Tag Archives: Hyundai

China Anger with South Korea is Bad for Auto Stock BAIC

baic chart

China’s displeasure over South Korea’s move to allow the U.S to deploy the THAAD missile system on its territory is being felt by Hyundai.  Reports of lower production in China is bad news for BAIC 1958 hk, since Hyundai represents the largest portion of its unit sales.

BAIC hasn’t yet released its March sales. But year to date February sales and annual unit sales in 2016 indicate a large negative impact of a decline in Hyundai sales.

BAIC Jan Feb Sales.PNG

baic annual auto sales

BAIC closed down on 4/5/17 but hasn’t yet reported March sales. While it makes the biggest profit from its subsidiary, Beijing Benz, at 55% to 60% of its unit sales, a decline in Hyundai sales will hurt.

Auto Stocks Hong Kong Listed



China September Auto Sales Should Hold the Fast Lane


Source: VDA, Verband der Automobilindustrie

*USA, Brazil and Russia include light vehicles (trucks).

While the US was disappointed in Monday’s reports auto sales for September, numbers for the market leader in terms of number and growth, China, will be revealed later in the week. Thanks in part to a government stimulus in the form of a 50% tax cut on cars with an engine size 1.5 liters and less, September should follow the upward trend.

Here are the actual numbers, in units:


Source: VDA data, Verband der Automobilindustrie

With the tax cut holding through the end of December and the last few years showing heavier purchasing in the final quarter, the next few months should also show growth, sequentially as well as year on year.  Three major Hong Kong listed Chinese auto companies demonstrate that historical seasonality as well as year this year’s  super-charged numbers.  Although the week-long vacation celebrating the Chinese New Year depresses auto sales at the beginning of the year, next week’s National Day, aka Golden Week, is more of a shopping holiday.  The three companies are :Geely 175 hk, Great Wall 2333 hk and GAC 2238 hk.




Source: all 3 charts from Company Hong Kong Exchange Filings

BAIC hk 1958, another company which reports monthly sales volumes has been excluded from the seasonal comparison since it was newly-listed in 2014. It had also just started to develop its relationship with Daimler Benz, DAI gr, referred to as Beijing Benz, a 51%-owned subsidiary. BAIC is a big player in China, selling 1.6 million passenger vehicles in 2015 which included its own brand as well as Hyundai and Daimler.  It was formed as an IPO in 2014 and has also shown increases in units sold 2016, thanks to Daimler and an aggressive push on its own brands, under the names of Senova, Weiwang and BJ.


Source: Hkex filings, January & February excluded since they were grouped together.

In numbers, sales of these four companies combined represent close to 22% of the year to date light vehicle sales in China for the first 8 months of 2016.  China passenger vehicle sales for China were reported at 14.4 million in 2016 vs. 12.7 million in 2015 which was a 12.8% increase. (Reported by CAAM, not seasonally adjusted.) Their reported numbers from filings are as follows:


Although these four Chinese companies have all seen unit sales increases year to date, their stock prices have diverged.



Source: Bloomberg, values as of 10/3/2016

Geely, which sells only its own brand under the names of Emgrand, Vision and Boyue, has been the best performer year to date and over the last 12 months.  This occurred in spite of the fact that the sales have been dominated by sedans versus the much more popular SUV’S.  The company has, however, been gradually moving into more SUV’S and crossovers to offset the declining interest and sales in sedans.


Geely’s stock performance is due partly to its first half performance, where it was able to transform an 11.3% unit sales increase into a 35.8% net to shareholders increase.  In its filing, it stated that the profit increase was due to both volume and an ex factory average sales price increase of 17% compared to the prior year.


Sales have continued strong following the first half, with August year to date showing an annual increase of 22%.  Geely has been targeting ramping up production, taking over two plants as of 7/20/16  with additional capacity of 300,000 units by the third quarter of 2016.  Baoji, is projected for production of 200,000 high end SUV’S while the other, Shanxi, is projected to produce 100,000 high end sedans and mid and high end new energy vehicles.  Both were purchased by the company’s wholly-owned subsidary Jirun subsidiary from Baoji Geely and Shanxi New Energy for a combined 1.4billion rmb.  (Both were held by Zhejiang Haoqing, the wholly-owned subsidiary of Geely Holdings.) Geely sales are primarily domestic, with exports on a downtrend over the last couple of years at only 12,871 year to date.   Despite Geely’s pledge to become a major new energy vehicle producer, the company has given little details on sales with a brief mention of average sales of about 1,500 per month.

Geely’s plan to sell its subsidiaries Ninghai Zhidou, producers of low end energy vehicles and supplies, to a third party failed.  They were sold instead to parent Geely Holdings, which is owned by Geely founder and Chairmen, Li Shufu. The breakdown is as follows:


Geely’s quoted rational for the disposal:

As part of the Group’s on-going strategy to enhance value for the Shareholders, the Group plans to consolidate and enhance its product portfolio and thus brand image by focusing on relatively higher-end automobiles going forward. In addition, recent policies issued in the PRC in relation to the eligibility for subsidies and tax exemptions have also been unfavourable to the product portfolios of the Kandi JV and the Zhidou JV and have a negative effect on their financial performance in 2016.

Geely reports unit sales monthly but doesn’t give quarterly statements. Geely has had a strong run but its trailing p/e is still moderate.  Nomura raised its price in September to 8.33 hkd thanks partly to projected margin improvement, capacity utilization and product mix.

Guangzhou Auto, or GAC  the second best performer, sells its own brand under Guangzhou auto with names such as Trumpchi, but also sells Toyotas, Hondas and Fiat Chrysler vehicles as joint ventures.  Those JV’s powered its net profits in the first half to a 133% increase.



While Honda & Toyota have shown growth and dominance in unit sales, the company has had major growth with the Fiat Chrysler JV thanks to success of the Jeep Cherokee brand. It’s also been aggressively pushing its own brand, despite the potential losses as shown in the income statement, to increase market share.

gac auto sales first half.PNG

August year to date sales were just as robust, with Chrysler taking up some of Toyota’s slack.



Per Auto News, Jeep’s sales in China rebounded from 2015 thanks to the addition of Cherokee at a factory in Changsha in October, of 2015.  In April, Jeep began producing the Regenade subcompact crossover at a new plant in Guangzhou. It plans to add a new C-segment crossover to China in production by year end with another to follow, specifically designed for the Chinese market.

GAC’S unit sales and interim and its low p/e gives strong support to the stock continuing upward.  In September, 2016 CICC put GAC on a conviction buy list with a target price of 13.2.

Despite relatively strong auto sales growth, BAIC has actually lagged the Hang Seng index. Much of this is due to its structure.  It’s best profit driver has been with its subsidiary, BAIC Benz.  Otherwise it sells its own brand, under the names of Weiwang, Senova and BJ, generally at a loss and has seen weakened demand for its JV with Hyundai, which has historically made up its biggest portion of unit sales. While revenues have increased along with sales, net to shareholders has grown only 11% reflecting Daimler’s outsized contribution to profits and BAIC’S brand losses and Hyundais’ flagging sales.baic-1st-half-2016


Source: hk filings

As shown below – Home Brand Beijing Motor is far behind Beijing Benz in profits.

BAIC beijing motor.PNG

BAIC bejing benz.PNG

Add to that the decline in JV earnings, which is mainly Hyundai, and GAC is struggling to increase profits despite sales increases. August sales have been even stronger than June, with Hyundai showing an upturn but Benz lower ytd than June and Beijing Brand climbing. BAIC doesn’t report quarterly earnings, however, so how those numbers translate into profits will be unclear until well after year end. On 9/27 Macquarie gave it a target price of 12 hkd based on strong Benz sales. (It also called the relationship a JV, which is incorrect.) Its current price of 8.14 is supported by its p/e which is close to the 6 month net profit to shareholder’s growth.  Sales numbers for September will most likely be strong and buoy the price.  However, profit growth for shareholders hasn’t kept up with unit growth.


BAIC has been rumored to be considering a JV with Chrysler Fiat.  This isn’t surprising given GAC’S recent success with Jeep.  BAIC has recently expanded a relationship with Daimler with Fujian Benz, which would reportedly produce high end mini-buses under the name of Viano, Sprinter and Vito but details have been light and sales to date have been minimal.

Home Brand Great Wall is the most disappointing of these four. For the first half, it lagged the others both in terms of sales and profits despite its concentration on SUV’s and its relatively popular Haval H6.



Since June, Great Wall has had better unit sales growth. Unfortunately, its razor thin profit margins have been declining further, resulting in net profit changes about 1/2 of unit changes. On 9/27/16 Citi rated it a buy at a price of 10 hkd. on 9/21, Credit Suisse rated it neutral at a price target of 8.8 hkd.  Great Wall does report quarterly with a report due about the 23rd of October.


In conclusion, despite strong auto sales stimulated by the tax break, Chinese auto manufacturers have divergent sales and profit paths. All, however, are at risk for a bumpy ride in 2017 when the tax cut is set to expire.

China July Auto Sales Up, BAIC Skids Downhill From June to July

July Car 1

The China Passenger Car Association reported that July year on year sales increased by 23%. Ytd increases were 11% over 2015. Three Hong Kong car stocks with a combined market cap of 205 Billion hkd, (23 Billion usd equivalent), beat that rise. Geely 175 hk, Great Wall 2333 hk, and BAIC  1958 hk, all reported year on year monthly and year to date sales increases. Geely and Great Wall managed to drive up over 4% from June, but BAIC dove 27%.

3 car stock july changes

BAIC sells its own brand, Beijing Benz, but relies on Hyundai and Mercedes Benz for the bulk of its sales and profits.

BAIC July Sales Type

The drop was striking and defied continued increases by home-grown competitors Geely and Great Wall.

great wall july monthly

geely july monthly

baic july monthly %

Much has been made over the Chinese voracious appetite for SUV’S.  Geely and Great Wall are polar opposites in their reliance on SUV’S, with Great Wall relying heavily on SUV’S, particularly its Haval H6, which is considered a close clone of the 4th generation Honda CRV.  Other types have had little growth, including  the Wingle pickup, with pickups banned  in major cities although some restrictions are easing along with a hope for more acceptance. BAIC only breaks down the sales by type for its own brand, with SUV’s ramping up to 50% of 2016 unit sales from only 7% in 2015.

Geely Monthly Type

great wall july types 2

Based on 2015 unit sales for Geely and Great Wall, there do appear to be seasonal sales variances with the highest sales occurring in the last quarter.  (BAIC was excluded since it didn’t provide monthly sales data for the full year of 2015).

great wall geely seasonal

China sales growth is critical for these companies, with Geely and Great Wall exports shriveling, (BAIC doesn’t report any exports).

Geely Greatwall Exports

Note: All charts and data were prepared from HK Filings with the exception of the stock data, which was from Bloomberg.  March was primarily used as the starting point since January and February are extremely variable due to Chinese New Year.

Despite the year on year overall increases, the stocks in Hong Kong are showing  a moderate trailing p/e ratio; with Geely outperforming the Hang Seng on a year to date and 12 month return basis.  Geely has recently completed the acquisition of two subsidiaries, Shanxi & Baoji, with combined capacity of 300,000 vehicles, construction completion expected in 3Q 2016.

3 car stocks

None of these companies provide sales dollars in their monthly updates.  Interim results have not yet been presented.  BAIC’s Q1 showed an increase in revenue of 30% but a drop in net profit of 25% due to lower JV numbers with Hyundai and increasing operating losses for its own brand.  The increase in profit was mainly due to Beijing Benz, which is owned 49% by Daimler.  Greatwall’s Q1 showed an 8% increase in revenues but a 4.5% decrease in profit, thanks to a lower gm and operating margin. Geely doesn’t provide quarterly statements.

Great Wall Q1




China May Auto Sales Jump; Hold the Champagne

3 China Auto companies reported a surprising jump in May auto sales.  Year to date unit sales, however, were less than stunning although on track for an annual increase. This increase would be much lower than  the China Passenger Car Association predicted growth of 10%.


Sequentially, the rise was less dramatic, actually decreasing for Great Wall.

June Auto Sequential

The stocks in these 3 companies has reacted relatively positively to the May sales figures released on June 6, 2016.

3 car stocks

Source: Bloomberg

Great Wall has had the biggest price change and also has the lowest p/e.  However, year to date sales have been in line with the others.

Great Wall has continued to rely on its best-selling SUV, the Haval H6 for sales growth and a percentage of sales.  Its sedan sales have been minimal and have continued to decline.  Besides the popularity of the Haval H6, featuring either a 1.6 or 2.0 liter engine and favorable comparison to the Honda CRV, it has most likely also benefited from the tax break on the engines less than 1.6 liters started in October of 2015 and running through December 2016.  It’s most recent arrival, the Haval H7 introduced at the end of April has a 2.0 Liter engine and sold only 4,465 units in May compared to the H6’s 37,435 units.

greatwall may types

Finally, while Great Wall sales are up it’s doubtful that profits will follow.  In its quarterly statement, Great Wall unit sales were up 5.7%.  This translated to an 8% sales revenue increase but an increase in gross profit of only 2.8% as the gross profit declined from 26.6% to 25.3%.  Operating Expenses also increased as a percent of revenue resulting in a profit before tax decline of 4.6%.  The biggest increase in costs was in “other expenses” which doubtless contained incentives. Net profit after tax declined by 5.4%.  Based on the first quarter’s performance, Great Wall will have a decline in net profit for the year despite a potential 5% unit increase which would continue to support the case for a lower p/e ratio.Great Wall Q1

The sales increase, thanks to its heavy reliance on the Haval H6, is in jeopardy as the trend for the H6 is slopes downward.

Greatwall h6 chart

Great Wall’s sedans have been declining and its exports have been plummeting, so these will not help bolster profit.  Great Wall had tried to enter the electric car segment with a planned non-public A-share issue but it cancelled the issue due to volatile market conditions.

Geely, the owner of Volvo, had a good month in May compared to 2015 with a 19.4%  year on year rise in units sold.  Geely offers limited sales information per type but has had its biggest growth in sedans: Emgrand unit sales rising 21% and Vision up 31% year on year for the month of May.  The Geely gc9 sedan, released in April, 2015. has had disappointing sales – just 4,024 in May 2016 versus the Emgrand and Vision at 16,101 and 10,885, respectively.

Geely doesn’t provide quarterly statements.  In 2015 it had a 22% increase in unit sales to 509,863 which translated to an annual revenue increase of 38.6%.  Gross profits were the same but, thanks to lower expenses as a percent of sales along with higher jv income, it had a net profit after tax increase of 58%.  However, included in the net profit of 2.28 Billion rmb was 847 Million rmb in government grants or about 37% of net profits.

Both Geely and Great Wall are considered home-grown, Chinese manufacturers and produce and sell primarily their own brands.  They are not majority-owned by the government but both founders, Geely’s Li Shufu and Greatwall’s Sei Jianjun have been reported to have government ties. Both benefit from government subsidies.  Geely’s annual at 847 Million rmb and Greatwall’s reported 341 Million rmb in 2015. Both have tried and failed to grow exports, an annual trend which is continuing.

greatwall geely exports

Greatwall Geely May Exp.PNG

The other company to report monthly unit sales, BAIC, is a majority government-owned entity which sells its own brands, including the Senova and Wevan as well as Hyundai as a 50%joint venture and Mercedes Benz as a 51%-owned subsidiary.  BAIC listed on the Hong Kong Exchange in 2014, raising 8.9 Billion Hong Kong Dollars, (equiv of 1.4 Billion $US), with 10 cornerstone investors buying 55% of the shares offered and closed at 8.9 HKD.   The Beijing brand, thanks to price drops and concessions has shown improvement in terms of numbers, Hyundai has been faltering while Mercedes has had impressive growth and is the primary driver of profits.

BAIC may sales

Despite the major growth of Benz and even Beijing Brand, Hyundai’s larger proportion of sales resulted in a year on year growth of just 5.3%, lower than both Greatwall and Geely.

Sequentially, however, it performed better than Geely and Great Wall.BAIC May Sequential

For the first quarter, BAIC showed a drop in year to date unit sales of 4.3%, brought down mainly by disappointing Hyundai unit sales.

baic 1st quarter

The Beijing Brand and Benz sales helped push revenue up by 30%.  However, since BAIC gets only 51% of Benz profits, Hyundai’s sales were lower and Beijing brand has been historically unprofitable, the net to shareholders actually decreased by 46.5%.

baic 1st quarter

As far as growth prospects, in March, 2016 BAIC entered into a further investment with Daimler via a 35% investment in Fujian Benz.  Details from both Daimler and BAIC have been extremely limited but last reported annual sales were only 11,208 in 2013. of mini van type vehicle. In conclusion, while May year on year unit sales showed a distinct uptick in sales for these 3 companies, it is too soon to tell if this is a blip or an upturn.  Year to date, sales are up only over 5%, far short of annual projections.  Finally, with the possible exception of Geely, unit sales increases have not led to profit increases.  The next semi-annual reports, based on historical reporting, will not come in until mid to late August. +

Disclosure: All data is from Hong Kong Filings.  Charts and spreadsheets were self-prepared.  I have no interests in any of the stocks presents.