Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

<p>China's October auto sales recorded 2.6% MoM increase and 2.0% YoY growth.  October had 6 less selling days than September, so while unadjusted MoM sales growth seems tepid, so on a seasonally adjusted basis China auto sales hit the strongest SAAR ever seen in its motorization history.  Here are some initial impressions:</p><div class="content-highlight"><ol><li><div class="content-highlight">YTD growth stems from 2 factors: strong YoY growth in 1H, followed by slower growth in 2H due to exceptionally high base from 2H16.  So long as average SAAR for 4Q remains above 30.5m units China will see YoY growth for the year.</div></li><li><div class="content-highlight">Wholesale Days Inventory pointed downwards, while CADA's VIA Index saw a slight uptick from 48.7% to 49.9% driven mainly by higher inventory levels in China's Western regions, coupled with dealers' re-stocking in anticipation of a strong final quarter retail demand. </div></li><li><div class="content-highlight">Passenger Vehicle production was down slightly on sequentially, from 2.3 to 2.2m units in October.  </div></li><li><div class="content-highlight">At this point, FY17 China demand should not deviate too much from expected trend demand of 28M units, which is consistent with my expectations.  Long term trend demand for 2018 should be at 29.5m units, representing 3.5% YoY growth without significant macro factor volatility.</div></li><li><div class="content-highlight">One of the factors I had been looking at has been the timing of Korean brands' demand recovery following Chinese consumers' THAAD missile related backlash, and had looked to the pace of J3 brand demand recovery following the Sino-Japanese territorial disputes in 2013.  Despite negative media coverage of Kia's lackluster sales, both Hyundai and Kia have shown signs of demand rebound in October on seasonally adjusted terms.</div></li></ol><p>In short, there were no big surprises on China's October demand figures published by CAAM and CADA at this point. <strong> I will have a separate update on NEVs in another piece soon.</strong></p></div><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>10-17</strong></td><td style="text-align: right;"><strong>9-17</strong></td><td style="text-align: right;"><strong>MoM</strong></td><td style="text-align: right;"><strong>10-16</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>Oct 17 SAAR</strong></td><td style="text-align: right;"><strong>Oct 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;">2.4</td><td style="text-align: right;">2.3</td><td style="text-align: right;">0.4%</td><td style="text-align: right;">2.3</td><td style="text-align: right;">0.4%</td><td style="text-align: right;">19.5</td><td style="text-align: right;">19.0</td><td style="text-align: right;">2.5%</td><td style="text-align: right;">28.1</td><td style="text-align: right;">27.4</td><td style="text-align: right;">2.4%</td><td style="text-align: right;">24.2</td><td style="text-align: right;">23.8</td><td style="text-align: right;">1.7%</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;">-4.2%</td><td style="text-align: right;">0.3</td><td style="text-align: right;">14.8%</td><td style="text-align: right;">3.4</td><td style="text-align: right;">2.9</td><td style="text-align: right;">17.5%</td><td style="text-align: right;">4.7</td><td style="text-align: right;">4.0</td><td style="text-align: right;">17.2%</td><td style="text-align: right;">4.2</td><td style="text-align: right;">3.6</td><td style="text-align: right;">16.8%</td></tr><tr><td><strong>Total</strong></td><td style="text-align: right;"><strong>2.7</strong></td><td style="text-align: right;"><strong>2.7</strong></td><td style="text-align: right;"><strong>-0.2%</strong></td><td style="text-align: right;"><strong>2.6</strong></td><td style="text-align: right;"><strong>2.0%</strong></td><td style="text-align: right;"><strong>22.9</strong></td><td style="text-align: right;"><strong>21.9</strong></td><td style="text-align: right;"><strong>4.5%</strong></td><td style="text-align: right;"><strong>32.8</strong></td><td style="text-align: right;"><strong>31.4</strong></td><td style="text-align: right;"><strong>4.3%</strong></td><td style="text-align: right;"><strong>28.4</strong></td><td style="text-align: right;"><strong>27.4</strong></td><td style="text-align: right;"><strong>3.7%</strong></td></tr></tbody></table><div class="content-caption">Sources: CEIC, Author's estimates</div>

China's October auto sales recorded 2.6% MoM increase and 2.0% YoY growth.  October had 6 less selling days than September, so while unadjusted MoM sales growth seems tepid, so on a seasonally adjusted basis China auto sales hit the strongest SAAR ever seen in its motorization history.  Here are some initial impressions:YTD growth stems from 2 factors: strong YoY growth in 1H, followed by slower growth in 2H due to exceptionally high base from 2H16.  So long as average SAAR for 4Q remains above 30.5m units China will see YoY growth for the year.Wholesale Days Inventory pointed downwards, while CADA's VIA Index saw a slight uptick from 48.7% to 49.9% driven mainly by higher inventory levels in China's Western regions, coupled with dealers' re-stocking in anticipation of a strong final quarter retail demand. Passenger Vehicle production was down slightly on sequentially, from 2.3 to 2.2m units in October.  At this point, FY17 China demand should not deviate too much from expected trend demand of 28M units, which is consistent with my expectations.  Long term trend demand for 2018 should be at 29.5m units, representing 3.5% YoY growth without significant macro factor volatility.One of the factors I had been looking at has been the timing of Korean brands' demand recovery following Chinese consumers' THAAD missile related backlash, and had looked to the pace of J3 brand demand recovery following the Sino-Japanese territorial disputes in 2013.  Despite negative media coverage of Kia's lackluster sales, both Hyundai and Kia have shown signs of demand rebound in October on seasonally adjusted terms.In short, there were no big surprises on China's October demand figures published by CAAM and CADA at this point.  I will have a separate update on NEVs in another piece soon.China YTD Auto Demand(Mn Units)10-179-17MoM10-16YoYYTD17YTD16YoYOct 17 SAAROct 16 SAARYoYYTD17 SAARYTD16 SAARYoYPV2.42.30.4%2.30.4%19.519.02.5%28.127.42.4%24.223.81.7%CV0.40.4-4.2%0.314.8%3.42.917.5%4.74.017.2%4.23.616.8%Total2.72.7-0.2%2.62.0%22.921.94.5%32.831.44.3%28.427.43.7%Sources: CEIC, Author's estimates

October China Auto Demand:  32.8m Unit SAAR - The Strongest Seen in History