China Auto Sales in March:Solid growth for PV sales: +9% YoY

Event

    CAAM reported auto wholesale volume on 9 April. Total auto shipments wereup 3.3% YoY to 2.24m units. Sales of passenger vehicles (PV) continued thesolid momentum of 9.4% growth in March. However, commercial vehicle (CV)sales dropped by 19.4%, dragging down overall industry growth.

    PV sales rose 9.0% YTD while CV sales were down 19.5% YTD.

    Impact

    Solid demand for PVs. PV sales regained growth momentum post theChinese New Year holiday in February. Total shipments were up 9.4% inMarch, higher than 6.4% in February. YTD sales were up 9.0%, a solidnumber in our view. We believe the underlying demand for PVs in Chinaremains healthy, especially in China’s inland provinces, which is reflected inthe market share gain of Chinese domestic brands.

    SUV sales beat our bullish estimates. SUV sales surged 54% in March,beating our full-year growth estimate of 23% substantially. YTD sales were up49%. SUV penetration in the PV market exceeded 25% for the first time (25.3%in March and 24.4% YTD, vs. 20.7% in 2014 and 16.7% in 2013). We believethis trend will continue for 2015 as increasingly more car buyers are shiftingfrom sedans to SUVs, even among some first-time buyers. The launch ofmore SUV products, especially the sub-compact and compact SUVs belowRmb100k, has also fuelled the growth momentum.

    Domestic brands gaining share, backed by SUVs. Chinese brands gainedmarket share for the 8th consecutive month in March, rising to 43.8% from thetrough of 34.8% in July 2014. SUV is the biggest driver for the market sharegain and sales volume rose 108% YTD. Quick response to market demandand fast product launch are some of the reasons for Chinese brands to gainshare in the SUV market.

    Premium brands are worth highlighting in the context of southboundfund flow. Share price performance of auto OEMs was almost muted despitethe HK market rally, partly because most of the stocks are dual-listed andmany have had a good run YTD. Brilliance China Automotive (1114 HK,HK$15.66, Outperform, TP: HK$18.30), the only pure premium carmaker inthe A+H space, has been ignored by investors and we believe it will becomethe target of southbound fund flow soon.

    Outlook

    We maintain our positive view on the China auto sector, and believe SUVsand premium brands will continue to lead PV market growth in 2015.

    Our top picks among the auto OEMs are Chongqing Changan Auto (200625CH, HK$21.17, Outperform, TP: HK$31.80) and Great Wall Motor Company(2333 HK, HK$58.05, Outperform, TP: HK$60.00) for the strong product lineupof SUVs. Zhengtong Auto Services (1728 HK, HK$4.66, Outperform, TP:HK$7.40) is our top pick among the HK listed auto dealers.