China Specialist, Auto and Industrial Specialist

Victoria Li

20 years experience as sell side analyst focusing on China's Industrial and Auto sectors

Equity Bottom-Up

Chongqing Changan Automobile C / Equity Bottom-Up

Chongqing Changan Automobile C (000625 CH)

We believe Chongqing Changan's share price has overshot compared to its fundamental outlook. Its local brand contributed first positive operating profit in 1Q2021, which is exciting. However its 24x.3 P/E on 2021E Bloomberg consensus has fully priced in this positive. Current valuation may also have priced in positive effect from Changan's planned brand new EV model with HI(Huawei Inside) system, which is still at very initial stage; and possible IPOs of Avetar Technology (previously known as Changan NIO) and Changan New Energy, whose business plans are still very blurry.Fundamentally, earnings outlook for Changan Ford, Chongqing Changan's key earnings contributor, is unclear. Changan Ford's Acceleration plan started in 2019 would not be able to bring this company's earnings back to a reasonable level by the end of 2021. While its outlook for the next three years is unclear after latest leadership change.

We believe Chongqing Changan's share price has overshot compared to its fundamental outlook. Its local brand contributed first positive operating profit in 1Q2021, which is exciting. However its 24x.3 P/E on 2021E Bloomberg consensus has fully priced in this positive. Current valuation may also have priced in positive effect from Changan's planned brand new EV model with HI(Huawei Inside) system, which is still at very initial stage; and possible IPOs of Avetar Technology (previously known as Changan NIO) and Changan New Energy, whose business plans are still very blurry.Fundamentally, earnings outlook for Changan Ford, Chongqing Changan's key earnings contributor, is unclear. Changan Ford's Acceleration plan started in 2019 would not be able to bring this company's earnings back to a reasonable level by the end of 2021. While its outlook for the next three years is unclear after latest leadership change.

Chongqing Changan Automobile Company (200625 CH)

Chongqing Changan: Local Brand Turning Profitable Alone Cannot Justify Share Price