【行业研究】中国汽车行业 – 市场筑底,消费刺激措施有望加速出台

We analyze the recent development of the auto sector and summarize some critical changes happened recently. These structural changes include low investment return, used-car market development and so on, which present us with an analytical framework for auto stock selection. We believe that the decline in Auto market was a structural phenomenon rather than a short-term effect. Accordingly, we recommend investors to choose companies that have strong JVs with foreign brands, great competitive local brand awareness while maintaining certain exposure on the oversea market. Our top picks are GAC (2238 HK) and Geely (175 HK).

 

  • Overall market continued to decline in Aug. The auto market has slowed down since 2018 and continued its unpleasant performance in 1H19. In Aug, the production and sales volume of passenger vehicle were 1.69mn and 1.65mn, down by 0.7% and 7.7% YoY respectively. The decline in production and sales was slightly narrower than the previous month.

 

  • An inflection point is expected to appear in 4Q19. We did not anticipate any major changes in our structural analysis. However, in our analysis, we strongly believe the specific consumption-boosting policy will be rolled out soon later this year. With potential policy stimulus and seasonal effect, we expect a moderate sales recovery in 4Q19.

 

  • Low prevailing investment return is the most critical constraint for resident spending. In our analysis, we found that even though residents have the willingness to spend more, the low return prevailing in the market does not provide adequate spending power.

 

  • Low capacity utilization rate with amass of loss entities prompts for potential policy stimulus. Recent public news states that some OEMs and auto parts producers are experiencing difficulties and even stopped production in 3Q19. This suggests that overall auto market condition was at the critical point affecting the overall employment market. We anticipate the government will potentially launch stimulus policy to support auto consumption.

 

  • We present a methodology to select auto stocks in the following years. Factoring in near-term and medium-term potential, we recommend investors to select companies with strong JVs and reputable local brands while having the capability to expand abroad. A strong financial condition is a plus for the company.

 

  • Valuation/Key risks. 1) Continued slowdown in the Chinese economy. 2) Policy support was less than expected.
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