Tag Archives: Toyota

GAC Stays in the Fast Lane in April

gac overall units

While April US auto sales have disappointed across the board, with declines in all major automakers, China has yet to release numbers for April, with the exception of GAC, 2238 HK.  If March offers a clue as to performance, it will be a mixed bag.  For those with declines in the first quarter, the increase in the sales tax on the majority 1.6 liter or less vehicles was blamed; Ford and GM. Despite the change in tax, some auto makers saw sales growth in China.  Hyundai, however, saw a dramatic decline as a result of stoppages related to discontent over the US THAAD missile in South Korea.  VW Audi, took a dive at least partly due to dealer discontent over its planned 2nd jv with SAIC.  Thanks to company specific issues, the outlook for overall China growth, projected at 5%, is cloudy. (The data is primarily from Reuters except for Chinese makers Geely, GAC, Ford and Daimler which were based on SEC and HKEX filings).

Major Autos China March

Skies are sunny for GAC, however, which just reported 36% growth ytd in April over 2016.  If revenues and costs stay on track from the first quarter as reported here, it bodes well for the GAC’s stock.

GAC April

Honda and Toyota have shown significant growth, but the proprietary Guangzhou has been an out sized contributor to growth as has Fiat Chrysler.

Guangzhou units

FCA April

While recent performance is no indicator of the future, at least in the short term GAC is conservatively valued with a trailing p/e of 9.

GAC stock

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China Auto Stocks Drop on Uncertainty

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Hong Kong Listed Chinese auto stocks were mixed yesterday, 4/11/17, despite a minuscule drop in the Hang Seng.

Auto Stocks upd

 

Data Source: Bloomberg

All of the above stocks, with the exception of BAIC 1958 hk, had previously reported sales for March.

Update: China March Overall Auto Sales

Depending on which source you read, and what they interpreted, monthly and year to date auto sales were up.  How much is apparently subject to interpretation from a meeting with the China Association of Automobile Manufacturers, (CAAM).  However, nothing has been published on the CAAM website regarding the update.  Unlike other international auto manufacturers, sales are not presented as seasonally adjusted.

January and February are poor monthly indicators due to the China Lunar New Year, aka Spring Festival.  For 2017 it fell on January 28, 2017: 2016; in 2016 it fell on February 8, 2016. Technically it lasts approximately one week, when all of China is on vacation – but the impact can be felt as workers leave or change jobs two weeks in advance. This even makes January to February sequential sales and year on year data unpredictable.

Reuters:

First Quarter Auto Sales China up 7%; March up 4% to 2.5 million units

Wall Street Journal:
First Quarter Vehicle Sales China up .59% to 2.84 million units; Passenger Sales March up 1.7% to 2.1 million units.

Both agreed that CAAM held to its earlier projection of 5% auto sales growth in China for 2017.

China March 2017 Auto Sales Picture – Proceed With Caution

The downward slide yesterday occurred as two reports threw tacks on the road of this fragile, critical barometer of China’s economy.  Now the biggest single car market in the world, the closely watched auto sector is under scrutiny.  2016 managed overall increases thanks partly on the sales tax reduction from 10% to 5% for the year on smaller liter engines, (1.6 liters – the majority of autos sold in China in 2015).  Under pressure to continue growth, instead of resuming the 10%, the tax was partially raised to 7.5% starting in January 2017 through the end of the year.

First Report: High-flying Geely 175hk, was flagged by Credit Suisse, its report, said

..this is the first monthly decline in March in over ten years. Continuing the falling trend for four days, it once fell to $10.44 at most, hitting over 1-month low; it last printed at $10.52, down 4.7%, on surging volume of 117 million shares.

It went on to project Geely’s gross profit margin would be under pressure and kept it at neutral with a target price of $11.4 hkd.

Geely had actually released its numbers on April 7th, with strong year on year growth so the blame for the drop on that report is most likely misplaced.

Geely March

Production Cut

While Geely’s drop is of concern, a report by CICC, 3908 hk, (Per Bloomberg, the Goldman Sachs of China), was more alarming, with an output cut of 16.7% by Great Wall Motors 2333hk.  Although other companies weren’t cited, the report implied other auto makers had done the same.

Slow Lane Data Releases

Auto sales data, unlike elsewhere in the world, is slow to be officially released in China.  The China Association of Automobile Manufacturers, CAAM, releases data for the prior month around the 22nd of the following month.  Specific company data is sporadic and lacks conformity either in presentation and or release dates. This creates the perfect situation for the market’s most hated state: uncertainty.

Mixed Picture

Adding to the uncertainty, March numbers in China reported to date from domestic and international players have been inconsistent.

In China, Nissan reported year to date sales in March up 5.3%; GM saw a ytd decline of 5.2% with Toyota up just 1.7%.

Domestically, auto sales were seemingly resilient, with the exception of Great Wall 2333   hk and Dongfeng 489 hk. Great Wall is a home grown auto company while Dongfeng sells autos produced by joint ventures with Nissan, Honda, PSA and Renault.

Great Wall March

Dongfeng

GAC 2238 hk, showed impressive growth, buoyed by increases in its proprietary brand Guangzhou as well as its JVs with Honda, Toyota and Chrysler.  A breakdown of those brands was shown here.

GAC Mar

 

BAIC 1958 hk, hasn’t yet reported sales.  However, as noted previously, China’s unhappiness with South Korea has prompted reports of Hyundai reducing production hours in China.  Hyundai units made up 60% of BAIC’s unit sales in 2016.

As sales data for March trickles in, these stocks look poised for more negative surprises.

(Sales data and graphs compiled from HK filings.)

China Auto Stocks Could Get Boost From GAC’S March Sales

GAC chart March

Source: HK Filings

While overall auto sales in the US disappointed for March, one of the first auto manufacturers to report in China, Guangzhou Auto or GAC, 2238 hk, had surprisingly good numbers.

GAC SALES March Spread.PNG

Source: HK Filings

The company sells its own brand as well as Honda, Toyota, Fiat and Mitsubishi. Guangzhou Auto and Fiat took the lead in growth both for March and year to date.

gac sales by manu march

As has been the case with China overall, SUV’s showed the greatest growth, overtaking sedans in terms of numbers and growth.

gac SALES BY TYPE MARCH

Sentiment for auto sales in China has been flat to negative thanks to the increase in the sales tax on smaller liter engines, from 5% to 7.5% starting in January.  In December, the tax is scheduled to revert to 10%.  As the top chart shows and was the case for many automakers and sellers in China, this caused a spike in last quarter sales of 2016.

GAC’s 2016 annual earnings were strong, with a net profit increase of 35.8% thanks primarily to the earnings from its joint ventures.

GAC financial annual

While it’s increasing sales of its own, less than profitable Guangzhou brand, the strong performance of its joint venture partners could give its first quarter results and price a boost.

Hong Kong listed auto stocks closed down on April 5th, except for Great Wall, 2333 hk, despite a rise in the Hang Seng.

Auto Stocks Hong Kong Listed

 

 

China September Auto Sales Should Hold the Fast Lane

auto-world-august-2016

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:

world-auto-sales-2016-august

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.

geely-sales-aug-2016

great-wall-august-2016

gac-auto-sales-august-2016

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.

baic-monthly-august-2016

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:

china-4-autos-aug-2016

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

autos-4-stocks-sept-2016

 

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-types-august-2016

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.

geely-fs

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-sale-subs

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.

gac-1st-half-2016

 

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.

gac-aug-auto

 

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

baic-types-june

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-august-2016

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.

gw-fs-1st-half

 

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.

great-wall-sales-aug

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.