Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

<p>China's January auto demand fell by 8.2% sequentially, but was up by 11.5% YoY.  January of 2018 had 3 more selling days than in January of 2017, resulting in a 1.8% YoY fall in SAAR.  Here are some observations for the month:</p><ul><li><div class="content-highlight">Retail inventory rose sharply on a MoM basis, according to CADA's monthly trackings.  This was accompanied by production cuts, so we advise investors to track this trend over the next quarter. </div></li><li><div class="content-highlight">Production fell by 11.5% sequentially and despite rising by 13.5% YoY, on a seasonally adjusted basis production nonetheless fell by 0.8% YoY.  Whether this is sufficient to stabilize inventory levels will be seen over the next 2-3 months.</div></li><li><div class="content-highlight">On a sequential basis, key foreign brand market share rose.  Key gainers were VW Group, GM, Toyota and Honda.  Key losers were Mercedes, Hyundai-Kia, Ford and Nissan.  Media reports aside, we did not see significant market share inroads being made by small-medium local brands in January.</div></li></ul><p></p><p>Despite January's SAAR of 28.8m units being weaker on YoY basis as well as coming in below our current full year expectations of 29.5m units, we do not see compelling reason to revise down our current expectations based on one month data.</p><table class="table table-striped"><colgroup></colgroup><tbody><tr><td colspan="12" style="text-align: center; width: 492pt;"><h2>China YTD Auto Demand</h2></td></tr><tr><td><strong>('000 Units)</strong></td><td style="text-align: center;"><strong>Jan-18</strong></td><td style="text-align: center;"><strong>Dec-17</strong></td><td style="text-align: center;"><strong>MoM</strong></td><td style="text-align: center;"><strong>Jan-17</strong></td><td style="text-align: center;"><strong>YoY</strong></td><td style="text-align: center;"><strong>YTD 18</strong></td><td style="text-align: center;"><strong>YTD 17</strong></td><td style="text-align: center;"><strong>YoY</strong></td><td style="text-align: center;"><strong>Jan 18 SAAR (m units)</strong></td><td style="text-align: center;"><strong>Jan 2017 SAAR (m units)</strong></td><td style="text-align: center;"><strong>YoY</strong></td></tr><tr><td>PV</td><td style="text-align: center;">2,456.2</td><td style="text-align: center;">2,653.3</td><td style="text-align: center;">-7.4%</td><td style="text-align: center;">2,218.2</td><td style="text-align: center;">10.7%</td><td style="text-align: center;">2,456.2</td><td style="text-align: center;">2,218.2</td><td style="text-align: center;">10.7%</td><td style="text-align: center;">24.4</td><td style="text-align: center;">24.8</td><td style="text-align: center;">-1.8%</td></tr><tr><td>CV</td><td style="text-align: center;">353.1</td><td style="text-align: center;">407.0</td><td style="text-align: center;">-13.2%</td><td style="text-align: center;">301.3</td><td style="text-align: center;">17.2%</td><td style="text-align: center;">353.1</td><td style="text-align: center;">301.3</td><td style="text-align: center;">17.2%</td><td style="text-align: center;">4.4</td><td style="text-align: center;">4.2</td><td style="text-align: center;">4.1%</td></tr><tr><td><strong>Total</strong></td><td style="text-align: center;"><strong>2,809.3</strong></td><td style="text-align: center;"><strong>3,060.3</strong></td><td style="text-align: center;"><strong>-8.2%</strong></td><td style="text-align: center;"><strong>2,519.5</strong></td><td style="text-align: center;"><strong>11.5%</strong></td><td style="text-align: center;"><strong>2,809.3</strong></td><td style="text-align: center;"><strong>2,519.5</strong></td><td style="text-align: center;"><strong>11.5%</strong></td><td style="text-align: center;"><strong>28.8</strong></td><td style="text-align: center;"><strong>29.0</strong></td><td style="text-align: center;"><strong>-0.9%</strong></td></tr></tbody></table><div class="content-caption">Sources: CEIC, Author's estimates</div>

China's January auto demand fell by 8.2% sequentially, but was up by 11.5% YoY.  January of 2018 had 3 more selling days than in January of 2017, resulting in a 1.8% YoY fall in SAAR.  Here are some observations for the month:Retail inventory rose sharply on a MoM basis, according to CADA's monthly trackings.  This was accompanied by production cuts, so we advise investors to track this trend over the next quarter. Production fell by 11.5% sequentially and despite rising by 13.5% YoY, on a seasonally adjusted basis production nonetheless fell by 0.8% YoY.  Whether this is sufficient to stabilize inventory levels will be seen over the next 2-3 months.On a sequential basis, key foreign brand market share rose.  Key gainers were VW Group, GM, Toyota and Honda.  Key losers were Mercedes, Hyundai-Kia, Ford and Nissan.  Media reports aside, we did not see significant market share inroads being made by small-medium local brands in January.Despite January's SAAR of 28.8m units being weaker on YoY basis as well as coming in below our current full year expectations of 29.5m units, we do not see compelling reason to revise down our current expectations based on one month data.China YTD Auto Demand('000 Units)Jan-18Dec-17MoMJan-17YoYYTD 18YTD 17YoYJan 18 SAAR (m units)Jan 2017 SAAR (m units)YoYPV2,456.22,653.3-7.4%2,218.210.7%2,456.22,218.210.7%24.424.8-1.8%CV353.1407.0-13.2%301.317.2%353.1301.317.2%4.44.24.1%Total2,809.33,060.3-8.2%2,519.511.5%2,809.32,519.511.5%28.829.0-0.9%Sources: CEIC, Author's estimates

January China Auto Demand: Sales Up, SAAR Down