea is also
expected to fall by 7% Y/Y to 1,024,000 units. Transplant production will likely
suffer
a
9%
Y/Y
drop
to
1,032,000
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232units in 2009, despite
the ramp-up of the Czech
plant (full capacity of 200,000 units). We assume nearly a 40% Y/Y drop in the US
and Turkey plant shipments and a significant slowdown in growth for emerging
markets ( 2% Y/Y for China and -6% Y/Y for India).
Implication: Challenging 1H ahead, share price to remain range-bound
During the course of 2009, we expect 1Q to be the most challenging quarter for
HMC (similar to other auto makers), and we believe auto makers globally will
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engage in serious production cuts in 1Q. In terms of SAAR, 2Q could be testing the
bottom (best-case scenario), but it is more likely that we will still see a Q/Q decline
in domestic vehicle sales up to 3Q. We expect HMC to enter a good product cycle
from 3Q09, with FMC/FL of traditional volume sellers in the pipeline
(Tuscon/Sonata
during
2H09
and
Avante/Vehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232rna/Grandeur
in 2010E). Until then, we
expect HMC’s share price to remain range-bound without a catalyst.
Table 7: HMC—Consolidated sales projection
(units)
Domestic
Export
Transplants
US
China
India
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Turkey
Czech
Consolidated total
Source: Company data, J.P. Morgan estimates. 2007 2008E Y/Y% 2009E Y/Y% 624,227
570,116 -8.7 499,101 -12.5 1,076,324 1,099,229 2.1 1,024,013 -6.8 917,434 1,127,625
22.9 1,032,000 -8.5 251,023 237,103 -5.5 150,000 -37 231,666 294,508 27.1 300,000
1.9 327,161 489,428 49.6 462,000 -5.6 107,584 95,582 -11.2 60,000 -37.2
11,004 N.A.
60,000 445.3 2,617,985 2,796,970 6.8 2,555,113 -8.6
13
frank.m.li@jpmorgan.com
Figure 11: Domestic market share trend
Source: KAMA.
14
Figure 12: HMC US inventory Source: Company data.
Unit sales http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232up 4% in 2008,
driven
by the passenger car segment India Macroeconomic variables led to modest growth in
sales over 2008; we expect growth momentum to revive over 2H09
Four-wheeler unit
sales in India were at 2.35 million units, up 4% Y/Y in 2008—growth was primarily
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driven by passenger cars ( 10% Y/Y), while commercial vehicle sales (-9% Y/Y) declined.
We expect the environment to remain challenging over the near term, with sales
expected to lag over 1H09, given the current economic slowdown. Consequently, we
expect sales to pick up into 2H09, driven by monetary easing, given that the central
bank has reduced CRR/Repo rates. We expect auto unit sales to grow by 5% over 2009.
Figure 13: India auto sales
Source: SIAM.
Passenger car sales
Over 2008, passenger car sales were up
10% Y/Y, with sales being driven by
exports ( 59% Y/Y). Domestic sales growth ( 3% Y/Y) moderated sharply,
thhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ough.
15
16 Figure 14: Passenger car sales
Source: SIAM. J.P. Morgan estimates GDP growth to moderate to 5.5% in 2009 before
rebounding in 2010. Given this backdrop, we forecast domestic sales to remain muted
over the near term, with sales growth expected to remain weak over 1H09. A subsequent
recovery appears likely over 2H, given the monetary easing. Export growth will likely
hold, though, as India emerges as a hub for small car exports. On balance, we expect
passenger car sales to grow at 7% Y/Y over 2009. Figure 15: India GDP growth
Source: RBI, J.P. Morgan estimates. Note: 2005 GDP growth is representative of GDP
growth for year ending March 2006.
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CV sales declined 9% Y/Y, led by
the slowdown in M/HCVs
Despite the repo/CRR rate cuts,
banks remain risk averse and
have not cut lending rates
Commercial vehicle sales Figure 16: M/HCV and Total CV
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232sales
Source: SIAM. IIP (Index of Industrial Production) growth dipped sharply to 2.8% in
2008, hurting commercial vehicle sales, which declined by 9% Y/Y. Over 2009, we expect
CV sales to remain flat Y/Y. While 1H will likely remain challenging, we expect sales
to recover in 2H, driven by easing credit flow for new truck purchases as well as
buying ahead of the rollover of emission norms to Euro IV from April 10 onwards.
Figure 17: Index of Industrial Production
Source: RBI, J.P. Morgan estimates.
Note: 2005 IIP growth is representative of GDP growth for year ending March 2006.
17
18 Taiwan Limited drivers in 2009: We see no signs of a recovery in Taiwan’s auto
market Auto sales in 2008 reached a 22-year low of 222,496 units (excluding vehicles
over 3.5L), a decline of 30.3% Y/Y. Given the slowdown in auto sales, the Taiwan
Transportation
Vehicle
Manufacturers
Association
(TTVMA)
has
been
ahttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232sking for assistance
from the government since past November. TTVMA had originally proposed a reduction
in commodity tax and subsidies for the buyers replacing their old vehicles. The recent
cuts in commodity tax for vehicles (by NT$30,000/car and NT$4,000/motorcycle) suggest
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that the government is making an effort to boost auto sales in Taiwan. However, we
do not expect further drivers that would help boost auto sales due to the current
financial meltdown. We expect the overall auto sales in Taiwan to decline by
10,000-20,000 units in 2009, implying a 5%-10% fall, and will recover 5% Y/Y in 2010E.
Figure 18: Taiwan—Historical auto sales and forecasts Units (LHS), % (RHS)
Source: China Motor, Hotai Motor, J.P. Morgan estimates.
Figure 19: Taiwan—Consumer confidence index
Figure 20: Taiwan—Unemployment rate
Source: TEJ.
Source: TEJ.
Guidance
from
leading
auto
companies
are
in
line
withttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232h our view
Hotai Motor guided that the company’s auto sales would reach 20,000-22,000 units
in 2009—flat to a 10% Y/Y decline. China Motor expects flat growth in 2009. Auto
companies expect no signs of a recovery in 2009, by our analysis.
In terms of new model launches this year, Hotai appears aggressive as the company
plans a slew of new model and redesigned launches in 2009. China Motor will rather
likely be conservative, with only its Mitsubishi Colt Plus, which is expected in 2H09.
The newcomer to the market this year should be Yulon’s Luxgen MPV, which is
scheduled to be launched in March. This will be Yulon’s own branded car launch in
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Taiwan; it is scheduled to be launched in China in 2010.
Table 8: New model launch plans of major auto companies
Company
Yulon Motor
Hotai Motor
China Motor
://www.mianfeiwendang.com/doc/e419825b6848e34b74057232rMazda
Honda Model name (engine size- liter)Nissan Teana (2.0-3.5)Luxgen MPVToyota Wish
(2.0)Toyota Yaris (2.5)Toyota Camry (2.0-3.5)Mitsubishi Colt Plus (1.6)Mazda 3
(2.5)Honda Civic (2.0)New/ Redesigned Whole new model Whole new model Major change
Minor
change
Minor
change
Minor
change
Major
change
Minor
change
TypeSedanRVRVCompactSedanCompactCompactSedanLaunch
timeMar-09Mar-094Q092H092H092H094Q09Mar-09
Source: China Motor, Hotai Motor, Taiwan Motor. Table 9: Market share by segment in
2008
Passenger
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China Motor 8.6%
Hotai 47.6%
Yulon 10.0%
Ford Lioho 4.9%
Mazda 4.8%
Honda 7.9%
Source: China Motor, Hotai Motor. RV/SUV Commercial
vehicle13.7% 66.3%.2% 0.4_.4%
3.7%5.1% 11.2%5.2% 0.0_.2% 0.0%
19
Figure 21: Historical market share analysis—Top three players
Figure
22:
Taiwan
registered
cars
by
(exchttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232l
vehicles)
‘000 units
Source: China Motor, Hotai Motor. Source: Ministry of Transportation.
age
commercial
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20
Table 10: YTD 08—Volume and market share
Marque TIV Share
Proton 131,635 25.9% Perodua 154,933 30.5%
Toyota 93,831 18.5%
Nissan 28,693 5.6%
Honda 30,879 6.1%
Others 68,778 13.5%
TIV 508,367
Source: MAA.
Table 11: 2009 and 2010—Volume
forecasts
2009E 2010E
TIV 411,315 416,275
Proton 111,394 105,235
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Perodua 134,417 138,449
Toyota 73,039 75,230
Nissan 28,050 29,725
Honda 27,910 29,305
Others 36,505 38,330
Source: J.P. Morgan estimates.
Table 12: 2009 and 2010—Market
share forecasts
2009E 2010E
Proton 27.1% 25.3%
Perodua 32.7% 33.3%
Toyota 17.8% 18.1%://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ar
Nissan 6.8% 7.1%
Honda 6.8% 7.0%
Others 8.9% 9.2%
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Source: J.P. Morgan estimates. Malaysia Not a time to own, in our view Although the
MAA guidance for 2009 is 10%-15% higher than our forecast of -22% growth for TIV,
we maintain our view that auto sales will plummet in 2009, fueled by a confluence
of macro factors such as lower GDP growth (2009E = 2%), rising unemployment rate (2009E
= 4%) and weakening consumer confidence (Sep-08 CSI = 89). Furthermore, with potential
softening of the second-hand market, trade-in values are likely to dip, posing more
impediments for down payments of a new car.
We expect 2009 TIV to decline by 22%
Our 2009 and 2010 estimates of 411,315 and 416,274 units, respectively, suggest that
TIV should decline 22% Y/Y this year and stabilize by 2010. We expect market share
increase for both Proton (from 25.9% to 27.1% in FY09) and Perodua (from 30.5% to
32.7% ihttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232n FY09), largely
at the expense of lower sales in continental and Korean cars. Earnings outlook We
expect weak numbers in the Feb-09 reporting season, reflecting the down-cycle of the
calendar year and incorporating the weak performance of Oct-08. Earnings could
continue to surprise on the downside throughout the remaining year, depending on the
severity of auto sales decline. Vehicle operating margins should also contract in
2009, as ASPs are likely to come under pressure. In 2009, we expect Tan Chong to report
an earnings decline of 36% (OP margin down by 170bp), while UMW should post an earnings
decline of 23% (OP margin down by 50bp). We expect Proton to be marginally profitable,
with a CY09 net profit of M$7.5 million.
We have a cautious view on the sector We
reiterate our cautious view on the auto sector. We remain Underweight on UMW
(with
a
Dec-09
PT
of
M$4.40,
based
on
a
10%
discount
to
our
SOTP
valuation),://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
given that the stock is trading at a premium to regional comps (14x FY09E P/E) and
its exposure to the oil and gas sector appears to lend vulnerability to its non-auto
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earnings. We are Overweight on Tan Chong (with a Dec-09 PT of M$1.80, based on
a 20% discount to BVPS), solely for its attractive valuation, although we believe
poor liquidity and earnings headwinds could hamper the share price performance.
We maintain our Neutral rating on Proton (with a Mar-09 PT of M$2.10, based on
the company’s net cash value), and believe that the stock, in the short term, should
trade back to the net cash level. Unexpected resilience in 2009 is a risk to our PTs
and views for all three companies.
21
22 Figure 23: Malaysia—New vehicle sales Million units, seasonally-adjusted
annualized rate: six-month moving average
Source:
Malaysia
Automohttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232tive Association,
J.P. Morgan estimates. Figure 24: Annual TIV sales since 1995 (000 units)
Source: MAA, J.P. Morgan estimates. Figure 25: Malaysia petrol pump price trends
Source: MAA, J.P. Morgan estimates.
Figure 26: Sales decline Y/Y—Lessons learned in 1998
Source: MAA.
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Figure 27: Sales decline Y/Y—Forecasts for 2009
Source: J.P. Morgan estimates.
Not a sector to own, in our view
TCM (OW; Dec-09 PT of M$1.80) We remain cautious on the Malaysian auto sector. However,
we maintain our
Overweight rating on Tan Chong with a Dec-09 PT of M$1.80; our PT is based on a
20% discount to FY09E BVPS, despite earnings likely to decline by 36% next year.
We still believe that Tan Chong is one of the deepest value auto-makers in the
region, trading at a 5.4x FY09E and c.50% discount to NTA.
Although
UMW’s
cashttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232h
net
position
should
bode well under current market
conditions with an interest cover of over 16x FY09E, valuation multiples suggest that
the stock is trading at 14x FY09E P/E, which we believe is expensive, given the
historical P/E average of 11x and that Tan Chong is only trading at 5.4x FY09E.
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Moreover, due to the lack of top-line stimuli, which is reflected in our deteriorating
earnings outlook (-23%) for FY09, we maintain our Underweight rating on UMW
and our Dec-09 PT of M$4.40 is based on a 10% discount to our SOTP valuation; we
have pegged the company’s 51% stake in Toyota and 38% stake in Perodua at 8x P/E
(previously 12x). The company’s exposure to upstream oil and gas manufacturing
also lends more vulnerability to its non-auto earnings, in our view.
For Proton, we believe the company’s fundamentals do not suggest any valid
reasons://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ar
for investors to own its stock, but the steep valuation discount (trading at a c.14%
discount to its net cash) suggests value to the stock. We maintain our Neutral rating
with a Mar-09 PT of M$2.10, based on the net cash value of Proton, and believe that
the company, in the short term, should trade back to the net cash level.
23 UMW (UW; Dec-09 PT of M$4.40) Proton (Neutral; Mar-09 PT of M$2.10)
24 Indonesia
Change: Auto sales have started decelerating rapidly; we expect a 38%
decline in vehicle sales in 2009 Auto sales in Indonesia were up by 44% Y/Y in the
11 months to November 2008. However, the strong performance masked a change in the
outlook that began to take shape in the fourth quarter. Vehicle sales fell by 16%
in November and preliminary indications for December suggest a further 16-20% M/M
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decline.
Lower
consumer
confidence,
a
decline
in
the
rupiah
(which
increasedhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 car prices)
and higher interest rates (coupled with more difficulties reported in credit
availability/car finance) depressed the market towards the year-end. Outlook for 2009
We expect the operating conditions to continue to deteriorate going into 2009. Our
forecasts build in vehicle sales slumping to 30,000 units per month before a recovery
towards year-end. We expect vehicle sales to decline by 38% in 2009. Commercial
vehicles and CVs should be among the worst hit, as commodity-related demand will
likely be impacted the most, while commercial vehicles might suffer due to lower
credit availability. Indonesia last saw a decline of a similar magnitude in 2006,
when sales fell by 40%. To put our forecasts in perspective, we expect 2009 sales
to be about 20-25% below the 2004 level. Table 13: Indonesian four wheeler sales and
forecasts Units
2004 2005 2006 2007 2008E 2009E Industry
483,270
533,899
318,904
434,472
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
606,077
374,000 Astra
314,222
217,586
259,906
174,827
194,480 Share 45.0% 48.7% 54.8% 51.4% 51.8% 52.0%
223,108
Industry
36.3%
10.5% -40.3% 36.2% 39.5% -38.3% Astra 47.9% 19.4% -32.7% 27.6% 40.8% -38.1% Source:
Gaikindo, J.P. Morgan estimates. At this time, however, while the decline is still
gathering pace, it is difficult to gauge if our forecasts are conservative or
optimistic. We believe that over the next few months, as vehicle sales are expected
to decline, we will get an opportunity to assess how deep and broad the slowdown is.
To end on an optimistic note, given the length of previous cycles, we expect a recovery
in vehicle sales starting sometime in 4Q09.
Potential policy response Potential
policy responses in the auto sector broadly include: (1) moves aimed at supporting
industry and employment; (2) improving demand and purchasing power; and (3)
macroeconomic monehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232tary
policy.
Fuel prices
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Fuel prices in Indonesia have been cut three times since the beginning of December
2008. At Rp4,500 per liter (about US$0.40/liter), current gasoline prices are back
to
where they were before the May 2008 increase. The cut in diesel prices has also been
to a similar extent. We do not rule out the possibility of further cuts if crude oil
remains below $45/bbl, the level built into Indonesia’s preliminary budget for 2009.
Import duties
To support the domestic automobile manufacturing industry (when the currency
began to weaken), Indonesia’s government exempted automobile manufacturers from
paying customs duties on specific inputs and steel grades for automobile
manufacture. The Ministry of Trade, which is preparing a stimulus package, might
look
at
additional
measures
to
support
local
value
addition
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232in the sector.
Ownership, sales, and luxury taxes
Through 2H08, company feedback and newspaper reports (Bisnis Indonesia)
indicated that Indonesian regional governments were looking at raising the
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ownership tax (pajak balik nama) on automobiles by 5-15%. However, in an
apparent turnaround, the automobile association, Gaikindo, announced that the
government is debating reducing taxes on ownership of four-wheelers by 5% or
more. The proposed reduction is aimed at supporting the industry in the face of the
increasing threat of employment losses.
Interest rates
The other macroeconomic policy variable that has a bearing on the auto industry is
the interest rate. BI moved to an ‘easing’ stance in December and cut the policy
rate
by 75bp from the peak of 9.5%. About 70% of commercial vehicles and ~50% of
passenger car puhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232rchases
are on credit in Indonesia. Lower interest rates and increased
loan availability could be the most potent of these policy measures to revive demand
in 2009.
25
26 I: Information In this section, analysts give their take on the news and the
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developments in each region that may be pertinent to auto companies. China Information
1: China's vehicle sales in December 2008 up 11.8% M/M and down 7.99% Y/Y For December
2008, China’s passenger vehicle sales came in 4% below our estimate. China sold
584,600 passenger vehicles in December, up 11.8% M/M and down 7.99% Y/Y. The passenger
vehicle sales figures for December are ~4% below our estimate. Sedan sales recorded
452,400, up 16% M/M, down 6.89% Y/Y; MPV sales recorded 13,900, down 3.51% M/M and
36.89% Y/Y; SUV sales recorded 40,600, down 16.01% M/M, up 5.7 % Y/Y; and crossover
vehicle
sales
recorded
77,700,
down
7.4%
M/M
and
12.72%
Y/Y.
For
2http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232008, China’s overall
vehicle sales rose 6.7% Y/Y—1% below our forecast. China sold 9.38505 million
vehicles in 2008, 1% below our forecast of 9.487 million, and up 6.7% Y/Y. The Y/Y
growth rate in China’s vehicle sales for 2008 went down by 15.14 percentage points.
The sales growth rate of passenger vehicles contracted by 14.41 percentage points
versus 2007, while that of commercial vehicles dropped by 17 percentage points versus
2007. For 2008, China sold 6.7556 million passenger vehicles, up 7.27% Y/Y—sedan
sales recorded 5.0469 million, up only 6.78%; MPV sales recorded 197,400, down 12.56%
Y/Y; SUV sales recorded 447,700, up 25.28% Y/Y; and crossover vehicle sales recorded
1.0636 million, up 7.67% Y/Y. China’s top 10 car producers in 2008 include: (1) FAW
VW with 2008 sales of 498,908. (2) Shanghai VW with sales of 478,059. (3) Shanghai
GM with sales of 395,715. (4) FAW Toyota with sales of 347,663. (5) DongFeng Nissan
with http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232sales of 318,785.
(6) Chery with sales of 286,569. (7) Guangzhou Honda with sales of 277,358.
(8) Beijing Hyundai with sales of 253,298.
(9) Geely with sales of 221,823.
(10) Changan Ford with sales of 200,756.
Among China’s passenger vehicle producers, the relative underperformers include
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Shanghai GM, Chery, and Changan Ford, which have suffered Y/Y drops in sales for
2008; FAW Toyota, Beijing Hyundai and DongFeng Nissan saw above-average Y/Y
growth in 2008 sales. The top 10 car producers account for 65% of China’s total car
sales for 2008.
J.P. Morgan comments
The M/M recovery in sales demand in December is largely because auto producers
tend to force a lot of cars on the dealers at year-end to dress up full-year sales.
For
2008, they even waged full-scale competitive price cuts, which helped attract some
consumhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ers.
The actual Y/Y decline in December 2008 sales figures should be larger, given that
there were 23 work days in December 2008, versus 21 work days in December 2007.
We expect China’s sales of domestically made sedans to drop by 5% Y/Y in 2009
before going up by 12% and 16% in 2010 and 2011, respectively.
We believe China’s next auto boom will kick off in 2010/2011 based on the expected
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breakout of car demand in tier-three cities. We expect the Chinese government to
come up with additional measures to stimulate car consumption. For instance, the
lending rate on car loans, which is currently 1.4x the benchmark rate, could be
adjusted downwards. Currently, the mortgage rate on housing loans is 0.8x the
benchmark rate. If the government keeps coming up with aggressive policies to
stimulate
car
consumption,
we
could
see
a
recovery
inhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 China’s car demand
ahead of
our base case forecast of 2010/2011.
We maintain Overweight on DFM and Great Wall Motor.
Information 2: China to expand consumer credit to the auto sector
According to Shanghai Securities News, PBOC Deputy Governor, Liu Xi Yu, noted
on January 15 that China’s banking industry will fully support the development of
the auto industry, especially in approving new auto financing companies and
expanding banks’ consumer credit to boost auto sales.
Impact: Positive for China's auto sector
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We see the potential boost in auto loans as positive for China’s auto sector.
Currently, less than 10% of cars are sold via auto financing in China because auto
loans are difficult to get and charge a relatively higher lending rate. By end-2008,
the
balance
of
auto
loans
is
only
Rmb158.3
billion,
of
which
auto
financihttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ng companies
accounted for only Rmb31.8 billion.
If PBOC loosens the lending requirements and reduces the lending rate for auto loans
to the auto sector, and accelerates the process of approving additional auto financing
companies, auto sales in China could be boosted.
27
28 Korea Information 1: The light-small vehicle segment gains market share In 2008,
the combined market share of light and small vehicle segments rose to 36.6% from 30.7%
a year ago. Surging oil prices in 1H08 and weak consumption during the economic
downturn were the main factors behind the shift in demand. Conversely, SUV and CDV
market shares fell 6 percentage points to 22.7% during the same period. Table 14:
Domestic market share by segments %
Light/Small 24.9
18.8
30.4
Medium 20.7
Commercial
2007 2008 Passenger cars 80.9
21.2
Large 12.1
vehicles
19.1
12.6
Buseshttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
Trucks 13.3
11.5 Total 100.0
83.1
SUV & CDVs 23.2
16.9
5.8
5.4
100.0 Source: KAMA. Note: Starting January 2008, the
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light vehicle segment has expanded to include 1.0L vehicles. Impact: Demand for
light-small vehicle segment to remain relatively robust Despite stabilizing oil
prices in the latter half of 2008, sales of light and small vehicle segments continued
to outpace that of other vehicle segments. Looking ahead in 2009, we believe this
trend will continue as no meaningful recovery in domestic consumption is expected,
while tightened auto financing should continue to weigh down demand for larger vehicle
types. Information 2: Ssangyong Motor to file for court receivership Ssangyong Motor,
a subsidiary of China’s Shanghai Automotive Industry Corp (SAIC), filed for court
receivership on January 9, 2009. Throughout 2008, the company was mostly affected
by faltering SUV demand in the wake of the global economic downturn. In 2008,
Ssangyong’s
domestihttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232c
sales dropped 35.4% Y/Y to 39,165 units from 60,616 units in 2007. Ssangyong’s
product lineup includes three SUV models, one CDV model and two luxury vehicle models.
Figure 28: Domestic auto sales Units
Source: KAMA.
Impact: Not much impact
Sentiment-wise, the company’s filing for court receivership is deemed negative and
should draw additional investor concerns about the industry. Given the size of the
company and the presence in the domestic market, however, we believe the impact to
remaining domestic automakers will be limited. As at end-2008, the company’s
market share was only 3.4%.
On the supply chain side, vendors and parts makers to Ssangyong Motor should
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directly suffer from this event. Of note, some of the vendors have stopped providing
parts to the company in expectation of Ssangyong’s potential bankruptcy, as SAIC
hashttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
shown
little
interest in bailing out the company.
Table 15: Major parts makers’ exposure to Ssanyong Motor Company Rating Exposure
Hyundai Mobis (012330 KS) NR None
Kumho Tire (073240 KS) NR Less than 5% of revenue
Hankook Tire (000240 KS) NR Less than 5% of revenue (W4~5B annually)
Halla Climate Control (018880 KS) NR Less than 1% of revenue
Source: Company data.
29
30 India Hero Honda rolls out three new variants of bikes The company is introducing
refurbished variants of two of its 125cc motorcycles, Glamour and Glamour Fi (fuel
injection), and entry-level bike, CD Deluxe. While the new variants of the Glamour
range will be available between Rs45,800-55,450, CD Deluxe will be available in four
trim levels priced between Rs33,700 and Rs36,900. Impact With the launch of Bajaj’s
new bikes over the next few months, the product upgrades by Hero Honda appear
thttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232o be timely. We believe
Hero Honda has a competitive advantage over Bajaj given its reach into tier-two cities
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and rural areas. Bajaj Auto to launch six new bikes to spur sales
Bajaj Auto has
plans to launch six new bikes in 2009 in the 125cc-and-above segment in a bid to stem
market share losses. The company recently launched the first of its new model range,
the XCD 135cc, which is priced at Rs46,000—variant of the existing product (XCD
125cc). This will be followed up with the launch of two more bikes in the 125-135cc
segment over the next six months. Bajaj also plans to launch three new products in
the premium segment (150cc and above) later in the year. The new bikes will be produced
from Bajaj’s Waluj and Pantnagar plant. Impact The company will attempt to revive
falling sales (Bajaj lost 600bp in domestic market share over the past year) with
these new launches, in our view. However, Bajaj continues to focus on its
markehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232t strategy based
on segmenting the executive segment (which accounts for over 50% of industry sales)
on engine size (i.e., 125cc), rather than price. This strategy has yet to bear fruit,
though. Hyundai rolls out premium hatchback i20
Hyundai’s latest offering, the
premium hatch i20, has been launched in India in three variants priced between Rs0.48
million and Rs0.58 million. The car is powered with a 1.2-liter, Kappa, DOHC petrol
engine and is Euro V ready. The i20 will be manufactured exclusively in India at
Hyundai Motor India’s Chennai plant. Impact Hyundai’s i20 will take on Suzuki’s
Swift Zxi and Skoda’s Fabia, priced at Rs0.51 million and Rs0.58 million,
respectively. While globally the i20 will replace Getz, in India the two cars will
co-exist, thus ensuring that the company is present at both ends of the large hatchback
segment; the Getz being the lower-priced option and the i20 at the top end. The i20,
along with i10http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 and Getz
strengthen Hyundai’s product portfolio in the volume-driven A2 segment.
Taiwan
Information 1: Cut in commodity tax should boost auto sales
The Legislative Yuan passed the third reading of an amendment in commodity tax
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regulation, reducing commodity tax by NT$30,000 on sedans, commercial vehicles
and light trucks below 2,000cc, and by NT$4,000 on motorcycles. We expect auto
companies to pass on the NT$30,000 per vehicle tax cut to consumers. This will
likely be effective from January 19, 2009 through the end of 2009.
Table 16: Taiwan auto sales by maker
Company Car plate#
Hotai (Toyota) 79,365
China Motor (Mitsubishi)36,465
Yulon (Nissan) 25,088
Ford Lioho
12,611
Auto 21 (Suzuki) 8,151
Sanyang (Hyundai) 6,443
Source:
Ministry
of
Transportation.
2008
Y/Y
growth-24.3%-22.0%-29.9%http://www.mianfeiwendang.com/doc/e419825b6848e34b740572
32-29.4%-49.3%-43.6%-43.5%-31.2%-29.8%Market
share34.6_.9_.9%8.7%5.5%4.3%3.6%2.8_0.0%January
growthMarket share1,189 -54.03.7s0 -17.4 .7%5.8%
1-10,
2009
Car
plate
#
Y/Y
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-30.8_.5_4 -83.3%3.5%-51.9%4.8x -70.2%2.2_8 -56.5%3.3%-56.9_0.0%
Impact: We expect cyclically low February sales to be stronger than usual
Auto sales during January 1-10, 2009 were 3,526 units, down 57% Y/Y. January is
generally the peak season for auto sales in Taiwan, accounting for ~15% of full-year
sales. Because of the reduction in commodity taxes on automobiles, we believe
consumers have postponed their plans to purchase cars. This could have dragged
early-January sales; however, we note that December sales also declined 38.9% Y/Y.
Auto companies have indicated an increase in orders since the bill was passed. They
expect
a
rebound
in
sales
from
the
Chinese
New
Year
through
Februahttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232ry. However,
we remain conservative on the impact of the cut in commodity tax on auto sales—we
believe this will boost sales volume due to purchases by consumers who had
postponed their purchases in December and January, but may not provide enough
incentive for newcomers to enter the market.
Figure 29: Taiwan—Market share by auto maker
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Source: China Motor, Hotai Motor.
31
Figure 30: ? versus NT$
?/NT$
Information 2: Price increase by Japanese car makers after the Chinese New Year likely
Several auto companies have indicated that they are planning to increase their retail
prices by 3%-5% to reflect the appreciating yen. The yen has appreciated 22% Y/Y,
causing an increase in costs for imported Japanese models and domestic models—many
of their auto parts are imported from Japan. Hotai Motor indicated that it has already
increased
the
retail
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232prices of its imported
Lexus models from the beginning of this year by 3%. Hotai is still in discussions
with Toyota on whether or not to adjust the prices on its domestic models. If the
company decides to increase prices, this will most likely occur after the Chinese
New Year. According to Commercial Times, Honda has already adjusted prices of CR-V
and Accord models by NT$10,000, and of FIT by NT$10,000-20,000, effective for this
year.
Impact: Price increase is likely to offset the commodity tax cut benefits
Price increases will most likely absorb the NT$30,000/vehicle reduction in
commodity tax, offsetting the incentive for potential consumers to purchase cars.
Although the NT$30,000/vehicle commodity tax cut should encourage first-time car
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buyers, a 3%-5% price increase could hold off their interest, in our view.
Figure 32: Taiwan auto sales, Y/Y growth by segment
http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232%
Source: Datastream.
Figure 31: Taiwan auto sales ‘000 units
Source: China Motor, Hotai Motor.
Source: China Motor, Hotai Motor.
32
Indonesia
Information 1: Daihatsu targeting a 13% market share in 2009
Astra Daihatsu Motors (ADM) indicated that it is targeting a 13% market share of
total expected industry sales of 400,000 units in 2009, as reported in Bisnis
Indonesia
(January 8, 2008).
Amelia Tjandra, Director Marketing of ADM, indicated that its market share in 2008
went up to 12.9% from 12% in 2007, allowing ADM to step up to the third place in
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Indonesia sales after Toyota and Mitsubishi.
ADM also said that it is planning to launch a new model, the Boon Luminas (a
1500cc seven-seater structurally similar to the Toyota Passo Sette), but it has not
confirmed
a
timeline
for
the
launch.
It
ahttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232lso reported that the
waiting list for the
Daihatsu Xenia is over 2,400 units, which we estimate is less than 1.5 months of
waiting period.
Table 17: Daihatsu—Indonesia sales breakdown (2008)
units
Sales 2008 % of Daihatsu Sales Xenia 34,057 43.70%
Gran Max 27,319 35.00%
Terios 14807 19.00%
Sirion 1827 2.30%
Zebra PU 10 0.00%
Total 78,020 100.00%
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Source: Bisnis Indonesia.
Information 2: Automobile association, Gaikindo, estimates that 2009 four-
wheeler sales could aggregate to 460,000 units
Indonesian automobile manufacturer’s association, Gaikindo, projects that four-
wheeler sales could total to 460,000 units (down 26%) in 2009, from 607,000 units
in
2008.
These numbers also provide an initial estimate of December 2008 vehicle volumes at
about 37,000 unitshttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232—a
17-20% M/M drop in volumes and flat Y/Y.
Gaikindo’s 2009 forecast is also significantly higher than our estimate of 374,000
vehicle sales in Indonesia. Admittedly, at this time, visibility is limited but our
forecasts assume that vehicle sales would decline to about 30,000 units per month
in
the coming months. Gaikindo did not elaborate on the basis of its forecasts.
33
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Share price performance
HK$
Source: Datastream.34 N: Non-consensus calls In this section, we give our
non-consensus calls or views on each auto market that we would like to highlight.
China DongFeng Motor Co., Ltd: Pole position (This note was originally published on
17 January 2009; please see the original note for pricing dates) ? Initiate with
Overweight: We initiate coverage on DongFeng Motor (DFM), China’s third-largest auto
producer,
with
an
Overweight
rating
and
a
Dec-09
price
targehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232t of HK$4.7. We
also add the stock to our Asia Analysts’ Focus List. ? DFM well positioned to ride
China’s third auto boom: The boom, we believe, will be driven by the breakout of
car demand in tier-three cities in 2010/2011 because: (1) urban households’ average
disposable income in tier-three cities is expected to reach Rmb40,199/Rmb41,563 in
2010/2011, which when discounted back on the CPI factor is similar to the purchasing
power of urban households’ disposable income of Rmb32,250 in tier-one cities in 2003
and Rmb34,654 in tier-two cities in 2006, which sparked the previous two booms; (2)
the penetration rate of cars is low at 24 units per 1,000 people in 2007, and China’s
demographics
bode
well
for
medium-term
car
demand;
and
(3)
DFM’s
multi-strategic-partner business model has enabled it to gain access to a steady flow
of new models from its three strategic partners—Nissan, Honda, and Peugeot Citroen. ?
Upside
from
policyhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
stimulus package: The government recently released a series of policies to stimulate
car consumption such as reducing the vehicle purchase tax. We expect more policies,
such as reducing the lending rate of auto loans, to be released, which should benefit
China’s auto sector, including DFM. ? Valuation, PT, risks: Our PT of HK$4.7 is based
on a P/E of 10x FY10E earnings, a 12% discount to the median historical 12-month
forward P/E of 11.3x, and a 10% discount to our DCF value of HK$5.2 per share. Key
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risks to our PT are the: (1) cyclical downturn in China’s passenger vehicle sector;
(2) expected loss in the heavy truck sector from 4Q08 amid the economic slowdown;
and (3) possible upward revision in technology transfer fee on the models introduced
by DFM’s JV partners.
Reuters: 0489.HK; Bloomberg: 489 HK
Rmb in millions, year-end December
Revenue
52-week range
Market
1.31-6.28
cap
(HK$MM)
21,712://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
EBITDA Market cap (US$MM)
2,791
EBIT Shares outstanding (MM)
Net profit Free float (%)
8,616
33
EPS (Rmb) Avg daily volume (MM)
DPS (Rmb) Avg daily value (US$MM)
21
EV/EBITDA HSCCI
7
2,983.27
Dividend yield (%) Exchange rate
HK$7.78/US$1
P/E (x) Performance 1M 3M 12M P/B (x) Absolute (%) 9.6 18.9 -60.1
ROE (%) Relative (%) 22.0 19.6 -12.8
Source: Company, Bloomberg and J.P. Morgan estimates. Note: Prices and valuations
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are as of 16 January 2009.
Investment thesis
Initiate with OW and PT of HK$4.7
We initiate coverage on DongFeng Motor (DFM) with an Overweight rating and a
December 2009 price target of HK$4.7, implying 87% upside.
Our positive view on the stock is based on: (1) DFM is a proxy for China’s third
auto
boom
to
kick
off
in
2010/2011E;
(2)
the
company
stands
to
benefit
frhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232om the expected
policy package to be launched by the government to stimulate auto consumption; and
(3) its undemanding valuations.
DFM well positioned to play the next cyclical upturn
China’s passenger vehicle sector in the middle of a cyclical downturn
The passenger vehicles’ penetration rate in China is rather low, with the penetration
rate of passenger vehicles being as low as 24 units per 1,000 people by 2007. This
means that, unlike the mature markets in the US, Europe and Japan, China’s
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passenger vehicle market still offers a lot of growth potential in the next five to
10
years. On the other hand, the passenger vehicle sector has been rather cyclical, with
growth in the car market witnessing rather high volatility in the previous two cycles.
China’s first auto boom occurred in 2003 when the sale of domestically made
sedans://www.mianfeiwendang.com/doc/e419825b6848e34b74057232r
(cars) rose a significant 79% due to the breakout of demand in tier-one cities.
When a large part of the pent-up demand in tier-one cities was unleashed, the car
market experienced a two-year consolidation period (2004 and 2005), and the sales
growth of domestically made sedans slowed down from 79% in 2003 to 17% and
20% in 2004 and 2005, respectively.
It was not until 2006 that the second boom kicked off on the breakout of car demand
in tier-two cities. It started to lose steam in April 2008, and since then has been
in a
cyclical downturn.
Next auto boom in 2010/2011?
Just as China’s first two auto booms were largely driven by the breakout of car
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demand in tier-one and tier-two cities, we expect the next boom to be largely driven
by the breakout of car demand in tier-three cities, which might happen in 2010/2011
whhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232en urban households’
average disposable income in tier-three cities is expected to
35
36 reach Rmb40,199/Rmb41,563, which when discounted back on the CPI factor is similar
to the purchasing power of the urban households’ average disposable income of
Rmb32,250 in tier-one cities in 2003 and Rmb34,654 in tier-two cities in 2006, which
sparked China’s previous two auto booms. China’s demographics favor good
medium-term growth People in the age group of 40-45, who have the highest disposable
income and are the most likely owners of cars, accounted for 16% of China’s total
population in 2007. By 2012, the 40-45 age group is estimated to rise to 19% of the
total population, boding well for car demand growth from 2012 to 2015. DFM well
positioned to ride China’s third auto boom We believe that DFM is well positioned
to benefit from China’s next auto boom because of its multi-strategic-partner
business
model,
which
hashttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 enabled it to gain
access to a steady flow of new models across all different segments of passenger
vehicles from its three strategic partners.
DongFeng Nissan: Nissan’s “China
dream” Nissan’s JV with DongFeng Motor—DongFeng Nissan—represents Nissan’s
“China dream”. Nissan has set an aggressive growth plan for DongFeng Nissan, which
includes raising DongFeng Nissan’s: 1. Capacity from 760,000 units per annum to
1,200,000 units per annum by 2012. 2. Annual sales volume to 1 million units, and
annual sales to Rmb10 billion by 2012. 3. Total number of dealerships to 1,050
(including both commercial and passenger vehicle dealers) by 2012. 4. Localization
ratio from 71% to 90% by 2012. We estimate that DongFeng Nissan, with a broad range
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of passenger vehicle models introduced from Nissan covering different segments of
the passenger vehicle sector, sold 385,000 units in FY08, accounting for around 53%
of
DFM’s
total
passenger
vehiclhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232e sales in FY08.
We expect DongFeng Nissan to sell 415,000 units of passenger vehicles in FY09 amid
the expected cyclical slowdown, almost 8% above the sales volume in FY08, helped by
the expected launch of a new model in the segment. DongFeng Honda: DFM’s most
profitable passenger vehicle business
Honda has two strategic partners in
China—DongFeng Honda (JV between DFM and Honda), and Guangzhou Honda (JV between
Guangzhou Automotive and Honda).
DongFeng Honda is DFM’s most profitable passenger
vehicle business, with an estimated gross margin of around 24% in FY08, due to the
high profitability of its Honda CRV products, and the fact that it has been operating
at near full capacity due to the strong demand for those products.
We estimate
DongFeng Honda sold 164,000 units in FY08, accounting for 23% of DFM’s passenger
vehicle sales.
In FY09, we expect DongFeng Honda to sell 171,000 units, up 4% Y/Y, helped by
://www.mianfeiwendang.com/doc/e419825b6848e34b74057232rthe
launch
of
two
new
models in 3Q09.
DongFeng PSA: Struggling to stay above water
Of DFM’s passenger vehicle businesses, DongFeng PSA (JV between DFM and
Peugeot Citroen (PSA)) is the weakest of the three, and has been struggling to stay
afloat. We believe DongFeng PSA’s major problem might lie in the products that it
has introduced into the China market from PSA, which command a lower price-
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performance ratio and less brand name recognition than those introduced by its
competitors.
For instance, we estimate DongFeng PSA sold 178,000 units in FY08, 36% below its
sales target of 280,000 units, and accounting for only 24% of DFM’s total passenger
vehicle sales. In fact, we expect DongFeng PSA to make a profit of about Rmb613
million in FY08, which includes a subsidy income of around Rmb300 million from
the government. Inhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 FY09,
we expect Dong Feng PSA to sell 160,000 units, down
10% Y/Y, despite its planned launch of three new models in FY09. We expect the
company to lose Rmb374 million at the operating level and Rmb120 million at the
bottom line in FY09 after the government’s subsidy.
Commercial vehicle business highly correlated with China’s
economic growth
DongFeng Motor (DFM) is China’s second-largest commercial vehicle producer,
with a wide range of commercial products, including light trucks, medium trucks,
heavy trucks and buses. We estimate DFM’s commercial vehicles to account for
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around 31% of its FY08 sales volume, and 26% of its FY08 sales revenue. However,
we expect its commercial vehicle operation to contribute only 5% of its operating
profit in FY08 as: (a) the commercial vehicle’s gross margin is rather low at around
14%
duehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
to
the
cut-throat competition in the China market, and due to its inferior
competitive position; (b) the commercial vehicle business is highly correlated with
China’s economic growth. With the slowdown in growth, commercial vehicle
producers including DFM’s commercial vehicle business are taking a heavy hit in
profitability.
Guangzhou Honda: Key to DFM’s engine and auto parts’
business
Last but not least, we forecast DFM’s engine and auto parts business to account for
10% of its revenue, and 16% of its profit in FY08.
Its engine business is conducted through: (1) DongFeng Nissan JV (DongFeng Motor
Co. Ltd) which produces engines under the DongFeng brand and Cummins brands to
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supply to DFM’s own commercial vehicle business and outsiders;
(2) DongFeng Honda Engine JV (a 50: 50 JV between DFM and Honda with an
annuahttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232l
capacity
of
480,000 units) which supplies engines to DongFeng Honda and
Guangzhou Honda. According to an agreement signed between Guangzhou
Automotive, DFM and Honda in 1998, DongFeng Honda Engine JV would be
entitled to 30% of the profit made by Guangzhou Honda in return for supplying
engines to the latter.
37
38 Upside from policy stimulus package On January 14, 2009, China’s State Council
passed policies to boost the domestic auto sector, which include: (1) From January
20-December 31, 2009, the government will cut the vehicle purchase tax for cars with
an engine size of 1.6 liters or below from 10% to 5%, which is charged at the consumer
level. (2) The government will provide Rmb5 billion in financial subsidy to help
farmers upgrade their three-wheel and low-speed agricultural vehicles to light trucks
and
mini-buses
with
an
engine
size
of
1.3
liters
or
below.
suhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232mmarized
We
have
the
additional measures that the auto sector has proposed to the governing authorities,
which might be adopted to stimulate car consumption in China: 1. Allowing
institutional customers with a legal person status who purchase vehicles to obtain
VAT credit to offset their VAT liabilities. 2. Allowing individual customers who
purchase vehicles to obtain credit at a certain percentage of the purchase price of
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vehicles that can be used to offset their individual income tax liabilities. 3.
Including motorcycles, light trucks and small cars (engine size of 1.5 liters or below
in the list of “home appliances entering rural families” project that qualify for
a financial subsidy of 13% of the purchase price. 4. Increasing the credit support
for auto producers, dealers and auto parts’ suppliers. 5. Loosening requirements
on auto loans and reducing the lending rate of loans. 6. Allowing consumers to borrow
money
from
the
hohttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232using
public
fund
to
purchase cars. 7. Increasing the VAT rebate for auto parts and vehicle exports. 8.
Increasing the purchase of local branded vehicles by the government. 9. Providing
financial subsidy for vehicles which are scrapped ahead of their lifespan. Investment
risks We believe its key investment risks include: (1) Cyclical downturn in China’s
passenger vehicle sector During the cyclical downturn, DFM’s passenger vehicle
business could suffer from a contraction in sales volume and profit margin. This is
especially true of its DongFeng PSA business, the weakest of its three passenger
vehicle businesses. (2) Sharp contraction in heavy truck demand amid economic
slowdown Given the high operating leverage in the heavy truck sector, we believe the
heavy truck sector, including DFM’s heavy truck business could have slipped in the
red from 4Q08, and the heavy truck division’s loss might further widen in FY09. (3)
Technology transferhttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232 fee
upon the expiration of contracts Normally, foreign auto producers charge the
technology transfer fee for models that
they introduce to JVs. Given that China’s
car sales have kept beating expectations of foreign auto producers in the past few
years, the producers might tend to increase the
technology fee charged on the models introduced into China when they introduce the
new generation of the existing models upon the expiration of the previous technology
transfer contracts or when they introduce new models.
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Valuation and share price analysis
Our December 2009 price target of HK$4.7 is based on a P/E of 10x FY10E
earnings, a 12% discount to the median historical 12-month forward P/E of 11.3x,
and a 10% discount to our DCF valuation of HK$5.2 per share.
Peer comparison
We use listed auto producers both in China and in the overseas markets
as://www.mianfeiwendang.com/doc/e419825b6848e34b74057232
comparison peers of DFM. As a vertically integrated auto producer with a leading
position across most auto business segments in China, DFM should trade at a
premium valuation on a normalized FY10E P/E over China’s auto sector average and
Asia ex-Japan and ex-China auto sector average valuation, in our view.
We find that China’s passenger vehicle sector, including Denway Motors, Brilliance
China and Great Wall Motor, trades at an average FY09E and FY10E P/E of 7.1x
and 6.8x while Asia ex-Japan and ex-China stocks trade at an average FY09E P/E of
12.8x and 10.3x, respectively.
In comparison, Japanese passenger vehicle stocks trade at an average FY09E and
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FY10E P/E of 43.4x and 18.5x respectively, while the European names trade at an
average at an average FY09E and FY10E P/E of 74x and 18.4x, respectively, due to
the sharp fall http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232in profit
amid the economic slowdown. The US large passenger vehicle
names such as GM and Ford are expected to incur huge losses for FY09 and FY10,
and hence record negative P/Es.
As a vertically integrated auto producer with a leading position across most auto
business segments in China, DFM deserves a premium earnings-based valuation to
China’s auto sector.
Given China’s far better growth profile post 2009, we value DFM at HK$4.7 per
share, based on 10x FY10E P/E.
39
Table 18: Global auto companies’ valuation comparison
(x)
Region Segment Company FY09E FY10E FY09E FY10E FY08E
P/E (x) EV/EBITDA (x) P/BV
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Asia ex-Japan & ex-China Passenger
Maruti Udyog 10.7 8.8 4.8 4.2 2.0
Tan Chong Motor 5.5 5.1 4.5 NM 0.6
UMW Holdings 14.0 13.0 2.5 NM 1.8
China Motor 20.9 14.3 7.0 7.0 0.3
Passengehttp://www.mianfeiwendang.com/doc/e419825b6848e34b74057232r
12.8 10.3 4.7 5.6 1.0
CV Ashok Leyland 4.2 3.6 3.8 3.2 0.9
Tata Motors 3.3 2.9 7.1 NM 0.8
Mahindra & Mahindra 10.2 9.2 8.7 8.1 1.8
CV sector Avg 5.9 5.2 6.5 5.6 1.1
Auto Industry Avg 9.3 7.8 5.6 5.6 1.1
China Passenger Denway Motors 9.9 10.1 NA NA 1.2
Dongfeng Motor Grp Co Ltd 6.3 5.3 2.4 1.8 0.9
Brilliance China Automotive NA NA 7.9 NA 0.3
sector
Avg
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Great Wall Motor Company Limited 6.1 5.8 NA NA 0.5
Geely Automobile Holdings Ltd* 4.4 4.4 2.5 2.2 1.0
Passenger sector Avg 7.1 6.8 4.4 2.1 0.8
CV Qingling Motors Co 7.1 NA NA NA 0.3
Weichai Power 3.8 3.5 1.3 1.2 0.8
Sinotruk 7.3 6.8 1.9 1..2 0.8
CV sector Avg 5.6 5.2 1.9 1.2 0.7
Auto Industry Avg 7.8 6.9 3.9 3.6 0.8
Japan Passenger Honda Motor (7267) 20.1 44.1 20.3 13.4 0.7
Mazda
Motor
(7261)
4.8
10.0
http://www.mianfeiwendang.com/doc/e419825b6848e34b740572323.6 0.5
Nissan Motor (7201) NA NA 6.4 3.4 0.1
Daihatsu Motor (7262) 9.8 10.1 2.3 1.8 0.9
Suzuki Motor (7269) 9.1 9.6 1.9 1.6 0.8
Toyota Motor (7203) 173.3 NA 12.8 7.0 0.8
Passenger sector Avg 43.4 18.5 8.0 5.1 0.6
4.3
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CV Hino Motor* NA NA 7.2 7.4 0.3
Fuji Heavy Industries (7270) 16.1 13.5 3.8 3.6 0.5
ISUZU* 3.5 3.4 0.6 0.6 0.6
CV sector Avg 9.8 8.4 3.9 3.8 0.5
Auto Industry Avg 26.6 13.4 6.0 4.5 0.6
Europe Passenger Peugeot* NA NA 9.5 7.2 0.2
Renault* NA 8.3 9.5 8.0 0.2
BMW* 216.0 31.0 9.4 7.7 0.6
Daimler AG* 34.9 17.3 9.9 8.6 0.7
Volkswagen* 35.1 29.4 11.1 10.4 2.6
Fiat* 10.0 5.9 4.9 4.3 0.5
Passenger sector Avg 74.0 18.4 9.0 7.7 0.8
CV Scania 11.6 14.4 5.3 6.0 2.1
Volvo 15.7 21.1 5.4
0.9
MAN 7.5 9.7 2.5 3.0 0.9
CV sector Avg 11.6 15.1 4.4 4.5 1.3
Auto http://www.mianfeiwendang.com/doc/e419825b6848e34b74057232Industry Avg 42.8
16.7 6.7 6.1 1.1
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US Passenger Ford Motor Company NA NA NA NA NA
General Motors NA NA NA NA NA
Passenger sector Avg NA NA NA NA NA
CV Commercial Vehicle Group 1.1 1.4 27.3 13.7 NA
Cummins Inc 4.8 4.9 5.2 4.9 1.1
PACCAR Inc. 6.7 7.4 7.6 8.6 1.8
CV sector Avg 4.2 4.6 13.4 9.1 1.4
Auto Industry Avg 4.2 4.6 13.4 9.1 1.4
Global PV Sector
Average 34.2 13.4 6.6 5.2 0.8
Global CV Sector Average
7.4 7.7 5.7 4.8 1.0
Global Auto Average 20.8 10.5 6.1 5.0 0.9
Source: Bloomberg, and J.P. Morgan estimates. Note * IBES estimates.
40
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