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1、Buy,Hold,Deutsche BankMarkets Research,AsiaChinaAutomobiles&Components,IndustryChina passenger carsector,Date10 October 2012Forecast ChangeVincent Ha,CFANora Min,No dodging the unavoidable:cuttingestimates but Dongfeng still a BuyIncorporating short-term and long-term impacts;Dongfeng still looks at
2、tractiveWith China auto sales figures for September beginning to come in,we nowhave a rough idea of how the island dispute has led to a sales slowdown forJapanese auto brands.Assuming that the impact will continue through 2012E,Research Analyst Research Associate(+852)2203 6247(+852)2203 Companies F
3、eaturedDongfeng Motor(0489.HK),HKD9.122011A 2012E 2013E,with some long-term brand perception damage lingering in future years,wecut our forecasts for Dongfeng Motor and Guangzhou Auto(GAC).However,we still believe Dongfengs valuation is attractive,even with a more prudent,P/E(x)EV/EBITDA(x)Price/boo
4、k(x),9.03.92.1,7.02.11.2,5.81.51.0,forecast,and maintain Buy.Cutting Sep-Dec sales estimate by c.25%and 2013-14E sales by c.10%,Guangzhou Auto(2238.HK),HKD4.852011A 2012E 2013E,According to Dongfeng,September passenger vehicle(PV)wholesales for its,P/E(x),10.3,10.0,6.7,Nissan JV and Honda JV were do
5、wn 35%and 19%YoY,respectively.We,EV/EBITDA(x),believe that a decline of similar magnitude will be sustained,as dealerships are,Price/book(x),1.1,0.8,0.8,still seeing weak interest in Japanese brands.The negative impact is likely tosubside by year-end,but we feel there will be a long-term lingering i
6、mpact onthe perception of Japanese brands for as long as the island dispute remains,Target price revision summaryNew TP Change%Upside%,unresolved.On the other hand,we believe the risk of sales deterioration shouldbe limited as it could start to affect the macroeconomics of areas the Japanese,Dongfen
7、gGAC,HKD13.0HKD5.1,-11.6%-23.9%,42.5%5.2%,JVs operate in(in terms of employment and tax revenue).,Change in PV sales volume forecast,Dongfeng Stronger fundamentals and diversity protect earnings downsideWe cut our FY12-14 EPS forecasts for Dongfeng by 11%on weaker-than-expected commercial vehicle(CV
8、)sales and lower Japanese brand sales.Wethink the island impact is more muted on Dongfeng than on GAC because itsnon-Japanese brand sales(e.g.CV business and PSA JVs)are diversified andprofitable.We also expect a rebound in 2013E earnings from the launch of thehigh-margin,new-generation Teana mid-si
9、ze sedan.Our new target price ofHKD13.0(down from HKD14.7)is prudently based on 9x FY12/13E P/E(previously 10 x FY12E P/E).The stock looks attractive on both P/E and P/BVand we think relatively robust 3Q12E results could support the share price.,Dongfeng(000units)2012E2013E2014EGAC(000 units)2012E20
10、13E2014E,New1,788.12,086.62,316.7New693.8909.11,021.9,Old Change%1,905.3-6.2%2,223.1-6.1%2,469.3-6.2%Old Change%811.3-14.5%1,049.4-13.4%1,169.0-12.6%,GAC Thinner margins and start-up losses make the company more vulnerableWe cut our FY12-14 EPS forecasts for GAC by 23-35%on weaker-than-expected marg
11、ins in 1H12 and lower Japanese brand sales.A potential delayin the launch of the new-generation Accord in 2013E and start-up losses in theFiat JV could continue to suppress GACs margin in the near-to-medium term,in our view.Our new target price of HKD5.1(down from HKD6.7)is prudentlybased on 8.5x FY
12、12/13E P/E(previously 9x FY12E P/E).We think that the shareprice downside for GAC is protected by 1)a below-book valuation;2)thedividend yield;and 3)the parents share buyback.Regional top picks are Korean OEMs;sector risks include evolution of disputeIn our August FITT report“Ride the dragon,not the
13、 elephant”,we highlighted,our regional preference for Hyundai and Kia given their ability to gain marketshare in China without sacrificing margins.We think that a combination of theisland dispute and new spare capacity could possibly help the duo win more-than-expected market share going forward.Key
14、 sector upside/downside risksto our recommendations and forecast changes are a better-/worse-than-expected evolution of the island dispute and a Chinese macro recovery.,This report changes target pricesand estimates for two companiesunder coverage.For a detailedlisting of these changes,see Figure1 o
15、n page 2.,_Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks
16、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 as only a single factor in making their investment decision.DISCLOSURES AN
17、DANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,10 October 2012Automobiles&ComponentsChina passenger car sectorKey changes to our forecastsFigure 1:Dongfeng Motor and Guangzhou Auto changes in target prices and net profit forecasts,Rating,Target price(HKD),Revised net profit(RM
18、Bm),Original net profit(RMBm),New,Old,2012E,2013E,2014E,2012E,2013E,2014E,Dongfeng MotorGuangzhou Auto,BuyHold,5.113.0,6.714.7,9,0852,495,11,0043,769,12,3034,789,10,2153,822,12,3865,180,13,8976,211,Source:Deutsche Bank,Figure 2:Dongfeng Motor and Guangzhou Auto DB forecast vs.consensus,We believe co
19、nsensus has not,RMBmDB FY12E net profit,Dongfeng9,085,GAC2,495 DB FY13E net profit,Dongfeng11,004,GAC3,769,yet fully reflected the potentialearnings impact for FY12,but,Consensus FY12E net profit,10,101,2,884 Consensus FY13E net profit,11,034,3,784,that,consensus,FY13,Difference,-10%,-13%Difference,
20、0%,0%,expectations are prudent,Source:Deutsche Bank,Bloomberg Finance LPRead-through of some September China auto sales figuresWhile official China auto sales data for September(from the China Association ofAutomobile Manufacturers,or CAAM)is not available yet,we have seen some impactfrom the Sino-J
21、apanese dispute on certain Japanese brands sales figures:Dongfeng Nissan JV recorded a 35%YoY decline in sales volumeDongfeng Honda JV recorded a 19%YoY decline in sales volumeMazda recorded a c.35%YoY decline in sales volumeMeanwhile,given that we have been arguing that Chinas overall auto demand i
22、s in agradual recovery mode with the troughing of consumption sentiment,we have seensome decent pick-up in sales for certain non-Japanese brands,partly augmented by theshift in demand away from Japanese brands:Dongfeng PSA JV recorded 9%YoY growth in sales volumeThe three Germany luxury brands(Audi,
23、Mercedes Benz and BMW)recorded29%YoY growth in sales volume(as there is a further shift from mid-/high-endJapanese auto demand to entry-level luxury demand)Hyundai and Kia altogether recorded 9.5%YoY growth in sales volumeWe believe that while the island dispute has been deterring sales of Japanese
24、brands,the impact on overall China auto sales is likely to be more muted as 1)genuine demandfor cars still exists,and 2)there is spare capacity at other brands in China to absorbpotential customers shying away from Japanese auto brands.As such,currently,westill expect China auto demand growth to sta
25、y positive during September-December,and see no reason to downgrade our full-year China auto sales forecast.Cutting our expectations for Japanese brands salesIn October,we think we could see a wholesale decline for Japanese brands of a similarmagnitude to that in September.While the peak of the anti
26、-Japanese demonstrationactivities in China was in mid-September,and hit Japanese auto retail hard in thesecond half of September,the monthly wholesale figures were buffered by orders taken,Page 2,Deutsche Bank AG/Hong Kong,10 October 2012Automobiles&ComponentsChina passenger car sectorearly in the m
27、onth or in late August.According to our channel checks with dealers,demand for Japanese brands vehicles,although recovering from the trough,is stillweak.As such,this will likely be reflected in October sales numbers.Assuming media coverage of the island dispute will gradually tail off,we expect agra
28、dual recovery of Japanese auto brand demand in November-December in Chinaeven if there is no resolution.Therefore,in aggregate we slash our September-December forecast for the various Japanese JV brands we cover by c.25%.For 2013-14E,we prudently assume anti-Japanese sentiment could linger and hence
29、trim our sales volume forecast by c.10%.We do not expect more severe long-termdemand damage given the potential negative impact on local economies that the JVsoperate in(e.g.employment not only at the plant,but also at part suppliers plants,taxrevenues to local governments,etc).In other words,we for
30、esee more governmentinterference in the sales decline situation if it worsens.,Figure 3:Major JVs under coverage revised sales volume forecasts,We expect the impact to be,(Units),2011,2012E,2013E,2014E,more limited on the Dongfeng,Dongfeng Nissan JV,Nissan JV than on peers,(1)Original forecast,960,7
31、75,1,102,458,1,284,481,1,429,156,given that lots of Dongfengs,(2)Revised forecast based on YTD sales and assuming no,960,775,1,087,313,1,266,216,1,408,331,brands,(e.g.,Liuqi,and,island dispute impact,Venucia)have limited visible,Difference from(1)(3)Revised forecast with island dispute impactDiffere
32、nce from(2)Dongfeng Honda JV(1)Original forecast(2)Revised forecast based on YTD sales and assuming noisland dispute impactDifference from(1)(3)Revised forecast with island dispute impactDifference from(2),0.0%960,7750.0%255,468255,4680.0%255,4680.0%,-1.4%1,012,795-6.9%312,820325,4844.0%297,046-8.7%
33、,-1.4%1,180,624-6.8%367,117380,4223.6%347,057-8.8%,-1.5%1,313,110-6.8%409,191423,2183.4%386,104-8.8%,linkages to its Japanesebackground.For the otherJVs,we assume that sales oftheir local brands(e.g.Ciimoand Everus)should not besignificantly impacted.Notethat we use case(3)for ourearnings revisions,
34、Guangqi Honda JV,(1)Original forecast(2)Revised forecast based on YTD sales and assuming no,362,294362,294,381,975366,686,453,723433,892,503,708491,164,island dispute impact,Difference from(1)(3)Revised forecast with island dispute impactDifference from(2),0.0%362,2940.0%,-4.0%335,333-8.6%,-4.4%396,
35、726-8.6%,-2.5%449,121-8.6%,Guangqi Toyota JV,(1)Original forecast(2)Revised forecast based on YTD sales and assuming no,274,417274,417,301,565294,859,341,153333,245,380,517371,520,island dispute impact,Difference from(1)(3)Revised forecast with island dispute impactDifference from(2),0.0%274,4170.0%
36、,-2.2%266,740-9.5%,-2.3%301,598-9.5%,-2.4%336,354-9.5%,Source:Company data,Deutsche Bank,Deutsche Bank AG/Hong Kong,Page 3,Jan-07,Jul-07,Jan-08,Jul-08,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Jan-07,Jul-07,Jan-08,Jul-08,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,PV,10 Oct
37、ober 2012Automobiles&ComponentsChina passenger car sector,Figure 4:Dongfeng Motor and Guangzhou Auto employee count as of 2011,We,believe,that,both,Dongfeng MotorGuangzhou Auto,102,21929,537,Dongfeng and GAC contributematerially to their respective,Source:Deutsche BankDongfeng Motor still fundamenta
38、lly sound with 2013E catalystSeptember sales showcase the merits of diversityDespite a continuation of weak CV demand and a 35%/19%YoY plunge in theDongfeng Nissan JV/Dongfeng Honda JV,respectively,Dongfeng managed to containits YoY sales volume decline to 22%in September while its YTD sales still g
39、rew by 5%YoY.This can be attributed to Dongfeng recording decent 32%YoY growth in Liuqi(within the Nissan JV),9%YoY growth in the Dongfeng PSA JV,and 127%YoY growthin its Fengshen brand in September.,operating regions.Therefore,prolonged sales and earningsweakness is unlikely to betolerated by the g
40、overnment,Figure 5:Dongfeng Motor monthly PV,Figure 6:Dongfeng Motor monthly CV,While,Dongfengs,sales trend,sales trend,demand is negatively affected,(Units)200,000150,000100,00050,0000,(YoY%)120%100%80%60%40%20%0%-20%-40%,(Units)70,00060,00050,00040,00030,00020,00010,0000,(YoY%)300%250%200%150%100%
41、50%0%-50%-100%,by the Sino-Japanese disputeand its CV demand continuesto be weak given the weakmacro,we do not expectsignificant further downsidesurprises considering thecompanys sales diversity,Source:Company data,Source:Company data,2013E sales and margin to be supported by the new TeanaFor FY13E,
42、we remain optimistic about sales and product mix improvements atDongfeng,particularly for the Nissan JV,with the launch of the new-generationDongfeng Nissan Teana mid-size sedan(equivalent to the Altima in the US market),forwhich we do not see much competition from other new same-segment models inCh
43、ina.For the Honda JV,we see margin improvement potential with the ramp-up of therecently launched Elysion MPV,while the introduction of the SUV model(in late 2012E)in the PSA JV could rejuvenate the brands sales in 2013E.,Figure 7:Nissan Altima,Figure 8:Dongfeng Honda Elysion,We expect sales of the
44、new-generation Dongfeng NissanTeana(same as the existingNissan Altima)and DongfengHonda Elysion to enhanceDongfengs product mix andmargins in FY13E,Source:NissanPage 4,Source:Honda,Deutsche Bank AG/Hong Kong,10 October 2012Automobiles&ComponentsChina passenger car sector11%earnings revisions in FY12
45、-14EIn view of the YTD sales momentum and impact of the island dispute,we have trimmedour FY12-14E earnings forecasts by 11.1-11.5%.,Figure 9:Dongfeng Motor major changes to our forecasts,With our revised forecast,we,2010,2011,2012E,2013E,2014E,now,expect,Dongfeng,to,Original PV sales volume(units)R
46、evised PV sales volume(units),1,418,091n.a.,1,646,410n.a.,1,905,2771,788,097,2,223,0652,086,615,2,469,2842,316,679,record RMB1.9bn on averagein 3Q12 and 4Q12.We think,Change,n.a.,n.a.,-6.2%,-6.1%,-6.2%,this,should,be,prudent,Original CV sales volume(units)Revised CV sales volume(units)ChangeOriginal
47、 turnover(RMBm)Revised turnover(RMBm)ChangeOriginal EBIT(RMBm)Revised EBIT(RMBm)ChangeOriginal net profit(RMBm)Revised net profit(RMBm)Change,527,865n.a.n.a.122,395n.a.n.a.13,837n.a.n.a.10,981n.a.n.a.,526,313n.a.n.a.131,441n.a.n.a.13,330n.a.n.a.10,481n.a.n.a.,503,298433,413-13.9%138,748126,629-8.7%1
48、3,25211,687-11.8%10,2159,085-11.1%,567,386486,700-14.2%162,635148,334-8.8%16,10214,232-11.6%12,38611,004-11.2%,616,841528,868-14.3%179,673164,156-8.6%17,80815,686-11.9%13,89712,303-11.5%,enough,even considering theSino-Japanese conflict,Source:Company data,Deutsche BankFigure 10:Dongfeng Motor quart
49、erly net profit trend(in PRC GAAP),1Q112,862,2Q112,993,3Q112,499,4Q112,117,1Q122,707,2Q122,656,Source:Company dataAttractive valuation at ex-global financial crisis trough;maintaining Buy with new targetprice of HKD13.0(down from HKD14.7)We now prudently value Dongfeng at a FY12/13E P/E of 9x(previo
50、usly 10 x FY12E P/E),above its own historical average forward P/E but at a 20%discount to the long-termsector average of 11x.We believe this is justified given that Dongfeng has consistentlydelivered solid sales volume growth and margin resilience.On a forward P/BV basis,ourtarget price implies a FY
