Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

Based on the news headline numbers of 1.8M units of PV sales and 400k units of CV sales, implied SAAR in June comes to 26.9M units, down from  the 28.4M units SAAR seen in June 2016 but up from 25.8M units seen in May.  Average SAAR for 1H17 stands at 27.1M units, implying that China auto demand is currently running at a run-rate of+3.6% over 1H16, but down only when considering a very strong 2H16 that led to a strong year-end finish. <div class="content-highlight">1H17 passenger vehicle demand is up 2.1% YoY in unit terms, and 1.8% YoY in SAAR terms.  Despite stock market's concerns of an  imminent downturn it seems that barring the absence of a year-end marketing push ahead of the planned end of the C segment tax benefit in January 2018, 2017 could see another positive growth year in China, albeit the growth could come in the low-mid single digits.Market share statistics in 1H17 suggest that J3 is the biggest beneficiary of Hyundai-Kia's woes following Korea's decision to base the THAAD missile defense system on the peninsula.  This is likely to mirror the J3 share loss earlier in the decade following the Sino-Japanese territorial disputes.</div><table class="table table-striped"><tbody><tr><td colspan="15" style="text-align: center;">China 1H Auto Demand</td></tr><tr><td style="text-align: left;">(Mn Units)</td><td style="text-align: right;">Jun-17 Units </td><td style="text-align: right;">May-17 Units</td><td style="text-align: right;">MoM</td><td style="text-align: right;">Jun-16 Units</td><td style="text-align: right;">YoY</td><td style="text-align: right;">1H17 Unit Sales</td><td style="text-align: right;">1H16 Unit Sales</td><td style="text-align: right;">YoY</td><td style="text-align: right;">June 17 SAAR</td><td style="text-align: right;">June 16 SAAR</td><td style="text-align: right;">YoY</td><td style="text-align: right;">1H17 SAAR</td><td style="text-align: right;">1H16 SAAR</td><td style="text-align: right;">YoY</td></tr><tr><td style="text-align: left;">PV</td><td style="text-align: right;">1.8 </td><td style="text-align: right;">1.8 </td><td style="text-align: right;">4.6%</td><td style="text-align: right;">1.8 </td><td style="text-align: right;">2.7%</td><td style="text-align: right;">11.3 </td><td style="text-align: right;">11.0 </td><td style="text-align: right;">2.1%</td><td style="text-align: right;">22.8</td><td style="text-align: right;">24.6</td><td style="text-align: right;">-7.3%</td><td style="text-align: right;">23.1</td><td style="text-align: right;">22.7</td><td style="text-align: right;">1.6%</td></tr><tr><td style="text-align: left;">CV</td><td style="text-align: right;">0.3 </td><td style="text-align: right;">0.3 </td><td style="text-align: right;">-1.3%</td><td style="text-align: right;">0.3 </td><td style="text-align: right;">18.7%</td><td style="text-align: right;">2.1 </td><td style="text-align: right;">1.8 </td><td style="text-align: right;">17.5%</td><td style="text-align: right;">4.1</td><td style="text-align: right;">3.8</td><td style="text-align: right;">7.1%</td><td style="text-align: right;">4.0</td><td style="text-align: right;">3.4</td><td style="text-align: right;">17.2%</td></tr><tr><td style="text-align: left;">Total</td><td style="text-align: right;">2.2 </td><td style="text-align: right;">2.1 </td><td style="text-align: right;">3.6%</td><td style="text-align: right;">2.1 </td><td style="text-align: right;">4.9%</td><td style="text-align: right;">13.4 </td><td style="text-align: right;">12.8 </td><td style="text-align: right;">4.3%</td><td style="text-align: right;">26.9</td><td style="text-align: right;">28.4</td><td style="text-align: right;">-5.4%</td><td style="text-align: right;">27.1</td><td style="text-align: right;">26.1</td><td style="text-align: right;">3.6%</td></tr></tbody></table><div class="content-caption">Sources: CAAM, CEIC, Henry Kwon's estimates</div>

Based on the news headline numbers of 1.8M units of PV sales and 400k units of CV sales, implied SAAR in June comes to 26.9M units, down from  the 28.4M units SAAR seen in June 2016 but up from 25.8M units seen in May.  Average SAAR for 1H17 stands at 27.1M units, implying that China auto demand is currently running at a run-rate of+3.6% over 1H16, but down only when considering a very strong 2H16 that led to a strong year-end finish. 1H17 passenger vehicle demand is up 2.1% YoY in unit terms, and 1.8% YoY in SAAR terms.  Despite stock market's concerns of an  imminent downturn it seems that barring the absence of a year-end marketing push ahead of the planned end of the C segment tax benefit in January 2018, 2017 could see another positive growth year in China, albeit the growth could come in the low-mid single digits.Market share statistics in 1H17 suggest that J3 is the biggest beneficiary of Hyundai-Kia's woes following Korea's decision to base the THAAD missile defense system on the peninsula.  This is likely to mirror the J3 share loss earlier in the decade following the Sino-Japanese territorial disputes.China 1H Auto Demand(Mn Units)Jun-17 Units May-17 UnitsMoMJun-16 UnitsYoY1H17 Unit Sales1H16 Unit SalesYoYJune 17 SAARJune 16 SAARYoY1H17 SAAR1H16 SAARYoYPV1.8 1.8 4.6%1.8 2.7%11.3 11.0 2.1%22.824.6-7.3%23.122.71.6%CV0.3 0.3 -1.3%0.3 18.7%2.1 1.8 17.5%4.13.87.1%4.03.417.2%Total2.2 2.1 3.6%2.1 4.9%13.4 12.8 4.3%26.928.4-5.4%27.126.13.6%Sources: CAAM, CEIC, Henry Kwon's estimates

June China Auto Sales: A Stronger 1H17 over 1H16