China Specialist, Auto and Industrial Specialist

Victoria Li

Thematic (Sector/Industry)

Due to the National Holiday, China's September car sales data is not yeat available. However, CAAM estimates that China's passenger vehicle sales in September increased by 7.6% yoy, indicating the sector recovery remains solidly on track.Meanwhile,  September sales data announcements from local leaders, including Geely, BYD, Great Wall and Changan Auto, confirmed that auto demand keeps warming up. In September, Geely (175.HK)auto sales increased by 11% yoy, within which its Lynk&amp;Co sales grew by 38% yoy. Great Wall (2333.HK) reported an 18% yoy sales growth. Changan Auto (000625.CH) reported a 28.6% yoy sales growth. BYD's (1211.HK) sales growth remained weak at 3.6% yoy.Reiterate BUY on Geely.

Due to the National Holiday, China's September car sales data is not yeat available. However, CAAM estimates that China's passenger vehicle sales in September increased by 7.6% yoy, indicating the sector recovery remains solidly on track.Meanwhile,  September sales data announcements from local leaders, including Geely, BYD, Great Wall and Changan Auto, confirmed that auto demand keeps warming up. In September, Geely (175.HK)auto sales increased by 11% yoy, within which its Lynk&amp;Co sales grew by 38% yoy. Great Wall (2333.HK) reported an 18% yoy sales growth. Changan Auto (000625.CH) reported a 28.6% yoy sales growth. BYD's (1211.HK) sales growth remained weak at 3.6% yoy.Reiterate BUY on Geely.

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

With the ongoing COVID-19 cases in the US, its auto sector is unlikely to recover this year that is a drag to <a href="https://www.smartkarma.com/entities/nexteer-automotive-group-ltd" target="_blank" data-smartkarma-citation="entities:15483:1" rel="noopener">Nexteer Automotive (1316 HK)</a> 's earnings but it has recently penetrated the Chinese auto market, supplying to <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" data-smartkarma-citation="entities:127:1" rel="noopener">Geely Auto (175 HK)</a> for Electric Power Steering component, that could help to increase the company's overall profitability. From a credit perspective, Nexteer's debt-to-equity ratio is also very low compared to the Japanese small-cap peers such as Futaba and KYB and even compared to its two largest customers, <a href="https://www.smartkarma.com/entities/general-motors-co" target="_blank" data-smartkarma-citation="entities:18811:1" rel="noopener">General Motors Co (GM US)</a> and <a href="https://www.smartkarma.com/entities/ford-motor-co" target="_blank" data-smartkarma-citation="entities:19225:1" rel="noopener">Ford Motor Co (F US)</a> at 202% and 390% debt to equity ratio respectively. 
Nexteer is trading at a 30-37% discount to its peers and compared to the Chinese auto suppliers such as Minth, Fuyao and Huayu, Nexteer is also trading at a 55% discount in EV/EBITDA, 33% discount in PER, and 61% in PBR. 
As the Chinese auto sector recovers earlier compared to the US, the company's earnings should start to recover and its profitability should also increase, therefore, its share price should increase correspondingly. BUY.

With the ongoing COVID-19 cases in the US, its auto sector is unlikely to recover this year that is a drag to Nexteer Automotive (1316 HK) 's earnings but it has recently penetrated the Chinese auto market, supplying to Geely Auto (175 HK) for Electric Power Steering component, that could help to increase the company's overall profitability. From a credit perspective, Nexteer's debt-to-equity ratio is also very low compared to the Japanese small-cap peers such as Futaba and KYB and even compared to its two largest customers, General Motors Co (GM US) and Ford Motor Co (F US) at 202% and 390% debt to equity ratio respectively. 
Nexteer is trading at a 30-37% discount to its peers and compared to the Chinese auto suppliers such as Minth, Fuyao and Huayu, Nexteer is also trading at a 55% discount in EV/EBITDA, 33% discount in PER, and 61% in PBR. 
As the Chinese auto sector recovers earlier compared to the US, the company's earnings should start to recover and its profitability should also increase, therefore, its share price should increase correspondingly. BUY. 

Asia gaming and consumer discretionary analyst

Michael Ting

Despite a 77% surge in share price YTD as at 18 Sept, we believe further share price upside is likely for <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> (GWM) due to a recovery within its SUV segment in addition to the secular growth in pickup trucks.  This current diversified offering coupled with GWM's future JV with BMW AG to build electric vehicles in China result in both short and long term share price drivers.

Despite a 77% surge in share price YTD as at 18 Sept, we believe further share price upside is likely for Great Wall Motor (2333 HK) (GWM) due to a recovery within its SUV segment in addition to the secular growth in pickup trucks.  This current diversified offering coupled with GWM's future JV with BMW AG to build electric vehicles in China result in both short and long term share price drivers.

Great Wall Motor: Multiple Share Price Catalysts

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends -- add exposure.

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends -- add exposure.

Key highlight of GWM's 1H20 interim result is the relative stability of gross margin due to a diversified product mix of SUVs and pick-ups. We expect GWM pick-ups to continue to see strong growth due to new product introductions along with favorable macro policies. Longer-term earnings growth potential lies with electrical vehicle development via GWM's JV with BMW AG.

Key highlight of GWM's 1H20 interim result is the relative stability of gross margin due to a diversified product mix of SUVs and pick-ups. We expect GWM pick-ups to continue to see strong growth due to new product introductions along with favorable macro policies. Longer-term earnings growth potential lies with electrical vehicle development via GWM's JV with BMW AG.

Great Wall Motor: Diversity Drives Growth

China

Great Wall Motor Company Limited, through its subsidiaries, manufactures and sells pick-up trucks and sport-utility vehicles (SUVs) in China under branded names. The Company also researches and develops, and manufactures principal automotive parts and components for use in the assembly of pick-up trucks and SUVs.

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Great Wall Motor (2333 HK)

China Auto: Sales Recovery on Track

Positive price momentum for China auto sector. Local leaders' car sales in September increased strongly, indicating sector demand recvoery remains...

Victoria Li

Nexteer (1316): China Recovery to Help

As the Chinese auto sector recovers earlier compared to the US, Nexteer's revenues start to recover and its profitability should also increase,...

Henry Soediarko

Remain Overweight EM Relative To EAFE

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is...

Vermilion Research

Great Wall Motor: Diversity Drives Growth

Key highlight of GWM's 1H20 interim result is the relative stability of gross margin due to a diversified product mix of SUVs and pick-ups. We...

Michael Ting

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