A-Share Research Report

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Author

章晶小姐 (Zhang Jing)
高級分析師

本科畢業於同濟大學工科,碩士畢業於華東師範大學金融貿系。現為輝立証券持牌高級分析師,主要負責汽車及航空板塊的研究,曾獲得《華爾街日報》亞洲區2012年度汽車及零部件最佳分析師第二名,擅長將行業前景與上市公司結合分析。

Bachelor Degree in Tongji University of Engineering; Master Degree in East China Normal University of finance. Currently cover automobile and air sectors. Having worked in research for years and is good at combining analysis for the companies with industry prospects.


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SAIC Motor (600104.CH) - Getting Back on Track in H2

Thursday, July 16, 2020 Views4614
SAIC Motor
Recommendation on  16 July 2020
Recommendation Buy
Price on Recommendation Date $18.930
Target Price $23.000

Investment Summary

The Bumpy Year of 2019

In 2019, the overall auto market has experienced a downturn. As the leader, SAIC has also been affected, with its car sales down by 11.5% yoy to 6.238 million units. As a result, the annual total revenue has decreased by 6.5% yoy to RMB843.3 billion. The net profit attributable to the parent company was RMB25.6 billion, down by 28.9% yoy from RMB36 billion in the same period last year. The net profit margin was 4.27%, a decrease of 1.18 ppts yoy. Earnings per share were RMB2.19, dividends per share were RMB0.88, and the dividend payout ratio was 40%.

In 2019, the switching of China's stage VI vehicle emission standards has increased the promotion expense, and the subsidies of new energy have decreased due to the retreat policies, which hit the profitability of auto manufacturers. During this period, the Company's overall gross margin was 13.37%, down by 0.85 ppts yoy. Among them, the gross margin of the auto manufacturing segment was 12.15%, down by 1.1ppts yoy. The gross margin of the financial segment was 73.28%, flat yoy. The period expense ratio was 11.05%, decreased by 0.07 ppts yoy, of which the expense ratio of sales falling by 0.22 ppts, the ratio of administration expenses increased by 0.29 ppts, and the R&D expense ratio dropped by 0.12 ppts. The performance of joint-venture brands varied. The sales volume of SAIC Volkswagen dropped by 3%, outperformed the industry, but its net profit fell by 29% yoy to RMB20 billion. SAIC-GM's sales volume decreased by 19% and its net profit dropped by 30% to RMB11 billion. SGM-Wuling's sales volume fell 19% with a net profit of RMB1.7 billion, down by 59% yoy. The sales volume of SAIC's own brand fell 4%. The loss reached RMB7.1 billion, widening by RMB3.5 billion compared to the same period of last year.

Performed Poorest in Q1 of 2020

In early 2020, due to the pandemic, domestic auto industries were nearly suspended. In Q1, the overall sales volume of the industry significantly reduced by 45% yoy, with the sales volume of auto manufacturers dramatically reached to the bottom. The Company's first-quarter sales volume dropped by 56% yoy, underperformed the industry. Among them, the sales volume of SAIC Volkswagen, SAIC-GM, SAIC's own brand and SGM-Wuling decreased by 60.9%, 58.0%, 33.7% and 61.5%, respectively. Results continued to be under pressure. The revenue was RMB105.9 billion, down by 47% yoy. The net profit attributable to the parent company was RMB1.12 billion, down by 86.4% yoy. The earnings per share were RMB0.096. In addition, due to the exchange rate changes, the exchange loss increased yoy and the financial expenses increased by 66.32% yoy. Influenced by the capital market, the gains /loss from fair-value-changes decreased by 277.52% yoy.

Getting Back on Track in Q2

From Q2, with the domestic pandemic under control and the government's supportive policies of "Protecting the Economy and Promoting the Consumption", the demand for automobiles gradually returns on track and the overall production and sales of SAIC also increase month by month. From the yoy's data, the Company's sales volume decline in April has narrowed significantly, the production output has turned positive in May and the wholesale has turned positive in June. Although the Company is still underperforming the average level of the industry, it is mainly due to the high base of SAIC Volkswagen's huge destocking last year. In line with the street vending economy, SGM-Wuling's mini-truck has a strong performance and becomes the main force driving the Corporate's sales growth.

New Product Cycle Starts, Sales Are Expected to Further Recover

For the second half of the year, we believe that the situations of SAIC are expected to further recover. First, the SAIC Volkswagen's MEB platform, which has been built for the electrification transformation for a long time, will be put into production in October this year. The localization of SAIC Audi will soon start the implementation. SAIC-GM also has some new products to launch, such as the large SUV Chevrolet Blazer, Cadillac CT4, and Buick Excelle with four-cylinder engines. The RX5 Plus (mid-term modification) and MG6 of SAIC's self brand are going to be launched in the middle of this year and are also expected to increase the sales volume. As the leader of the domestic auto industry, we believe that SAIC has a complete product spectrum and can achieve a rapid recovery in sales volume in H2.

Repurchasing and Shareholding in China Auto Renting Inc. Demonstrates the Confidence of Future.

Recently, SAIC announced that it plans to spend RMB3 billion to repurchase 0.5%-1.0% of the Company's total shares and the buyback price will not be over RMB25.97, which is near 40% higher than the current price. The repurchased shares will be used to implement an equity incentive, which demonstrates the management's confidence in the company's future development. Meanwhile, the Company also has announced that it intends to acquire no more than 28.92% of the shares of China Auto Renting Inc. at a price of HKD3.10 per share. If it successfully completed, the Company will become the largest shareholder of China Auto Renting Inc.

Investment Thesis:

Low Valuation and High Dividend highlight

In the long term, we believe that it is normal for China automobile market to maintain a medium and low growth rate, which will accelerate the industry's reshuffle. Based on the new model declarations and the existing model reserves, the dominance of top auto companies is more and more clear and obvious. With a leading market share, high R&D investment, and a complete product spectrum, the Company is in a relatively advantageous position. We adjust the ESP forecast of 2020/2021 to RMB 1.87/2.31. Considering its relatively high cash dividend payout rate is helpful to the stability of valuation, we give the target price of RMB 23, equivalent to 12.3/10x E P/E ratios and 1.0/1.0 E P/B ratios for 2020/2021. The "Buy" rating is given. (Closing price as at 10 July)

Financials

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