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Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

<p>In many ways China's 4Q SAAR patterns are very reminiscent of 4Q17, so we are not concerned about the MoM SAAR dip seen in November.</p><p>China's November unadjusted unit sales grew by 9.4% sequentially and by 0.6% versus November 2016.  On a YTD basis, demand is currently growing at 4.0% YoY.  In SAAR terms, the November selling dipped by 4.9% sequentially but rose by 2.8% YoY.  On YTD average basis, SAAR is growing at 3.6% YoY, consistent with our expectation that with a 2H17 marketing push ahead of the C-segment sedan tax subsidy expiration at the beginning of 2018, FY17 demand is likely to grow at low to mid single digits.  With one month remaining in the year, this picture is not likely to change much.</p><div class="content-highlight"><p>Here are some observations based on the CAAM production and sales figures &amp; CADA Inventory figures release:</p></div><ol><li><div class="content-highlight">CADA's Vehicle Inventory Alert (VIA) Index declined slightly to 49.8% from 49.9% in October against a monthly shipment rise, suggesting relatively healthy retail demand in November.  </div></li><li><div class="content-highlight">Despite media and stock broker hype about a strong shift in consumer preference towards SUVs and Crossovers, China's sedan-SUV mix has been fairly stable at 49.9% in 2016 and at 51.8% on YTD 2017 average basis, with much of the big shift having taken place in the 2012-2016 period.  </div></li><li><div class="content-highlight">Long term trend demand in China continues to point to 29.5m unit SAAR in 2018 in the absence of significant shifts in macro factors such as property price and disposable income growth rates.  It remains to be seen how much of the 1H18 demand that the final quarter of 2017 has front loaded, but at this point we should be looking to a 3-4% YoY demand growth in China in 2018.</div></li><li><div class="content-highlight">Hyundai-Kia's selling rates dipped sequentially but the recovery pattern we have been pointing to since July remains in place.  It should be kept in mind that full recovery should be anticipated over a 12-18 month period and not be confused with sales recovery patterns associated with natural disaster related demand recovery rates.</div></li></ol><table class="table table-striped"><tbody><tr><td colspan="15" style="text-align: center;"><h2>China YTD Auto Demand</h2></td></tr><tr><td><strong>(Mn Units)</strong></td><td style="text-align: right;"><strong>Nov 17</strong></td><td style="text-align: right;"><strong>Oct 17</strong></td><td style="text-align: right;"><strong>MoM</strong></td><td style="text-align: right;"><strong>Nov 16</strong></td><td style="text-align: right;"><strong>YoY</strong></td><td style="text-align: right;"><strong>YTD17</strong></td><td style="text-align: right;"><strong>YTD16</strong></td><td style="text-align: right;"><strong>YoY</strong></td><td style="text-align: right;"><strong>Nov 17 SAAR</strong></td><td style="text-align: right;"><strong>Nov 16 SAAR</strong></td><td style="text-align: right;"><strong>YoY</strong></td><td style="text-align: right;"><strong>YTD17 SAAR</strong></td><td style="text-align: right;"><strong>YTD16 SAAR</strong></td><td style="text-align: right;"><strong>YoY</strong></td></tr><tr><td>PV</td><td style="text-align: right;">2.6</td><td style="text-align: right;">2.4</td><td style="text-align: right;">10.1%</td><td style="text-align: right;">2.6</td><td style="text-align: right;">0.0%</td><td style="text-align: right;">22.1</td><td style="text-align: right;">21.6</td><td style="text-align: right;">2.2%</td><td style="text-align: right;">26.9</td><td style="text-align: right;">26.3</td><td style="text-align: right;">2.0%</td><td style="text-align: right;">24.5</td><td style="text-align: right;">24.1</td><td style="text-align: right;">1.8%</td></tr><tr><td>CV</td><td style="text-align: right;">0.4</td><td style="text-align: right;">0.4</td><td style="text-align: right;">4.9%</td><td style="text-align: right;">0.3</td><td style="text-align: right;">5.6%</td><td style="text-align: right;">3.8</td><td style="text-align: right;">3.3</td><td style="text-align: right;">16.2%</td><td style="text-align: right;">4.3</td><td style="text-align: right;">4.0</td><td style="text-align: right;">7.8%</td><td style="text-align: right;">4.2</td><td style="text-align: right;">3.6</td><td style="text-align: right;">15.9%</td></tr><tr><td><strong>Total</strong></td><td style="text-align: right;"><strong>3.0</strong></td><td style="text-align: right;"><strong>2.7</strong></td><td style="text-align: right;"><strong>9.4%</strong></td><td style="text-align: right;"><strong>2.9</strong></td><td style="text-align: right;"><strong>0.6%</strong></td><td style="text-align: right;"><strong>25.9</strong></td><td style="text-align: right;"><strong>24.9</strong></td><td style="text-align: right;"><strong>4.0%</strong></td><td style="text-align: right;"><strong>31.2</strong></td><td style="text-align: right;"><strong>30.3</strong></td><td style="text-align: right;"><strong>2.8%</strong></td><td style="text-align: right;"><strong>28.7</strong></td><td style="text-align: right;"><strong>27.7</strong></td><td style="text-align: right;"><strong>3.6%</strong></td></tr></tbody></table><div class="content-caption">Sources: CAAM, Author's estimates</div>

In many ways China's 4Q SAAR patterns are very reminiscent of 4Q17, so we are not concerned about the MoM SAAR dip seen in November.China's November unadjusted unit sales grew by 9.4% sequentially and by 0.6% versus November 2016.  On a YTD basis, demand is currently growing at 4.0% YoY.  In SAAR terms, the November selling dipped by 4.9% sequentially but rose by 2.8% YoY.  On YTD average basis, SAAR is growing at 3.6% YoY, consistent with our expectation that with a 2H17 marketing push ahead of the C-segment sedan tax subsidy expiration at the beginning of 2018, FY17 demand is likely to grow at low to mid single digits.  With one month remaining in the year, this picture is not likely to change much.Here are some observations based on the CAAM production and sales figures &amp; CADA Inventory figures release:CADA's Vehicle Inventory Alert (VIA) Index declined slightly to 49.8% from 49.9% in October against a monthly shipment rise, suggesting relatively healthy retail demand in November.  Despite media and stock broker hype about a strong shift in consumer preference towards SUVs and Crossovers, China's sedan-SUV mix has been fairly stable at 49.9% in 2016 and at 51.8% on YTD 2017 average basis, with much of the big shift having taken place in the 2012-2016 period.  Long term trend demand in China continues to point to 29.5m unit SAAR in 2018 in the absence of significant shifts in macro factors such as property price and disposable income growth rates.  It remains to be seen how much of the 1H18 demand that the final quarter of 2017 has front loaded, but at this point we should be looking to a 3-4% YoY demand growth in China in 2018.Hyundai-Kia's selling rates dipped sequentially but the recovery pattern we have been pointing to since July remains in place.  It should be kept in mind that full recovery should be anticipated over a 12-18 month period and not be confused with sales recovery patterns associated with natural disaster related demand recovery rates.China YTD Auto Demand(Mn Units)Nov 17Oct 17MoMNov 16YoYYTD17YTD16YoYNov 17 SAARNov 16 SAARYoYYTD17 SAARYTD16 SAARYoYPV2.62.410.1%2.60.0%22.121.62.2%26.926.32.0%24.524.11.8%CV0.40.44.9%0.35.6%3.83.316.2%4.34.07.8%4.23.615.9%Total3.02.79.4%2.90.6%25.924.94.0%31.230.32.8%28.727.73.6%Sources: CAAM, Author's estimates

China November Auto Demand: SAAR Weakens MoM but FY17 Demand Likely to Be up by 3-4%