Morningstar

Morningstar, Inc.

Equity Bottom-Up

After transferring coverage of Dongfeng Motor to a new analyst, we are lowering our fair value estimate to HKD 9.50 per share from HKD 12.20. While maintaining our no-moat, negative trend ratings, we have raised uncertainty to Extreme and lowered the stewardship rating to Poor. With China set to scrap the foreign auto rule by 2022, there is a high level of uncertainty around potential disposals of current ownership stakes in joint ventures, lending to our Extreme risk rating. Our Poor…

Despite a flat top line, no-moat Dongfeng Motor reported a strong first-half result that was boosted by a 44% jump in associate income from PSA Peugeot Citroen (UG FR) and a 23% reduction in advertising expenses relative to the year ago period. Excluding the one-off impact of impairment losses, net profit for the first six months recorded 14% year-over-year growth, above our and consensus estimates. Owing to Dongfeng’s strong results, we lift our near-term assumptions for the company, but the…

President Xi announced yesterday that China is to “substantially” reduce tariffs on imported automobiles and scrap the foreign equity share cap in automobile joint ventures in the coming months. We anticipate the relevant ministries will unveil more details later and expect limited impact on the Chinese auto names under our coverage (Great Wall Motors, Dongfeng Motors, and Yutong Bus) in the next two to three years. Our fair value estimates for each of these firms are unchanged.
Analyst: John Hu

No-moat Dongfeng Motor's 2017 result was in line with our estimate, with net income and the top line rising 5% and 2% year on year, respectively, to CNY 14 billion and CNY 125 billion. There are no major changes in the company’s operational dynamics, as solid joint-venture performance (mainly with Honda) offsets the persistently loss-making proprietary brand. The company’s commercial vehicle growth also accelerated notably on the back of domestic infrastructure ramp-up, but we think the segment…

China ballooned into the world’s largest automobile market after it joined the World Trade Organization in 2001. A high base, coupled with headwinds including air pollution and license plate curbs in major cities, leads some to believe that demand growth in China is at risk of losing steam. We have a more optimistic view. On a per-inhabitant basis, China’s vehicle density still substantially trails all Organization for Economic Co-operation and Development member countries. Regulations limiting…

China

Dongfeng Motor Group Company Limited, through joint ventures, designs, manufactures, and markets diesel engines, light trucks, automobiles, castings, and related spare parts.

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