汇丰银行-中国-汽车行业-中国汽车经销商：是时候重新审视落后者了-2019.2-27页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ HSBCChinaConference201915-17May,ShenzhenRegister nowTHIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)The industry experienced its darkest moments in 2018 for the last decade,with low sales and widening discount levels We expect the discount level to narrow as destocking continues and market demand stabilises Upgrade Yongda,Zhongsheng and Zhengtong each to Buy from Hold with new TPs of HKD6.80,HKD19.00 and HKD5.60 Discount to recover:We see the average dealers discount narrowing from a high of 11.6%in January 2019,the highest level since 2014.We expect margins to recover from the current high base as:1)the discount should narrow given destocking reduces the pressure to lower selling prices going forward;and 2)market sales growth will turn positive from the beginning of 1Q,in our view.The inventory level has been declining from December 2018,which we believe is mainly due to OEMs initiatives to lower wholesale volumes.Once retail demand stabilises,we expect the discount level to narrow.Luxury sales to remain strong in 2019:After analysing the luxury retail sales breakdown by province,we found that in 2018 the growth in luxury brands came from the central and southern provinces,where second-and lower-tier cities are located.We believe this is due to a lower luxury penetration rate in these areas.In 2019,we expect this trend to continue and forecast the full-year luxury sales growth rate to be 7%and overall penetration rate to rise further to 13.2%by year-end.Upgrade dealers for margin turnaround:On the back of the margin turnaround,we upgrade our ratings on Yongda,Zhongsheng and Zhengtong to Buy from Hold.We see these dealers as beneficiaries of the current market trend;however,they are the laggards so far in this auto rally.The dealers have underperformed OEMs by 20%y-t-d on average.Among the three dealers,Yongda is our preferred play as we see the most upside for its margin recovery.What if we are wrong?We believe it is unlikely that margins will further deteriorate from the current level.We have conducted a sensitivity analysis under different margin scenarios for the dealers if margins do not recover as we expect.In the worst-case scenario(margin further drops by 50bps from 2H18 level),we estimate net profit to be 10%below current consensus estimates.Key changes to ratings and estimates Current _ TP_ _ Rating _ Upside/Company Ticker Currency price Old New Old New downside Market cap(USDm)3m ADTV(USDm)2019e PE(x)2019e PB(x)2019e ROE Yongda 3669 HK HKD 5.41 4.80 6.80 Hold Buy 26%1,199 1.87 4.5 0.6 19.3%Zhengtong 1728 HK HKD 4.39 3.80 5.60 Hold Buy 28%1,310 2.85 5.0 0.6 13.4%Zhongsheng 881 HK HKD 16.32 17.00 19.00 Hold Buy 16%4,232 6.55 6.3 1.4 25.0%Source:Refinitiv Eikon,HSBC estimates.Priced as of close at 15 Feb 2019 19 February 2019 Tracy Li*,CFA Analyst The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6751 Wei Sim*Analyst,Autos The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6602 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations China Auto Dealers Equities Automobiles China Time to revisit the laggards Equities Automobiles 19 February 2019 2 Recovering from the industrys darkest moments 3 Where does luxury demand come from and go to?6 Time to revisit the laggards 9 Sensitivity analysis on margins 14 Recap of 2018 luxury auto sales 16 Disclosure appendix 22 Disclaimer 26 Contents 3 Equities Automobiles 19 February 2019 Darkest moments in the past decade 2018 was a bad year for Chinas auto industry,with both sales volumes and discounts hitting their weakest points historically.The discount rate has widened to 11.6%in January 2019,the highest since 2H14(which is as far back as our records go for this data).Fig 1:Industry discount rate Source:Thinkercar,HSBC Looking at the luxury brands alone,the discount level for these brands is more cyclical than it is for the overall industry.The discount rate hit a high level in August 2016 but January 2019 surpassed that by recording the highest level since late 2014(again,the furthest back our data records go).4.0%5.0%6.0%7.0%8.0%9.0%10.0%11.0%12.0%Nov-14 Mar-15Jul-15Nov-15 Mar-16Jul-16Nov-16 Mar-17Jul-17Nov-17 Mar-18Jul-18Nov-18Industry discount rateJanuary average discount rates were highest at 11.6%Recovering from the industrys darkest moments The industry experienced its darkest moments in 2018 for the last decade with low sales and widening discount levels We expect the discount level to narrow as destocking continues and demand stabilises Dealers stand out as likely beneficiaries as both luxury sales and margin recovery should be favourable Equities Automobiles 19 February 2019 4 Fig 2:Discount level for luxury brands Source:Thinkercar,HSBC Recovery is around the corner However,we believe the overall discount rate will see a recovery in 2019 as:1)ongoing destocking will reduce pressure for a further price cut;and 2)we expect market sales growth to turn positive from the beginning of 1Q.Fig 3:Inventory alert index for the entire market Fig 4:Inventory alert index for luxury brands Source:CADA,HSBC Source:CADA,HSBC The market inventory level peaked in November 2018.Since December 2018,the inventory level has come down for both the mass market and luxury brands.We believe this is mainly because in China the production schedule is set based on estimates instead of orders received.After the retail numbers declined for a few months,OEMs eventually adjusted their wholesale numbers and allowed destocking to kick in.We think destocking is also practically accelerated by discount widening,which boosts retail sales.According to preliminary January weekly data,January retail sales were down by 2%,while wholesale figures were down by 8%.4.0%6.0%8.0%10.0%12.0%14.0%16.0%Nov-14 Mar-15Jul-15Nov-15 Mar-16Jul-16Nov-16 Mar-17Jul-17Nov-17 Mar-18Jul-18Nov-18Discount level for luxury brandsDiscount data for industry35%40%45%50%55%60%65%70%75%80%Dec-12Apr-13Aug-13Dec-13Apr-14Aug-14Dec-14Apr-15Aug-15Dec-15Apr-16Aug-16Dec-16Apr-17Aug-17Dec-17Apr-18Aug-18Dec-18Inventory alert index30.0%35.0%40.0%45.0%50.0%55.0%60.0%65.0%70.0%75.0%80.0%Market inventory indexLuxury brand inventory index 5 Equities Automobiles 19 February 2019 Fig 5:Net of wholesale and retail sales,units Source:CPCA,HSBC At the same time,we expect the overall demand situation to stabilise starting in 1Q.As discussed in our report China Autos:Our 2019 dashcam After going in reverse,growth set to shift into first gear(29 Nov 2018),since it is the second year that the market has no purchase tax incentives,we believe the sales growth rate in the market should start to stabilise from 1Q.After demand and the growth rate stabilise,we believe the discount rate will start to narrow.Fig 6:HSBC forecasts reversion to mild sales growth in 2019-2020 Source:IHS,CPCA,HSBC estimates -50,000-50,000 100,000 150,000 200,000Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-1830%22%7%53%33%5%7%16%10%7%15%2%-4.3%3%14%14%13%38%33%17%14%2.6%3.0%-10.0%-10%20%30%40%50%60%98A 99A 00A 01A 02A 03A 04A 05A 06A 07A 08A 09A 10A 11A 12A 13A 14A 15A 16A 17A 18A 19E 20EPassenger VehiclePassenger&Commercial VehiclesHSBC PV forecastForecast for reversion to mild growth in 2019-2020 Equities Automobiles 19 February 2019 6 Luxury sales breakdown by province Demand driven from tier-two and lower-tier cities In order to understand where the demand comes from for luxury brands,we had to break down the sales numbers by province.In terms of absolute numbers,Guangdong,Zhejiang and Jiangsu were the top three provinces that recorded the highest sales of luxury brands,whereas the northwest and northeast regions recorded the lowest sales in 2018.Fig 7:Absolute sales numbers by province as of 2018 Source:Thinkercar,HSBC In terms of volume growth,except Tibet which saw the highest growth rate in 2018,most provinces that recorded a double-digit growth rate were in central China,which includes most of the second-tier and third-tier cities.Beijing,Tianjin,Hainan and provinces in north China were the worst performers in 2018 with negative growth rates.050,000100,000150,000200,000250,000300,000350,000400,000Where does luxury demand come from and go to?Demand growth for luxury brands in 2018 mainly came from tier-two and lower-tier cities located in central and southern China We see the trend continuing,driven by lower penetration rate in tier-two and lower-tier cities We estimate 2019 full-year luxury sales will be 7%and year-end penetration rate will further rise from the 2018 level to reach 13.2%7 Equities Automobiles 19 February 2019 Fig 8:Volume growth rate in 2018 heat map by region Source:Thinkercar,HSBC What drives this divergence and how do we see luxury demand in 2019?We believe this difference in sales growth rate among provinces is primarily driven by the lower luxury penetration rate in the central and southwest provinces.Only eight provinces/municipal cities have a higher penetration rate than the national average.Most of the provinces located in the central region have lower-than-average penetration rates.ShanghaiJiangsuShandongLiaoningJilinHeilongjiangFujianAnhuiGuangdongHubeiChongqingYunnanHainan ZhejiangShaanxiSichuanJiangxiHenanInner Mongolia BeijingTianjinHebeiGuangxi HunanGuizhouShanxiTibetQinghaiXinjiangGansuNingxiaSales growth rate20%10%Sales growth rate 15%5%sales growth rate 10%0%sales growth rate 5%-5%sales growth rate 0%sales growth rate-7%Equities Automobiles 19 February 2019 8 Fig 9:Luxury penetration rate by province as of 2018 Source:Thinkercar,HSBC We believe the trend will continue in 2019:we think provinces with a lower penetration rate will drive the growth.We forecast the overall growth rate of luxury sales to be 7%in 2019e and for the year-end national average penetration rate to reach 13.2%(up from 12.7%in 2018 and 10.8%in 2017).Fig 10:Market share of different mix Source:IHS,HSBC estimates 0%5%10%15%20%25%30%35%Luxury penentration rate by provinceNational average0%2%4%6%8%10%12%14%16%18%20%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%2015a2016a2017a2018a2019e2020eLuxury penetration rateGrowth rate of luxury sales(RHS)Growth rate of overall PV sales(RHS)9 Equities Automobiles 19 February 2019 Dealers have been the laggards since the start of 2019 Dealers have been the laggards in the auto space since the start of 2019.Dealers share price performance has underperformed OEMs by 20%.However,as the destocking continues and demand stabilises,we believe dealers will stand out to benefit.Their weak share price performance cannot be justified.Fig 11:Share price performance of dealers and OEMs Source:Refinitiv,HSBC.Note:“dealers”=Yongda(3669 HK),Zhengtong(1728 HK),Zhongsheng(881 HK);OEMs=Brilliance China(1114HK),BAIC(1958 HK),GAC(2238 HK),Great Wall(2333 HK),Geely(175 HK),Dongfeng(489 HK).Volume plays to remain favourable,and margin to see recovery We see luxury auto demand remaining strong in 2019 and luxury dealers benefitting from this continuing strong demand.Whats more important is that dealers profits will pick up once margins are on track to recovery.Dealers profits are highly leveraged to new car sales margins,as discussed in our report China Auto Dealers:In pole position,2 May 2018.A 50bps increase in the new car sales margin will increase the bottom line by 10%,on our estimates.As mentioned previously,we believe margins will be on a recovery track in 2019.However,consensus forecasts almost no improvement in gross profit margin,except for Yongda,in 2019.We believe this is quite conservative and,given the current situation,there should be upside to the gross profit margin.70%80%90%100%110%120%130%01/01/201908/01/201915/01/201922/01/201929/01/201905/02/201912/02/2019Dealer averageOEM averageDealers have underperformed OEMS by 20%YTDTime to revisit the laggards Dealers have underperformed the OEMs by 20%since the start of 2019,which we think cannot be justified We believe consensus has been conservative on margin assumptions,which we think will see upside in 2019 We upgrade Yongda,Zhongsheng and Zhengtong each to Buy from Hold,with new TPs of HKD6.80,HKD19.00 and HKD5.60,respectively Equities Automobiles 19 February 2019 10 Fig 12:Consensus view on dealers margins Source:Company data,Refinitiv Eikon We are now more positive on gross profit margins going forward and estimate gross profit margins for Yongda,Zhengtong and Zhongsheng at 0.1ppt and 0.2ppt,0.1ppt and 0.6ppt,and 0.2ppt and 0.1ppt above consensus in 2019e and 2020e,respectively.Fig 13:Margin assumption comparison between HSBC and consensus _ HSBC _ _ Consensus _ _ HSBC vs Consensus _ 2018e 2019e 2020e 2018e 2019e 2020e 2018e 2019e 2020e Yongda 3669 HK 9.5%10.1%10.6%9.6%10.0%10.3%-0.1ppt 0.1ppt 0.2ppt Zhengtong 1728 HK 11.0%11.4%12.0%11.3%11.3%11.4%-0.3ppt 0.1ppt 0.6ppt Zhongsheng 881 HK 9.6%10.1%10.1%9.8%9.9%10.0%-0.2ppt 0.2ppt 0.1ppt Source:Refinitiv Eikon,HSBC estimates Earnings revisions We adjust our earnings forecasts for Yongda,Zhengtong and Zhongsheng by factoring in the latest discount level and new margin assumptions in 2019 and 2020.Fig 14:Gross profit margin assumptions changes _ HSBC _ _ HSBC(old)_ 2018e 2019e 2020e 2018e 2019e 2020e Yongda 3669 HK 9.5%10.1%10.6%9.5%9.6%10.4%Zhengtong 1728 HK 11.0%11.4%12.0%11.0%10.8%11.2%Zhongsheng 881 HK 9.6%10.1%10.1%9.9%10.1%10.1%Source:HSBC estimates As a result,we adjust our earnings forecasts by 0 to 12.8%for Yongda,-0.3%to 12.8%for Zhengtong and-6%to 9.1%for Zhongsheng in FY18e-20e.We are now double-digit above consensus for Yongda and Zhongsheng in FY19-20e and in line with consensus for Zhengtong.Fig 15:HSBC revised reported profit vs.previous estimates and Eikon consensus estimates _ HSBC(CNYm)_ HSBC(Old)(CNYm)_ Consensus(CNYm)_ _ HSBC vs.Old _ HSBC vs Consensus _ Company Ticker 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 Yongda 3669 HK 1,421 1,909 2,415 1,421 1,693 2,375 1,429 1,710 2,071 0.0%12.8%1.7%-1%12%17%Zhengtong 1728 HK 1,402 1,850 2,307 1,407 1,669 2,045 1,505 1,873 2,252 -0.3%10.9%12.8%-7%-1%2%Zhongsheng 881 HK 3,875 5,083 5,966 4,123 4,866 5,467 3,912 4,505 5,186 -6.0%4.5%9.1%-1%13%15%Source:Refinitiv Eikon,HSBC estimates 4.0%5.0%6.0%7.0%8.0%9.0%10.0%11.0%12.0%YongdaZhengtongZhongsheng201620172018e2019e2020e 11 Equities Automobiles 19 February 2019 Valuations and risks Yongda Auto(3669 HK,HKD5.41,Buy(upgraded from Hold),TP HKD6.80)We increase our target price for Yongda to HKD6.80 from HKD4.80.We value Yongda using a PE-based valuation methodology in which we set our target PE at 6.1x(previously 4.7x).T