CHINAPASSENGERVEHICLESECTOR：RECENTCHANNELCHECKTAKEAWAYSSHOULDBEABETTERYEAR0131

1、buy buy buy hold buy sell upside 16.0% deutsche bank markets research asia china automobiles 2013e ride should be smoother in our january conference and tour, we met with the ir teams of two auto oems and three auto dealer groups. we also paid visits to three auto/auto parts manufacturing plants. in

2、 addition, an expert from the state information centre made a presentation about the auto sector outlook. the major takeaway is that as oems in general have prudent 2013 targets, there is likely to be a favourable demand-supply balance, benefiting both oems and dealers profitability. nonetheless, 2h

3、12e operations could be worse than expected for top picks brilliance china (1114.hk),hkd10.26 baoxin auto group (1293.hk),hkd8.19 companies featured dongfeng motor (0489.hk),hkd12.78 2011a 2012e 2013e dealers and fy12 results could lead to short-term share price shocks. our topp/e (x)9.010.88.3 pick

4、s are still brilliance for oems and baoxin for dealers. reiterating our above-consensus passenger vehicle sales growth forecasts guangzhou auto (2238.hk),hkd6.71 2011a 2012e 2013e after attending the experts presentation and noting the upbeat targets set byp/e (x)10.319.910.1 geely and beijing hyund

5、ai, we maintain our above-consensus passenger vehicle (pv) sales growth forecast of 11% in 2013. we are particularly upbeat on the suv and luxury segments and believe they will continue to outperform the overall pv sales growth rate in the near to mid term. we also expect local brands to outperform

6、the average chinese auto market due to ongoing urbanisation in lower-tier regions. last but not least, we expect a further geely auto (0175.hk),hkd4.18 buy 2011a 2012e 2013e p/e (x) 11.7 14.4 11.8 brilliance china (1114.hk),hkd10.26 2011a 2012e 2013e recovery in demand for japanese brands, although

7、a full recovery is unlikely in p/e (x)17.317.113.3 early 2013 given the overhang from the sino-japanese island dispute. inventory levels and price discounts on easing trends in 4q12 byd (1211.hk),hkd26.05 2011a 2012e 2013e the oems and dealers we recently talked to said that inventory levels had p/e

8、 (x)53.0 730.443.7 declined and discounts had been narrowed in general in 4q12. this demand- supply balance should indicate a better operating backdrop for oems and dealers for 2013e. nevertheless, as 1) the pace of the luxury brand dealerships new car sales margin recovery appears slower than expec

9、ted, and 2) the baoxin auto group (1293.hk),hkd8.19 buy 2011a 2012e 2013e p/e (x) 22.8 24.7 14.6 negative margin impact on the japanese brand dealers due to the island dispute was worse than expected in 4q12, we think that the 2h12 dealership margin recovery did not materialise as we originally expe

10、cted. zhengtong auto services (1728.hk),hkd6.98 p/e (x) hold 2011a 2012e 2013e 27.1 18.6 13.2 maintaining oem outlook but a bit more prudent on dealers outlook while maintaining our stance for the oems at the moment, we cut fy12-14e earnings for dealers due to a slower-than-expected new car sales ma

11、rgin recovery. however, as we remain upbeat on the outlook for auto after-sales service business, which has not been affected so far, we keep our recommendations and raise our dcf-derived target prices by lowering our wacc in expectation of less market risk aversion to the dealership names. zhongshe

12、ng group (0881.hk),hkd11.62 buy 2011a 2012e 2013e p/e (x) 16.2 24.9 12.3 auto dealers target price revision company new tp old tp baoxin 9.5 7.5 oem top pick is brilliance; dealer top pick is baoxin among the chinese oems, we like brilliance the most, as its bmw jv sales are on track for a better 20

13、13, with more capacity to produce the new 3 series. zhengtong zhongsheng 7.6 13.4 6.1 12.7 8.9% 15.3% in the dealership space, we like baoxin the most after its completion of the acquisition of yanjun and it becoming the largest bmw dealer group in china. key downside sector risk: a weaker-than-expe

14、cted macro recovery dragging down sales growth. key upside sector risk: faster-than-expected realisation of the macro recovery, boosting auto demand. the report changes target prices and estimates for several companies under our coverage. for a detailed listing of the estimate changes, see figure 14

15、 on page 10. _ deutsche bank ag/hong kong deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report

16、as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 072/04/2012. 160 60 31 january 2013 automobiles 2) a weaker-than-expected gross profit margin recovery from selling new luxury cars in 2013; and 3) the execution ris

17、k for the integration of yanjuns network. zhengtong hold on slower-than-expected expansion pace (target price raised to hkd7.6) we cut zhengtongs fy12e earnings forecast by 4% after cutting our fy12e sales volume slightly by 6%. among the listed dealers, we still expect zhengtong to have slower grow

18、th in fy13-14e given the efforts spared on integrating scas business. page 12deutsche bank ag/hong kong 31 january 2013 automobiles 2) a better-than-expected new car sales gross profit margin recovery; and 3) a faster-than-expected improvement in operating/finance cost structure following the scas a

19、cquisition. key downside risks: 1) a weaker-than-expected gross profit margin recovery from selling new luxury cars, and 2) a failure to fully integrate scass network and streamline costs. zhongsheng buy on potential sales recovery of the japanese brands and mercedes benz in fy13e (target price rais

20、ed to hkd13.4) we cut zhongshengs fy12e earnings forecast by 24%, mainly due to the island dispute impact in 4q12. we remain upbeat about the companys outlook in fy13e due to a recovery in japanese brand sales, potential pick-up in demand for mercedes benzs cars in china, and increasing after-sales

21、service contribution. page 14deutsche bank ag/hong kong 31 january 2013 automobiles 2) further underperformance of mercedes benz sales growth vs. peers; 3) consequent margin pressure due to weak sales and high inventory; and 4) slower-than- expected expansion in the after-sales business. figure 22:

22、us and chinese/hong kong auto dealer groups - valuation comparison (as of 29 january 2013) nametickerdbtpprice mkt cappe (x)eps growth (%)p/bv (x)ev/ebitda (x)roe (%) rating jan 29,13(local $) (local $) (usdm)2012e2013e2012e2013e2012e2013e2012e2013e2012e2013e usa autonation carmax* asbury lithia* gr

23、oup1* sonic* penske* an.n kmx.n abg.n lad.n gpi.n sah.n pag.n sell hold hold nr nr nr nr 29.0 29 28 na na na na 44.9 39.9 34.8 43.2 67.8 24.3 32.5 5,642 9,116 1,081 1,105 1,541 1,293 2,932 18.1 21.6 13.5 14.8 14.3 14.5 14.5 17.1 20.5 12.5 13.2 12.5 12.2 13.2 27.7 3.1 42.1 48.3 30.7 20.9 24.3 6.0 5.2

24、 7.5 11.6 14.5 18.6 10.3 3.29 2.92 2.67 2.61 1.74 2.19 2.24 2.72 2.55 2.20 2.23 1.59 1.86 1.92 10.2 10.9 7.4 11.6 11.5 10.1 14.3 9.2 9.9 6.7 10.3 10.3 9.2 13.1 17.2 14.8 22.3 18.9 12.7 17.8 16.3 17.3 13.5 19.6 18.5 13.0 18.0 16.0 unweighted15.914.517.116.6 average china/hong kon

25、g pang da601258.ss nrna4.82,035na24.8-152.0250.01.311.22nana-0.46.3 baoxin auto zhengtong auto 1293.hk 1728.hk buy hold 9.5 7.6 8.1 6.9 2,643 1,956 24.5 18.4 14.5 13.0 -2.2 19.2 69.3 41.6 4.40 1.77 3.37 1.56 15.7 10.0 8.9 7.8 19.8 10.1 26.4 12.8 zhongsheng auto 0881.hk dah chong hong 1828.hk buy nr

26、13.4 na 11.6 9.0 2,853 2,111 24.8 12.0 12.3 10.6 -49.6 2.5 102.4 13.2 2.35 1.85 2.00 1.67 11.5 9.3 7.9 8.1 9.8 15.6 20.8 15.6 yongda motor3669.hknrna8.21,57014.210.3na38.03.042.3310.17.424.224.5 unweighted18.812.1-7.552.92.682.1911.38.015.920.0 average source: company data, bloomberg finance lp, deu

27、tsche bank *fiscal years ended february 2013, 2014 are referenced instead *based on bloomberg finance lp consensus forecast page 16deutsche bank ag/hong kong 31 january 2013 automobiles buy (target price hkd13.9) for dongfeng, we envision a better 2q-4q13 operational performance, considering a furth

28、er recovery of its japanese jv sales, together with the new launch of the higher- margin dongfeng nissan teana mid-sized sedan. in addition to numerous other new launches, such as the new dongfeng peugeot 3008 suv, to drive sales, we continue to believe that dongfeng warrants our buy recommendation.

29、 we benchmark our target forward p/e valuation at 9x fy13e eps, below the long-term sector average valuation of 11x. our target p/e should also be justified by the companys 21% fy12-14e two-year earnings cagr. besides, our implied target fy13 p/bv of 1.5x is reasonable, given a sustainable roe of ab

30、out 18%. key downside risks are a weak reception for its new models and higher-than-expected margin pressure. guangzhou auto we still see risks of an earnings disappointment; hold (target price hkd6.7) for fy13, investors seem to have turned more upbeat on gac with 1) the ramp-up of the new jvs (wit

31、h fiat and mitsubishi) and 2) the introduction of more new models, including the new generation guangqi honda accord mid-sized sedan. although there has been a solid start in the gac fiat jv, we think continual start-up losses in fy13 for the jv are inevitable. moreover, while we expect the domestic

32、ally produced asx to be competitive in pricing vs. peers such as dongfeng nissan qashqai, mitsubishi still lacks a proven track record of huge success in china. last but not least, we think that the recovery of the guangqi honda jv is still highly dependent on the launch timeline of the new accord,

33、which is still not certain at the moment. given the expectation of a more visible earnings recovery from a low base in fy12, we benchmark our target fy13 p/e valuation at 10 x, which is slightly higher than our target applied to dongfeng (9x) but still below the sectors long-term trading average (11

34、x). we believe that our p/e target is justified considering our fy12-14e two-year eps cagr of 60%. our target price of hkd6.7 also implies an 1.1x fy13 p/bv, with sustainable roe of about 11%, which we regard as reasonable. the key upside risk is a strong reception for the newly launched models and

35、the key downside risk is worse-than-expected margin pressure from the underperforming businesses. brilliance china - ramp-up of 3 series sales should mute market concerns; buy (target price hkd12.4) while the market is still concerned that the discount level for the new 3 series will be widened in f

36、y13 in order to boost sales, we are not too downbeat on brilliance because 1) it is not abnormal to see a downward pricing trend for a model through its product life cycle, and 2) we do not think that bmw will enforce a deep discount for a relatively new product like the 3 series. we also think that

37、 market worries on margin pressure, due to the jvs new electric vehicle r buy (target price hkd4.8) geelys 2012 yoy sales growth of 14.7% is ahead of our original estimate. going forward, we still expect geelys growth and profitability in fy13-14 to be supported by 1) increasing sales of the higher-

38、priced, higher-margin suv products, such as the gleagle gx7, 2) rising exports, which accounted for 21% of geelys january-november 2012 sales and helped the company maintain higher utilisation, 3) the mass introduction of in-house automatic transmissions for geelys cars, and 4) more material sales/e

39、arnings contributions from the potential technology transfer with volvo by means of new high-end product launches in late 2013/14. our target price of hkd4.8 is based on a benchmark of 13.5x fy13e p/e, which is at a slight premium to the stocks long-term historical average (10 x) and the sectors lon

40、g- term historical average (11x). we still believe that our premium valuation for the stock is appropriate because we expect geely to register a solid fy12-14 two-year fully diluted eps cagr of 21%. on a p/bv basis, our target price implies a fy13 p/bv of 2.2x, which we believe is justified given a

41、sustainable roe of about 18%, on our estimates. downside risks for geely would be a weak reception for its new models and intensifying competition from local peers. byd on the way to recovery, but valuation still unjustified; sell (target price hkd14.4) in 4q12, byds monthly pv sales broke through t

42、he 50,000-unit mark, with yoy growth of more than 30%, thanks to support from newer models like the l3 compact sedan and the surui compact sedan. also, demand for new energy vehicles seems to be consistently on the rise, although absolute sales figures are still insignificant. together with more sup

43、portive chinese government policies in the solar sector, byds share price has surged by 70% in the past three months. nevertheless, we would not be overly upbeat on byds fy13-14 earnings recovery pace given that there have been instances of an auto sales momentum retreat after a few months of surges

44、. in addition, despite the governments stimulus policy for the solar sector, our utilities team still expects the solar cell industry to come under earnings pressure given overcapacity. as we still think the market valuation of the stock is excessive, we reiterate our sell recommendation. our sotp-d

45、erived target price is based on 1) peers average fy13e p/e of 11x and 13.5x for the handset and battery businesses, respectively, and 2) the auto sector average of 0.5x fy13e peg to capture byds growth characteristics in the auto segment. the implied target fy13e p/e is 25x, the highest target p/e b

46、enchmark among its peers, which we think is justified by a 385% fy12-14e two-year eps cagr on an earnings recovery. page 18deutsche bank ag/hong kong (local $) 31 january 2013 automobiles as a result, the recommendations may differ and the price targets and estimates of each may vary widely. in augu

47、st 2009, deutsche bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a hold rating. in particular, this will typically occur for hold rated stocks having a market cap smaller than most other companies in its sector or

48、 region. we believe that such policy will allow us to make best use of our resources. please visit our website at http:/ to determine the target price of any stock. the financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed inv

49、estment decisions. stock transactions can lead to losses as a result of price fluctuations and other factors. if a financial instrument is denominated in a currency other than an investors currency, a change in exchange rates may adversely affect the investment. past performance is not necessarily i

50、ndicative of future results. deutsche bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. unless governing law provides otherwise, all transactions should be executed thr

51、ough the deutsche bank entity in the investors home jurisdiction. in the u.s. this report is approved and/or distributed by deutsche bank securities inc., a member of the nyse, the nasd, nfa and sipc. in germany this report is approved and/or communicated by deutsche bank ag frankfurt authorized by the bafin. in the united kingdom this report is approved and/or communicated by deutsche bank ag london, a member of the london stock exchange and regulated by the financial services authority for the conduct of investment business in the uk and authorized by the bafin. this report is distributed