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Auto Sector Summary: 1H13 Performance and Outlook

Core Content Overview

The document provides a comprehensive analysis of the performance and outlook for the auto manufacturing and dealership sectors in the first half of 2013 (1H13). It highlights positive trends in the auto manufacturing industry, the mixed performance of auto dealerships, and the potential for growth in the luxury brand segment.

Main Points

Auto Manufacturing Sector

• Positive Trends: The auto manufacturing sector is entering a sustainable growth trend, supported by strong interim results and improved demand. The industry is expected to continue its momentum into the second half of the year.
• Growth Drivers: New model launches by OEMs are expected to drive sales, and the industry is entering its high season, which could boost share prices.
• Performance Highlights:
  • Great Wall Motor reported the highest volume sales growth, driven by demand for SUVs.
  • BYD and Geely showed significant improvements in gross profit margins and net profit growth.
  • Dongfeng Motor and Brilliance China also demonstrated healthy revenue growth.
• Valuation: Auto manufacturers are trading at relatively attractive valuations, with buy recommendations for several companies.

Auto Dealerships

• Mixed Performance: While the overall sector has stabilized, results vary among operators. The blended gross profit margin trend has improved, driven by after-sales services and reduced pricing pressure.
• Luxury Dealers: Luxury brand dealerships outperformed in terms of volume growth and profit margins. These dealers are expected to have better potential in 2H13.
• Challenges: Middle market dealers continue to face weak demand, although pricing pressure has eased.
• Financial Health: Auto dealers have improved financial positions, with reduced inventory levels and manageable net gearing.

Key Companies and Recommendations

Auto Manufacturers

Auto Dealers

Key Financial Metrics

Auto Manufacturers

• Revenue Growth: All major Chinese OEMs reported strong revenue growth in 1H13 compared to 1H12, with Great Wall Motor leading.
• Gross Profit Margins: Chinese brands showed improved gross profit margins, with Great Wall Motor and Geely Auto experiencing the highest increases.
• Net Profit Growth: Great Wall Motor and Geely Auto reported the highest net profit growth, while BYD had an exceptionally high increase due to its strong performance in the first half.

Auto Dealers

• Revenue and Gross Margins: Luxury dealerships reported higher volume sales and better gross margins compared to 2H12, with Baoxin Auto showing the strongest growth in after-sales services revenue.
• Inventory and Gearing: Inventory days have improved, and net gearing remains manageable, indicating better financial health.
• Operating Cash Flow: Most dealers reported positive operating cash flows in 1H13, reflecting improved working capital management.

Outlook

• Auto Manufacturing: Expected to continue its growth momentum in 2H13, driven by new model launches and improved demand.
• Auto Dealerships: The luxury segment is expected to outperform, with after-sales services as a key profit driver.
• Market Conditions: Pricing pressure is lower than last year, and the PV market is expected to grow at low-teens levels for the year, up from 7% in 2012.

Analyst Information

• Analyst: Rachel MIU
• Contact: (852) 2863 8843
• Email: rachel_miu@hk.ddsvickers.com
• Source: Thomson Reuters, DBS Vickers

Summary Table