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1、18 January 2018Automobiles NEV sales boom to continue At our dbAccess China Conference last week, we spent two days visiting auto plants and 4S stores of leading local brands. We also met with a new energy vehicle (NEV) industry expert. In summary, we observed that the rapid development of a few loc
2、al brands in recent years has made them morecompetitive but also means fiercer competition. Since we foresee only 4% overall auto sales growth in 2018, we recommend that investors look at the more resilient premium car segment, where we prefer Brilliance. We also prefer Yutong Bus for its NEV theme,
3、 in view of its sustainable electric bus leadership. This stems from our anticipation of the governments push for NEV penetration being conducive to the emergence of many new players/passenger car models starting 2018E.Local brands - significant advancement but competition intensifies We visited the
4、 plants of Great Wall Motor (GWM) and SAIC Motor. GWM reinstated its plan to sell c. 250k units of upscale WEY-branded vehicles in2018, with WEYs current gross profit margins already higher than the company average. In 2018, GWM expects margin to further improve, thanks to VV5s sales ramp-up. For SA
5、IC, management commented that more than 40% of its popular Roewe RX5 SUV orders are embedded with Internet connectivity functions andthe brand has benefited from an increasing SUV mix.NEV central government push is sales driver for now, but this could change The central governments push for NEV deve
6、lopment has given rise to many new entrants. However, the expert we met thinks it will take a long time for NEVs to replace traditional cars. She estimates annual NEV PV sales at 1.5m units and NEVs accounting for 2% of total car ownership by 2022. The dual credit system would be a major driver of t
7、he NEV market. The industry is getting more market- oriented as customers increasingly value functionality and low maintenance cost, along with a more established charging network in the future.Local brand plays are not attractively valued; buy Brilliance and Yutong Key sector upside risk: stronger-
8、than- expected auto sales resilience. Key downside risk: a post-stimulus sales drop.We value Chinese auto manufacturers mainly on a forward P/E basis, with reference to their earnings growth prospects. We do not have a strong Buy for local brands, considering the competition in various price segment
9、s, e.g. WEY vs. Geelys Lynk 601633.SS, Sell) Xushui plant visitGWMs three plants in Xushui are its newest plants. On 11 January, we visited Plant 2, which has an annual capacity of 250k units. The models it produces include Haval H2, H7 and WEY VV7. Their popularity has enabled the plants utilizatio
10、n rate to surpass 100%.The plant is highly automated and technologically advanced. For example, its stamping workshop has four automated production lines and the automation rate of its welding workshop has reached 100%.SAIC Motors (600104.SS, Hold) Lingang plant visitWe visited SAIC Motors Lingang p
11、roduction plant in Shanghai on 12 January. Total capex on the plant is c.RMB4.2bn. It produces various series of Roewe/MG vehicles, including the popular Roewe RX5 SUV. The models popularity keeps the plant well utilized.Great Walls management meetingGWMs December 2017 sales declined 16.6% YoY, whic
12、h the company partiallyattributes to inventory management, i.e. no channel stuffing in order to reduce incentive level. That said, sales of the upscale WEY VV5 and VV7 both improved slightly MoM. Sales volume of VV7 is meeting its 10k monthly sales target and management hopes monthly sales volume of
13、 VV5 will ramp up to c. 15k units. In 1Q FY18E, GWM will launch the WEY P8 plug-in hybrid. Given a likely high selling price for this NEV, GWM does not expect a high sales volume. In 2H18E, GWM will launch WEY VV6, an SUV sized between VV5 and VV7. In terms of store network, GWM will more than doubl
14、e the number of WEY 4S stores in 2018 and phase out all WEY brand booths inside Haval 4S stores. To conclude, the company is comfortable about attaining 250k units of WEY band sales in 2018E, as mentioned earlier.As of the end of Q3, gross profit margins of WEY VV5 and VV7 were higher than the compa
15、ny average, providing room to improve in 4Q17E. In 2018, GWMexpects gross profit margin to further recover, thanks to 1) the ramp-up of VV5 and 2) a reduction in the discount level. To elaborate, selling prices of popular models like Haval H2 and H6 have improved by c. RMB8-10k YTD.GWM is seeking al
16、l kinds of cooperation with both domestic and international players. Its potential cooperation with BMWs MINI is at an initial discussion stage, where one focus area is NEV development.Page 4Deutsche Bank AG/Hong Kong18 January 2018Automobiles 2) weaker-than-expected new energy bus demand; and 3) market share loss in new energy buses.Great Wall MotorOur target price is based on 7.0x FY18E P/E, which is below Great Walls historical H-share trading average, considering its lack
