經(jīng)銷(xiāo)商的決定性時(shí)刻

1、Global Research25 February 2019China AutosAutomobilesChinaEquitiesA defining moment for dealers ErratumCompetitive landscape from dealers anglePassenger vehicle sales (PV) sales declined for the first time in 2018 since 1990. Dealers with typically thin margins, high operating leverage and indebtedn

2、ess, are among the most vulnerable in the value chain. In this report, we present our findings gathered from industry associations, dealer groups, internet service providers, dealer store landlords, industry consultants and our on-the-ground checks. We analysed the implications for the stocks we cov

3、er, from dealers to OEMs. The dealers difficult situation and the consequent market consolidation might work to the benefit efficient dealer groups and some leading Chinese brand OEMs, in our view.Some dealers got it wrong and had to exit the marketAccording to Dongchedi data, an auto portal under T

4、outiao, only 30% of dealers were profitable in 2018, 28% broke even, and 41% incurred losses. While premium brand dealers are overall better off than mass foreign brands and Chinese brands in terms of profitability and inventory, consolidation in this highly fragmented market is accelerating. Even P

5、angda, the fourth largest dealership in China, has sold some profitable stores to Zhongsheng and China Grand Auto (CGA), and has been closing unprofitable ones. We believe Yongda could gain share due to handsome profit from Porsche stores.Some networks keep on and grow strongWhile numerous showrooms

6、 for small Chinese brands such as Lifan, Jiangling, and Yinxiang, and weak foreign brands such as PSA, Kia, and Suzuki have been closed down, the leading dealer networks for Geely Auto, Roewe, WEY, Haval, Lynk, Ora, BYD and MG have expanded. We believe this implies further market share gain by OEMs

7、such as Geely Auto, Great Wall Motor (Greatwall) and SAIC Motor. Assuming the volumes of brands with shrinking networks add up to 3-4m units a year, they could lose 800,000-1m units to the top-five domestic brands in 2019, translating to 150,000- 200,000 additional volume for every strong company.Va

8、luation: market share gain not priced inDespite some recovery recently, the China auto sector is still trading 1.5 SD below its historical five-year average PE. Once the industry recovers, we believe the sector will re- rate to above-average levels. We are positive on the sector, with Buy ratings on

9、 Geely, Guangzhou Auto and Brilliance. In this note, which replaces an earlier version, we replaced Figures 10, 11, 12 and 13 for consistency and clarity.Paul GongAnalyst HYPERLINK mailto:paul.gong paul.gong+852-2971 7868Nora MinAnalyst S1460518050001 HYPERLINK mailto:nora.min nora.min+86-213-866 89

10、05Yizhe WangAnalyst HYPERLINK mailto:yz.wang yz.wang+852-2971 8007Wei Shen Analyst S1460518060001 HYPERLINK mailto:wei.shen wei.shen+86-213-866 8897Aria Ma Analyst S1460518070001 HYPERLINK mailto:aria.ma aria.ma+86-105-832 8664Figure 1: Coverage snapshotCompanyTickerRatingPT (HK$)Price (HK$)19 PE (x

11、)CommentGeely Auto0175.HKBuy17.8015.448.3More attractive valuation; promising long-term growthGZ Automobile2238.HKBuy12.209.895.9Solid earnings growth from Toyota JV expansionBrilliance China1114.HKBuy10.007.93.9Current share price includes too high a discount on uncertaintiesDongfeng Motor0489.HKNe

12、utral8.808.715.3Hard to deliver growth despite low valuationBAIC Motor1958.HKSell3.505.449.2BJ Benz JV might potentially change stakeNote: Above data priced as of 22 February 2019. Source: Datastream, UBS estimates HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS

13、 Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 20. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this

14、report. Investors should consider this report as only a single factor in making their investment decision.China Automobile SectorUBS Research THESIS MAP a guide to our thinking and whats where in this report HYPERLINK l _bookmark1 OUR THESIS IN PICTURES MOST FAVOUREDLEAST FAVOUREDGeely Automobile, G

15、uangzhou Automobile, YongdaBAIC, DongfengPIVOTAL QUESTIONSQ: How do the recent store closures benefit the dealership sector?We expect larger dealers to gain more bargaining power over OEMs and benefit from this round of dealer closures. We think bigger car dealers are much better off than JV or dome

16、stic brand dealers. Among our dealer sector coverage, we recommend Yongda. HYPERLINK l _bookmark2 more Q: Which OEMs benefit most from this round of store closures by dealers?We believe tier-one domestic brand OEMs such as Greatwall and Geely will benefit from this round of closures. We think lower-

17、tier domestic brands are likely to exit the market in this round of store closures, and we expect the competitive landscape for domestic brand OEMs to improve. HYPERLINK l _bookmark3 more UBS VIEWWe think premium brand dealers will benefit from the disciplined pace in the opening of premium OEMs sto

18、res. Porsche dealership store openings have been the most efficient. We expect morewaves of dealership store closures, especially for lower-tier domestic brands. We believe tier-one domestic brand OEMs such as Greatwall and Geely will benefit the most from the retreat of weaker JV and domestic brand

19、s.EVIDENCEPangda Group, Chinas fourth largest dealership group (in terms of 2017 revenue) announced that it expects to incur a Rmb6-6.5bn loss in 2018. Only 4% of the premium brand dealers had overthree months inventory at the end of 2018, while it this ratio was 21% for smaller domestic brands. In

20、2018, none of the domestic brands met their sales target. The percentage of lower-tier domestic brands such as Huatai, Zhongtai, JAC meeting their sales target was below 60%.WHATS PRICED IN?We expect Yongda share price to re-rate, as we think the market expects a retail price recovery in 2019. Despi

21、te the recent rally, we think OEMs with high domestic brand exposure such as Geelyare best positioned in a destocking trend, and they are still trading at low valuations. HYPERLINK l _bookmark4 more3.002.502.001.501.000.50Jan-16May-16Sep-16Jan-17May-17Sep-17Jan-18May-18Sep-18Jan-190.00OverallJV bran

22、dImport brandDomesic brandSource: CADAChina Automobile SectorUBS ResearchOUR THESIS IN PICTURES HYPERLINK l _bookmark0 return Loss 41.3%Profitable 30.4%In 2018, only 30% of dealers in China were profitableBreakeven 28.3%80%70%60%50%40%30%20%10%0%Premium brandJV brandDomestic brand Over 3 months2-3 m

23、onthsLess than 2 monthsInventory: Only 4% of premium brands had inventory of over 3 months by the end of 2018, while it was 21% for lower-tier domestic brands3.002.502.001.501.000.50Historical inventory trendJan-16May-16Sep-16Jan-17May-17Sep-17Jan-18May-18Sep-18Jan-190.00OverallJV brandImport brandD

24、omesic brand160140120100806040200WeyLynkTrumpchiSAIC PVChangan PVGeelyCheryGreat WallDongfeng PV2018 store additions by key domestic brands0(20)(40)(60)(80)(100)2018 store reductions in 2018 store by key domestic brands(120)(140)LifanLandwind HaimaBAICYinxiangSoutheast Suzuki BrilliancePremium brand

25、PorscheBMWJLRLexusAudiInfinitiMercedezCadillacJV brandGAC ToyotaGAC HondaFord SAIC VWPSAFAW VWKiaDongfeng HondaDomestic brandGeelyTrumpchiFAWWeySAIC PVJACChangan PVChery VenuciaThe green light column includes brands that dealers have confidence in and are generating higher than industry-average prof

26、it. The red light column includes brands that dealers are losing faith in and are facing risk of closure. The yellow light column includes brands that dealers think are generating industry average profitVolvo 3%Cadilllac 4%Inifiniti 1%JLR 5%Lincoln 4%Porsche 27%Others 9%BMW 40%Audi 6%Yongdas new car

27、 sales gross profit breakdown12.011.010.09.08.07.06.05.0Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18Nov-184.0Despite some recovery recently, the China auto sector is still trading 1.5 SD below its historical five-year average PEIndustry P/E

28、Avg+1SD-1SD Source for exhibits above: UBS research, CADA, Datastream, Dongchedi, FourinChina Automobile SectorUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: How do the recent store closures benefit the dealership sector?UBS VIEWWe expect larger dealers to gain more bargaining power

29、over OEMs and benefit from this round of dealer closures. We think premium car dealers are much better off than JV or domestic brand dealers due to: 1) disciplined premium brand store openings; 2) further consolidation of premium dealers. Among our dealer sector coverage, we recommend Yongda.EVIDENC

30、EChinas dealer industry is fragmented with over 28,000 dealers across the country.Pangda Group, Chinas fourth largest dealership group (in terms of 2017 revenue) announced that it expects to incur a Rmb6-6.5bn loss in 2018. The dealer group has shut down several stores including JAC, Borgward, and B

31、aojun.In order to pay back its debt, Pangda Group sold its highest quality stores such as Mercedes stores to other large dealer groups including China Grand Auto (Chinas largest dealer) and Zhongsheng Group (second largest dealer).In January 2019, dealers protested against Auto Homes annual online m

32、arketing fee, and rejected the price hike for 2019. This protest was led by several large dealer groups including Zhongsheng and Yongda.Only 4% of the premium brand dealers has inventory more than 3 months by the end of 2018, while this ratio is 21% for domestic brand.So far in 2019, we observe that

33、 retail sales performance has been better than wholesales performance for most OEMs, which means that OEMs are helping dealers with inventory clear-out.Effective July 2018, other than the US, imported car tariffs fell from 25% to 15%. This translates to a 7-8% price reduction for most imported vehic

34、les.WHATS PRICED IN?Dealers was the first segment in the auto supply chain to show significant share price declines since trade friction with the US began in June 2018. Investors tend to believe that the trade war will change the import tax and affect consumers buying sentiment. Given dealers profit

35、ability is highly sensitive to new car margins, a retail price recovery can help improve dealers profitability and share price, in our opinion.2018: Not a good year for dealers2018 marked the first time since 1990 that auto sales declined in China, and auto dealers were one of the biggest victims. O

36、nly 30% of all dealers were profitable, and we believe most of them are premium brands such as Mercedes, Porsche or JV brands with meaningful new product launches such as Toyota. Inventory piled up, and domestic brands face the most severe pressure. By the end of 2018, more than 20% of the domestic

37、brands still had over three months of inventory.Figure 2: 2018 profitability survey of dealers in ChinaFigure 3: Inventory situation comparison (Dec 2018)Loss 41.3%Profitable 30.4%Breakeven 28.3%80%70%60%50%40%30%20%10%0%Premium brandJV brandDomestic brand Over 3 months2-3 monthsLess than 2 monthsSo

38、urce: Dongchedi (an auto portal under Toutiao)Source: CADA (China Auto Dealer Association)2019 appears to be a better yearBased on our conversations with various OEMs, it seems OEMs have made reducing dealer inventory their top priority for 2019. OMEs become cautious about setting 2019 production an

39、d sales targets. Dealers inventory has been falling since the last quarter. Although Chinese New Year buying effect did come into play, we believe inventory clear out was already a trend.Figure 4: Historical dealer inventory trend (month)3.002.502.001.501.000.50Jan-16May-16Sep-16Jan-17May-17Sep-17Ja

40、n-18May-18Sep-18Jan-190.00OverallJV brandImport brandDomesic brandSource: CADA (China Auto Dealer Association)2019 Dealer confidence: Who faces the red signal; who faces the green?CADA (China Auto Dealer Association) published dealers 2019 confidence levels in each OEM brand, as illustrated in the b

41、elow chart. The green light column includes brands that dealers have confidence in and are generating higher than industry-average profit. The red light column includes brands that dealers are losing faith in and face risk of closure. The yellow light column includes brands that dealers think are ge

42、nerating industry average profit.Figure 5: 2019 dealer confidence (by brand)Premium brandPorscheBMWJLRLexusAudiInfinitiMercedezCadillacJV brandGAC ToyotaGAC HondaFord SAIC VWPSAFAW VWKiaDongfeng HondaSource: CADADomestic brandGeelyTrumpchiFAWWeySAIC PVJACChangan PVChery VenuciaPremium dealers remain

43、 better off: we favour YongdaPremium brands have been especially cautious in expanding their dealership networks in recent years. Therefore, dealer efficiency in terms of monthly sales per store has been improving for most premium brands other than Cadillac, which has been more aggressive in dealer

44、expansion.Figure 6: 2018 premium brand sales growth rate in China40.0%30.0%20.0%10.0%0.0%-10.0%-20.0%-30.0%-40.0%-50.0%CadillacPorscheLexusVolvoAudiMercedesBMWInfinitiTeslaJLRLincolnAcura-60.0%Source: CADAFigure 7: Monthly sales volume per store per month for premium brands180Premium Average: 92 uni

45、ts per store per month160140120100806040200PorscheAudiMercedesBMWCadillacLexusVolvoJLR 201620172018Source: FourinFigure 8: Premium brands dealer store number6005004003002001000MercedesBMWAudiCadillacJLRVolvoLexusPorsche 201620172018Source: FourinCompared with other brands, Porsche has the least numb

46、er of dealers and the highest sales efficiency. It opened only three new stores in 2018 in China, yet recorded 23% YoY sales growth over the year. This somewhat explains why Porsche is the most profitable brand across all OEM brands, from a dealers perspective.All the Porsche units sold in China are

47、 100% imported from Europe, and now have a 15% import tariff. Yongda is Chinas largest Porsche dealer with about 9% market share in terms of sales volume. We expect Yongdas Porsche new car margin to reach 7.6%/7.5% in 2019/20.Figure 9: Yongdas new car sales gross profit breakdown (2019E)Volvo 3%Cadi

48、lllac 4%Inifiniti 1%Lincoln 4%Others 9%BMW 40%JLR 5%Source: UBS estimatesPorsche 27%Audi 6%.China Automobile SectorUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: Which OEMs benefit most from this round of dealer closure?UBS VIEWWhile we expect numerous store closures of both small Ch

49、inese brands such as Lifan, Jiangling, Yinxiang, and weak foreign brands including PSA, Kia, and Suzuki, the leading dealer networks include that Geely, Roewe, WEY, Haval, Lynk, Ora, BYD and MG are expanding. We believe this implies further market share gain for OEMs such as Geely, Great Wall and SA

50、IC. Assuming the network of shrinking brands adds up to 2.6m units a year, this implies a loss of 800,000-1m unit market to the top-five domestic brands in 2019, that would translate to 150,000-200,000 additional volume for every strong company.EVIDENCEBased on our 2019 PV sector outlook, HYPERLINK

51、/shared/d2YLlFE57U6I7KF Will 2019 be a year of recovery?, We expect a 2% recovery in 2019 and around 2% growth in 2020/2021. We think any stimulus policies would still create visible short-term demand, which will likely drive sales of domestic brands first. Among potential stimulus, a rural car purc

52、hase subsidy is the most likely.In 2018, premium car sales growth was 8%, JV brand sales growth was -3%, domestic brand sales growth was -6.6%.During our visits to several cities in 2018, we noticed many closed stores for lower-tier OEM brands such as PSA DS, and Haima had closed down.In 2018, none

53、of the domestic brands met their sales target, which were set at the beginning of the year. The successful sales target ratio for lower-tier domestic brands such as Huatai, Zotye, JAC was below 60%.According to UBS Evidence Lab geospatial analysis that tracks a brands regional store distribution , w

54、e noticed that 1st tier local brands are more cautious in terms store location selection and store allocation, while some lower tier local brands tend to cluster stores in Northern China.Based on preliminary results announcements, several domestic brand OEMs net profit declined sharply in 2018. For

55、example, JACs 2018 net profit was down more 89% YoY.WHATS PRICED IN?We think investors do not expect lower-tier domestic brands to exit the market. We doubt if investors are even aware of the existence of lower-tier domestic brands. But we believe their exit will improve the competitive landscape an

56、d benefit tier-one domestic brand survivors such as Greatwall and Geely.Polarised performance of domestic brands dealer networksSome domestic brand OEMs such as BAIC PV and Zotye are still aggressive in opening new stores while some others closed many stores in 2018. Most of the domestic brand store

57、s that dealers closed were for lower-tier brands such as Haima and Lifan.Figure 10: Key domestic brands number of stores (2016 vs 2017 vs 2018)16001400120010008006004002000Changan PVGeely Great WallBYDTrumpchi SAIC PVWeyLynkChery Dongfeng FAW CarJACLifanHaimaPV201620172018Source: FourinIn terms of s

58、ales efficiency measured by monthly sales per store, most domestic brands monthly sales per store have declined over the past three years, with the exception of Geely.The sales efficiency is polarised across domestic brands. Monthly sales of brands such as SAIC PV, Geely and GAC Trumpchi are way abo

59、ve the average of 60 units/store, while some other brands such as Lifan, Haima and Zhongtai are far below average.Figure 11: Key domestic brands monthly sales per store1601401201008060Average: 65 units/store/month40200SAIC PVGeelyTrumpchi Great Wall FAW CarLynkBYDCheryWeyChangan DongfengJACLifanHaim

60、aPVPV201620172018Source: FourinBelow is a summary of brands with large-scale store additions and closures in 2018.Figure 12: 2018 store additions by key domestic brands160140120100806040200Source: FourinWeyLynkTrumpchiSAIC PVChangan PVGeelyCheryGreat WallDongfeng PVMost stores that had large-scale d