20140523-光大证券-Moderate_growth_with_solid_product_pipeline_17页_230kb

Dongfeng Motor (489 HK) Summary

Core Content

Dongfeng Motor Group, a major player in China's automobile industry, was the second-largest auto maker in 2013 by volume. The company's sales mix is highly diversified, with sedans, SUVs, MPVs, and trucks contributing 57%, 15%, 11%, and 13% respectively. In 2014, the company is projected to see a 11% year-over-year (y/y) growth in total sales volume, reaching 2.84 million units.

Main Growth Drivers

• Nissan Teana: Expected to grow by 30% to 130,000 units in 2014.
• Nissan X-Trail: Anticipated to increase from 15,000 units in 2013 to 90,000-100,000 units in 2014.
• Honda Jade: Projected to grow from 15,000 units in 2013 to 50,000 units in 2014.

These models are expected to contribute significantly to the growth, with a shift toward higher-margin models like Teana.

New Vehicle Roll-out Plan

• Dongfeng Nissan: Launched the new generation of X-Trail in March 2014, contributing in 1H14. Infiniti Q50 is set to launch in October-November 2014, with an initial contribution of 2,000 units.
• Dongfeng Peugeot: Rolling out the sub-compact SUV 2008 by May 2014 and the new generation of mid-size sedan 408 by year-end.
• Dongfeng Honda: No new models planned for 2014.

Gross Margin and Blended ASP

• Blended ASP: Expected to increase due to the shift in product mix toward higher-priced models (Infiniti, 2008, 3008) and the full-year contribution of Jade.
• Gross Margin: Likely to improve due to stable raw material costs, better economies of scale, and improved product mix. However, potential price cuts on older models and higher marketing and salary expenses may limit this improvement.

Financial Performance and Valuation

• 2014e EPS: Rmb1.33
• Target Price: HK$11.6
• Current Share Price: HK$10.36
• Upside Potential: 12.0%
• Valuation: Based on a 7.0x target PE multiple, the target price is not demanding.

Investment Summary

Industry Outlook

• The Chinese automobile industry showed a steady growth trend, with total sales volume and passenger vehicle sales increasing by 13.9% and 15.7% y/y in 2013 respectively.
• CAAM estimates total demand for 2014 to be 23.85-24.29 million units, with an 8-10% growth rate.
• Sales restriction measures in first-tier cities are expected to have limited impact, with buyers likely to purchase vehicles before the restrictions take effect.
• The implementation of stricter emission standards, such as China IV and V, is expected to benefit energy-efficient vehicles like hybrids and electric vehicles.

2014 Sales Volume Projections

Production Capacity and Utilization

• Passenger Vehicles (PV): Current production capacity is 2.33 million units, with near full utilization expected in 2014. Total production capacity is projected to rise to 2.5 million units by the end of 2014.
• Commercial Vehicles (CV): Average utilization rate is 72%, with a slight over-capacity situation expected in 2014 due to weaker sales.

Dongfeng-Volvo JV

• The formation of the Dongfeng-Volvo joint venture provides access to Volvo's heavy-duty truck technology, including Euro VI, which helps meet stringent emission standards. It also offers potential synergy for overseas expansion.

4M14 Sales Performance

• Total Sales Volume: Increased by 17% y/y to 915,000 units.
• Passenger Vehicles (PV): Grew by 22% y/y to 776,500 units, with MPVs and SUVs showing the fastest growth (46% and 30% respectively).
• Commercial Vehicles (CV): Declined by 7% y/y to 138,700 units, with heavy duty trucks rising slightly and light duty trucks declining.

Major Shareholders

• Dongfeng Motor Corporation: 66.9%
• JP Morgan Chase: 5.0%

Market Share (2013)

Investment Rating

• Rating: Accumulate
• Target Price: HK$11.6
• Upside: 12.0%

Key Assumptions and Projections

• Sales Volume by Vehicle Type:

  • Passenger Vehicles: 2.42 million units in 2014
  • Sedans: 1.65 million units in 2014
  • MPVs: 310,000 units in 2014
  • SUVs: 451,500 units in 2014
  • Commercial Vehicles: 420,000 units in 2014

• Growth Rates:

  • Passenger Vehicles: 14% y/y
  • Sedans: 16% y/y
  • MPVs: 35% y/y
  • SUVs: 30% y/y
  • Commercial Vehicles: -7% y/y

Conclusion

Dongfeng Motor is positioned for moderate growth in 2014, driven by new models and a shift in product mix toward higher-margin segments. The company's financial performance is expected to remain stable, with a projected 11% sales volume growth. While the CV segment may face challenges, the PV segment is anticipated to benefit from new model roll-outs and improved gross margin. The formation of the Dongfeng-Volvo JV enhances the company's technological capabilities and potential for overseas expansion.