中国汽车业时尚：科技而非品牌.docx

/卜 HSBCGlobal Research19 February 2019THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLE'S REPUBLIC OF CHINA (THE "PRC") (EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)China AutosEn vogue 2019: Tech NOT brandEquitiesAutomobilesChina Latest data points indicate improving industry fundamentals; we forecast industry reversion to low growth in 2019Technology focus driving our differentiated views on Benz and Hyundai growth; potential turnaround for Great Wall Downgrade GAC-H to Hold on strong share price performance and valuations; OEM top picks Brilliance and BAIC (both Buy)Wei Sim*Analyst, AutosThe Hongkong and Shanghai Banking Corporation Limited weisimhsbc .hk +852 2996 6602Tracy Li*, CFAAnalystThe Hongkong and Shanghai Banking Corporation Limitedtracy.s.w.lihsbc .hk +852 2996 6751* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulationsTime to get constructive: China's auto sector is starting to see some signs of improvement with retail sales declines moderating, retail inventory destocking and discount rates stabilising. We forecast that the sector will revert to positive growth in 2019. Contrary to end-2018 when investors recognised Chinese autos looked cheap but felt they could be a value trap, sentiment has improved to be more constructive.En vogue 2019: A key finding of our recent proprietary auto survey is that sentiment has shifted, whereby tech is now considered the most important factor in purchasing a vehicle vs. brand/exterior image previously. We think this will be a key differentiating factor in driving auto sales in 2019. We think BAIC (1958 HK) will be a key beneficiary of this trend given exposure to it from its two JVs, Beijing-Benz and Beijing-Hyundai.Top picks BAIC and Brilliance: Our key picks are BAIC (1958 HK) and Brilliance (1114 HK). We like BAIC for its JVs5 focus on interior/tech which we think will drive better-than-expected growth in its two foreign JVs. After a crushing 2018 driven by newsflow of the company's JV restructure with BMW, we think Brilliance's share price will be driven by operational growth in BMW and faster-than-expected turnaround of the newly formed JV with Renault. We have revised down 2018-20e sector earnings 3-5%; our revised forecasts are 3-5% below consensus. We are above consensus on Brilliance and Dongfeng. We also provide an earnings preview on page 12.HSBC China Conference 201915-17 May, ShenzhenRegister nowFig 1: Key changes to ratings and estimatesCurrent TP Rating _Upside/ Market capCompanyTicker Currency price Old New Old New downside (USDm)3m ADTV Target price implied PER(USDm) FY19e FY20eFY18-20eearningsCAGRBrilliance1114 HKHKD7.59BAIC1958 HKHKD5.16Dongfeng489 HKHKD8.20GAC -H2238 HKHKD9.25Geely175 HKHKD14.00Great Wall -H2333 HKHKD5.80GAC -A601238 CHCNY10.96Changan -B200625 CHCNY4.25Great Wall -A601633 CHCNY7.10Changan -A000625 CHCNY8.06Source: HSBC estimates. Priced as of close at 15 February 2019.50,40,30,90,90,50,10,00,20,70&59&153.&C632BuyBuy23.84,944BuyBuy22.15,332BuyBuy17.18,828BuyI Hold-2.715,707HoldHold-15.714,965Reduce Reduce-19.09,326ReduceReduce-27.015,707ReduceReduce-27.12,473ReduceReduce-42.39,326ReduceReduce-65.32,473OOOOMOOOOO 4 3 6 比 7 648 9&OSOS114&C642 T T T T I T i T T T2387406893206 &289921101172233528941-OJ564665&2O&186 8 5 7 3 6 55sss1851610%32%2%7%14%12%7%4%12%4%Issuer of report: The Hongkong and Shanghai Banking Corporation LimitedView HSBC Global Research at:h ttps :/ research, hsbc. comDisclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Fig 18: Vehicle penetration in China is still relatively low; though high-growth period is over, outlook for structural growth stillSource: HSBC Research, IHSy-o-y growthPV sales (m units) m-o-m growthSource: CPCA, HSBC Research1Q19 as a low base was created in 1Q18 from consumers which pushed forward their auto purchases to 4Q17 from 1Q18. Assuming PV sales were to see flat m-o-m growth from December levels into 1Q19, we already see growth reverting into positive territory in 1Q19 (Figure 16).Mild growth outlook under a normalised environmentIn reality our conviction on 2019 is not high and we would be more confident of providing a range whereby we think that growth is likely to be within the range of +/-2%. We have pinned our growth forecast at the upper end of that range however, as we think that China is likely to experience a more normalised growth environment in 2019 and under these conditions we still see structural growth for new PV sales where we forecast new PV sales to peak at closer to 30m units per annum (2018: 24m) over the longer term. The trajectory to 30m units henceforth however will be one of moderate growth where we forecast 2-3% growth CAGR over the coming 5-10 years.We recognise there are differences in China's auto market relative to other DM (e.g. licence plate restrictions in major cities, etc) and changes in auto consumption on a global basis (e.g. rise of ride-sharing and, longer term, autonomous vehicles). China's vehicle penetration currently stands at 1/5th to 1/3rd of more developed markets (Figure 18) - we think that penetration will continue to increase.China's average vehicle age is 4-5 years, which is low, however we also see PVs as being a consumer discretionary rather than a staple in China and think that China's average vehicle age is likely to remain lower than that of DM which will also result in more churn of vehicles.Fig 19: Stabilisation in growth from no change in incentive structure between 2018-19 will naturally lead to positive y-o-y growth in 1Q19Latest data points indicate thesis starting to play outDestocking a positive sign: Year-on-year, retail declines have moderated m-t-d - down 1% vs. a 17% decline in December. Wholesale growth has remained double-digit negative which shows signs of further inventory destocking that already began in December. This should lead to better supply/demand dynamics, as inventory had increased in January-November 2018.Fig 20: January has shown signs of destocking with moderating retail declines Wholesale RetailSource: CPCA, HSBC researchThe latest data on vehicle inventory alert (VIA) index indicate that this has been the case where we have seen both the December and January inventory indexes indicating a decline in inventory (Figure 21). Destocking at the retail level has also eased pressure on the dealers which has begun to be reflected through the system where we have seen discount rates stabilise in January (Figure 22). Our recent on-the-ground checks have also painted a similar picture where we were surprised to learn how limited the level of discounts was that dealers were willing to provide just prior to the Chinese New Year break.Fig 21: Vehicle Inventory Alert Index indicates destocking in Dec-18 and Jan-19Fig 22: Discounting has stabilised in January helped by easing retail inventoryVIA LHSy-o-y change RHSVIA LHSy-o-y change RHSSource: Chinese Automobile Dealers Association, HSBCThe improving inventory levels will bode well first and foremost for dealers as they see easing pressure on inventory and discounting (see China /Auf。Dealers: Time to revisit the laggards, 19 Feb 2019). OEMs will also benefit as dynamics continue to improve.Preview: FY18 results - likely a non-eventChina Auto OEMs will be reporting their FY18 results in March 2018. We do not expect the results to be a material catalyst for the sector and think that investors are likely to look through to 2019, largely ignoring the results. Having said that we expect results overall to come in below consensus where we forecast for sector profits to come in 4-5% below consensus forecasts. The following table illustrates our forecasts vs. consensus on FY18 reported and adjusted earnings (RMB m).Fig 23: HSBC FY18e earnings vs. Eikon consensus forecasts (RMB m)Source: Refinitiv Eikon, HSBC estimatesCompanyTickerReported earningsAdjusted earnings,HSBCConsensusnoou vb.consensusHSBCConsensusnoou vb. consensusBAIC1958 HK4,3935,491-20%3,6695,384-32%Brilliance1114 HK6,9566,4588%6,9566,4298%Changan200625 CH7503,007-75%7501,599-53%Dongfeng489 HK15,60214,20210%15,99414,28812%GAC2238 HK/601238 CH12,46412,2921%12,46412,2732%Geely175 HK12,00913,109-8%12,12413,066-7%Great Wall2333 HK/601633CH5,3545,3141%4,0335,226-23%OEM total57,52760,440-5%55,98958,162-4%Summary of HSBC expectation of results vs. consensusBAIC - (already guided/expect miss): We forecast for adjusted earnings to come in below consensus as we factor in an ASP decline in 2H18 due to increase in sale of smaller models. We estimate for ASP to decline 8.8% in 2H18 vs. 0.8% increase in 1H18 based on an assumed China ASP decline of 3.8% in FY18. Our estimate is based on Daimler (DAI GR) FY18 results announcement materials disclosed on 6 February 2019.Brilliance - (expect beat): Our reported and adjusted earnings are 8% above consensus where we forecast for positive operating leverage from sales of domestic X3 to result in better than forecast FY18 results.Changan - (already guided/expect miss): Our FY18 estimates are 53-75% below consensus, but are based on company FY18 profit guidance disclosure disclosed on 30 January 2019 for FY18 profits to be in the range of RMB500-750m. Our RMB750m estimate is at the top end of company guidance.Dongfeng - (expect beat): We forecast for Dongfeng earnings to beat consensus based on resilient sales from their Japanese JVs with Nissan and Honda.GAC - (expect in-line): We forecast for the results to be in-lineGeely - (expect miss): We forecast for results to miss consensus estimates where we forecast for less NP margin expansion vs. peers due to the slower growth in 2H18 impacting on operating leverage growth which the company enjoyed during higher sales volume growth periods.Great Wall (already guided /expect miss): Our reported earnings are in-line with consensus whilst adjusted are 23% below. Our numbers are based on preliminary results announcements which the company already announced on 30 January 2019.Earnings revisions / vs. consensusHSBCHSBCWe have adjusted our estimates factoring in actual 2018 sales volumes for each of the companies and any further data points to date. Below are the changes to our earnings estimates where we have continued to revise down our 2019-2020 earnings. Most revisions are minor; the largest weightings which have dragged down our estimates are as follows: We have continued to revise down our earnings estimates for Changan where all of their JVs have continued to see faster than forecast deterioration, the largest drivers of the earnings downgrade being the JVs with Mazda and Ford. On 30 January 2019 the company guided for FY18 earnings to decline 89-93% to between RMB500-750m. We have assumed FY18 to be at the top end of their guidance which is 75% below consensus estimates. We have revised down our earnings estimates for Geely forecasting for milder growth in 2019-2020. We maintain our view that Geely will see double-digit sales volumes growth over the coming two years, forecasting for 11% and 16% sales volume growth (units) in 2019e and 2020e respectively despite management's guidance for flat growth in 2019 which we believe is overly conservative. Despite the forecast double-digit growth, forward growth will be slower than in the previous period from 2015 till 2018 which will result in a moderation from the positive impact of operating leverage driving our earnings downgrade. Our 2018 reported earnings for Great Wall show a large upgrade reflecting the preliminary financial results the company already released on 25 January 2019. Note that the revision to adjusted earnings is not as large, indicating a large one-off in their 2018 full year results.Fig 24: HSBC reported profit forecasts vs. our own previous forecasts and Eikon consensus forecasts (RMB m)OEM total57,52763,11769,51259,19165,26972,96860,44066,70071,791-3%-3%-5%-5%-5%-3%CompanyTicker2018e_HSBC_ 2019e2020e2018e_HSBC (old)_ 2019e2020e2018e_Consensus_ 2019e2020e2018e_HSBC vs. Old 2019e2020eHSBC vs. Consensus2018e2019e2020eBAIC1958 HK4,3936,5727,6065,7096,1907,3185,4916,6847,530-23%6%4%-20%-2%1%Brilliance1114 HK6,9567,6718,3527,0757,7238.4006,4587.6838,845-2%-1%-1%8%-0%-6%Changan000625 CH/200625 CH7507428151,3478289153,0073.2943,755-44%-10%-11%-75%-77%-78%Dongfeng489 HK15,60215,69816,21715,36615,44915,95914,20214,10314,3362%2%2%10%11%13%GAC223S HK/601238 CH12,46412,75314,30812,51612,94914,54612,29213,45615,100-0%-2%2%1%-5%-5%Geely175 HK12,00913,44415,51313,58916,20119,55513,10914,87917,204-12%-17%-21%-8%-10%-10%Great Wall2333 HK/601633 CH5,3546,2376,7013.5905.9296,2745,3145,9205,90249%5%7%1%5%14%Source: Refinitiv Eikon, HSBC estimatesFig 25: HSBC adjusted profit forecasts vs. our own previous forecasts and Eikon consensus forecasts (RMB m)CompanyCompanyTickerHSBC HSBC (old)Consensus2018e2019e2020e2018e2019e2020e2018e2019e 2020eHSBC vs. Old 2018e2019e 2020eHSBC vs. Consensus 2018e 2019e2020eBAIC1958 HKBrilliance1114 HKChangan000625 CH/200625CHDongfeng489 HKGAC2238 HK/601238 CHGeely175 HKGreat Wall2333 HK/601633 CHOEM totalSource： Refinitiv Eikon, HSBC estimates3,6696,9566,5727,67174215,69812,75313,4446,2377,8458,3524,973 7,0751,347 15,758 12,516 13,7043,5906,190 7,723828 15,449 12,949 16,201 5,9297,2868,4005,384 6.429 1,599 14,288 12,273 13,066 5,2266,5937,5982,52214,31413,50614,5955,8707,3098,694-26% -2% -44%1% -0% -12% 12%6% -1% -10%2% -2% -17%5%8%-1%-11%2%-2%-21% 7%-32% 8%-53% 12% 2%-7%-23%-0% 1%7% -4% -78% 11% -7% -8% 10%750 15,994 12,464 12,124 4,03381516,21714,30815,513 6,701915 15,959 14,546 19,555 6,2743,64514,54615,34216,8356,070-71% 10% -6% -8% 6%Equities1955,98963,11769,75158,96465,26972,93658,16265,15072,155-5%-3%-4%-4%-3%3% Automobiles February 2019Valuations and risksChanges to our target multiplesWe have revised