China Specialist, Auto and Industrial Specialist

Victoria Li

20 years experience as sell side analyst focusing on China's Industrial and Auto sectors

China Auto: Buy Thesis Remains Intact, Sales Will Accelerate over the Summer

China Auto: Recovery Interruption from Extreme Weather and Second Covid-19 Wave

Smartkarma Webinar | China A-Shares Auto Parts: Parts of the Future

China Auto: Signs of Pent up Demand that Could Be Unleashed in 2H2020

China Auto: Wuhan Pneumonia to Dent or Delay the Recovery

China Auto: Premium Car Party Would Keep Going On in 2020

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

We believe it's the perfect time to buy China auto now.<ul>
<li>According to CPCA, auto demand is warming up quickly.  It's very likely that China's auto retail sales yoy turn positive in May.  We believe potential users' car purchase intention is high now. The only key negative is affordability challenge due to economic slowdown since Covid-19 lockdown. This might be mitigated with more auto stimulus and general economy warming up with Covid-19 Stimulus.</li>
<li>Premium car market is still outperforming as its potential buyers' finance condition are less impacted by economy shutdown in general. In the first 12-days of April, BBA posted 37% YoY growth of their shipment  (Thinkercar Data).</li>
<li>Dealers' inventory level keeps going down with profitability recovery is on the way.</li>
<li>On supply side, all the OEMs claimed that they have sufficient components in stock till June-August. This is while quite a few European countries are lifting their lockdown gradually. Supply chain issue is released unless second outbreak of Covid-19 hit the world.</li>
<li>Latest market expectations on HK-listed OEMs have fully priced in negative impact from Covid-19 after earnings downgrades in the past one month. And market expectations might have upside potential in 2H2020 from incremental positive effect of Covid-19 stimulus, which don't factor in yet.</li>
</ul>In PV segment, we prefer Geely (175.HK) as local brand leader with aggressive new car model launch plan this year, and Brilliance (1114.HK) as key premium car player with favorable product cycle. We remain cautious on BYD (1211.HK) in the rest of this year, but its 2020E earnings might beat consensus significantly due to one-off profit from surgical mask production. In A-share market, Changan (000625.HK) is our top buy due to  regaining of market share of its local brand and Ford JV brand from its own historical trough.In CV segment, we prefer Sinotruk (3808.HK) over Weichai Power (2338.HK). Sinotruk is benefiting from China's new toll road charge policy which took effect on 1st Jan 2020, and Covid-19 Stimulus on infrastructure. Weichai would benefit from robust engine demand from heavy duty truck and construction machines, but Covid-19 impact on its overseas KION business is unclear yet.

We believe it's the perfect time to buy China auto now.
According to CPCA, auto demand is warming up quickly.  It's very likely that China's auto retail sales yoy turn positive in May.  We believe potential users' car purchase intention is high now. The only key negative is affordability challenge due to economic slowdown since Covid-19 lockdown. This might be mitigated with more auto stimulus and general economy warming up with Covid-19 Stimulus.
Premium car market is still outperforming as its potential buyers' finance condition are less impacted by economy shutdown in general. In the first 12-days of April, BBA posted 37% YoY growth of their shipment  (Thinkercar Data).
Dealers' inventory level keeps going down with profitability recovery is on the way.
On supply side, all the OEMs claimed that they have sufficient components in stock till June-August. This is while quite a few European countries are lifting their lockdown gradually. Supply chain issue is released unless second outbreak of Covid-19 hit the world.
Latest market expectations on HK-listed OEMs have fully priced in negative impact from Covid-19 after earnings downgrades in the past one month. And market expectations might have upside potential in 2H2020 from incremental positive effect of Covid-19 stimulus, which don't factor in yet.
In PV segment, we prefer Geely (175.HK) as local brand leader with aggressive new car model launch plan this year, and Brilliance (1114.HK) as key premium car player with favorable product cycle. We remain cautious on BYD (1211.HK) in the rest of this year, but its 2020E earnings might beat consensus significantly due to one-off profit from surgical mask production. In A-share market, Changan (000625.HK) is our top buy due to  regaining of market share of its local brand and Ford JV brand from its own historical trough.In CV segment, we prefer Sinotruk (3808.HK) over Weichai Power (2338.HK). Sinotruk is benefiting from China's new toll road charge policy which took effect on 1st Jan 2020, and Covid-19 Stimulus on infrastructure. Weichai would benefit from robust engine demand from heavy duty truck and construction machines, but Covid-19 impact on its overseas KION business is unclear yet.

Chongqing Changan Automobile C (000625 CH)

China Auto: Ready? Go!