Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

In February, there were 7 less selling days than in January, and 5 less working days than in February of 2017.  Hence, while raw sales figures saw steep sequential and YoY drops, February's selling rate actually strengthened in YoY terms.  Below are some observations based on the monthly statistics available thus far:<ul><li><div class="content-highlight">YTD average SAAR of 28.2m units represents a 6.3% increase from the January-February period of 2017, while in comparison with FY17 demand of 28.9m units there can be concerns about a YoY downturn in FY18 demand.  We believe investors should monitor catalysts for 2H18, as selling rate strength in 2H will likely determine whether full year demand will increase or decline on YoY basis.</div></li><li><div class="content-highlight">Sedan share of the passenger vehicle segment continued to drop in February, to 46% of the PV market.  Light trucks (SUVs, Crossovers, MPVs) saw the highest share of the market to date at 54% in February.</div></li><li><div class="content-highlight">Key foreign brands' share of the market declined sequentially to 60.5% of the market from 62.2% in January.  YTD average of 61.6% is in line with the FY17 share of 61.3%.  Key winners were J3 and GM.  Key losers were Hyundai-Kia and Ford.</div></li><li><div class="content-highlight">CADA's VIA (Vehicle Inventory Alert) index has come down to 52.3%in February, from 67.2% in January, in line with production cuts seen at the industry level.</div></li><li><div class="content-highlight">Since January, the selling rate recovery patterns that we observed at Hyundai-Kia (especially Hyundai) have back-tracked.</div></li><li><div class="content-highlight">While full NEV details are not yet available, based on January's statistics we suspect that NEVs share of the market should stand at about 2%. We will have more on this at a later point in the month once details become available.</div></li></ul><table class="table table-striped"><colgroup></colgroup><tbody><tr><td colspan="15" style="text-align: center; width: 615pt;"><h2>China YTD Auto Demand</h2></td></tr><tr><td style="text-align: right;">(Mn Units)</td><td style="text-align: center;">Feb-18</td><td style="text-align: center;">Jan-18</td><td style="text-align: center;">MoM</td><td style="text-align: center;">Feb-17</td><td style="text-align: center;">YoY</td><td style="text-align: center;">YTD 18</td><td style="text-align: center;">YTD 17</td><td style="text-align: center;">YoY</td><td style="text-align: center;">Feb 18 SAAR</td><td style="text-align: center;">Feb 17 SAAR</td><td style="text-align: center;">YoY</td><td style="text-align: center;">YTD 18 AVG SAAR</td><td style="text-align: center;">YTD 17 AVG SAAR</td><td style="text-align: center;">YoY</td></tr><tr><td>PV</td><td style="text-align: center;">1.5</td><td style="text-align: center;">2.5</td><td style="text-align: center;">-39.9%</td><td style="text-align: center;">1.6</td><td style="text-align: center;">-9.6%</td><td style="text-align: center;">3.9</td><td style="text-align: center;">3.9</td><td style="text-align: center;">2.1%</td><td style="text-align: center;">23.9</td><td style="text-align: center;">20.3</td><td style="text-align: center;">17.8%</td><td style="text-align: center;">24.1</td><td style="text-align: center;">22.6</td><td style="text-align: center;">7.0%</td></tr><tr><td>CV</td><td style="text-align: center;">0.2</td><td style="text-align: center;">0.4</td><td style="text-align: center;">-31.4%</td><td style="text-align: center;">0.3</td><td style="text-align: center;">-21.0%</td><td style="text-align: center;">0.6</td><td style="text-align: center;">0.6</td><td style="text-align: center;">-2.1%</td><td style="text-align: center;">3.8</td><td style="text-align: center;">3.8</td><td style="text-align: center;">0.7%</td><td style="text-align: center;">4.1</td><td style="text-align: center;">4.0</td><td style="text-align: center;">2.5%</td></tr><tr><td>Total</td><td style="text-align: center;">1.7</td><td style="text-align: center;">2.8</td><td style="text-align: center;">-38.9%</td><td style="text-align: center;">1.9</td><td style="text-align: center;">-11.4%</td><td style="text-align: center;">4.5</td><td style="text-align: center;">4.5</td><td style="text-align: center;">1.5%</td><td style="text-align: center;">27.7</td><td style="text-align: center;">24.1</td><td style="text-align: center;">15.1%</td><td style="text-align: center;">28.2</td><td style="text-align: center;">26.6</td><td style="text-align: center;">6.3%</td></tr></tbody></table><div class="content-caption">Sources: CEIC, Author's Estimates</div>

In February, there were 7 less selling days than in January, and 5 less working days than in February of 2017.  Hence, while raw sales figures saw steep sequential and YoY drops, February's selling rate actually strengthened in YoY terms.  Below are some observations based on the monthly statistics available thus far:YTD average SAAR of 28.2m units represents a 6.3% increase from the January-February period of 2017, while in comparison with FY17 demand of 28.9m units there can be concerns about a YoY downturn in FY18 demand.  We believe investors should monitor catalysts for 2H18, as selling rate strength in 2H will likely determine whether full year demand will increase or decline on YoY basis.Sedan share of the passenger vehicle segment continued to drop in February, to 46% of the PV market.  Light trucks (SUVs, Crossovers, MPVs) saw the highest share of the market to date at 54% in February.Key foreign brands' share of the market declined sequentially to 60.5% of the market from 62.2% in January.  YTD average of 61.6% is in line with the FY17 share of 61.3%.  Key winners were J3 and GM.  Key losers were Hyundai-Kia and Ford.CADA's VIA (Vehicle Inventory Alert) index has come down to 52.3%in February, from 67.2% in January, in line with production cuts seen at the industry level.Since January, the selling rate recovery patterns that we observed at Hyundai-Kia (especially Hyundai) have back-tracked.While full NEV details are not yet available, based on January's statistics we suspect that NEVs share of the market should stand at about 2%. We will have more on this at a later point in the month once details become available.China YTD Auto Demand(Mn Units)Feb-18Jan-18MoMFeb-17YoYYTD 18YTD 17YoYFeb 18 SAARFeb 17 SAARYoYYTD 18 AVG SAARYTD 17 AVG SAARYoYPV1.52.5-39.9%1.6-9.6%3.93.92.1%23.920.317.8%24.122.67.0%CV0.20.4-31.4%0.3-21.0%0.60.6-2.1%3.83.80.7%4.14.02.5%Total1.72.8-38.9%1.9-11.4%4.54.51.5%27.724.115.1%28.226.66.3%Sources: CEIC, Author's Estimates

China Auto Demand in February: SAAR Strengthens in YoY Terms