AUTOMOBILES & COMPONENTS SECTOR：VEHICLE SALES GROWTH REMAINED STABLE IN SEPTEMBER
2017 was up 5.7% yoy, with passenger vehicle （“PV”） sales up 3.3% yoy and commercial vehicles （“CV”） up 23.9% yoy.
SUV sales maintained relatively high growth in Sep. 2017, increasing 10.5% yoy, and sedan sales kept growthmomentum, increasing 3.7% yoy. Both crossover and MPV vehicles continued to record significant yoy decline （Seetable 1）。 CV sales in Sep. 2017 maintained high speed growth at 23.9% yoy. In addition to increasing truck sales, 7.5%yoy growth in bus sales was also noticeable. New energy vehicles （“NEV”） continued to improve; both production andsales volume edged up MoM. NEV sales reached 78,000 units, increasing 79.1% yoy in Sep. 2017; in cumulativeterms, NEV sales grew 37.7% yoy.
The PV market continued to remain in good shape. PV sales continued to improve in the third quarter with YTDsales stretching 0.2 ppts to 2.4% in Sep. 2017. A number of factors were supportive to sales: 1） Inventory pressure haseased since July. Inventory ratio of dealers continued to drop, down 0.1 to 1.34 in August. Moreover, the vehicleinventory alert index compiled by the China Passenger Car Association （“CPCA”） also suggested a similar picture, withreadings of 48.7% （below 50% as normal region）； two consecutive months below 50% this year. The healthy inventoryreadings suggest that dealers have more incentive to replenish vehicles from OEMs. 2） We noticed a continuousincrease in discount rate and we expect that the discount rate will not fall for dealers and expect OEMs to keep sales upto meet the full-year target. 3） the phase out of the purchase tax cut policy on 31 Dec. 2017 should act as another boostfactor for vehicle sales.
Improvement noticed for most OEMs in Sep. 2017 sales. Sales has sped up for most brands. Geely Auto （00175HK） sales volume reached a historical high （108,872 units）， up 42.2% yoy, as fueled by the strong sales from Boyue,Emgrand GS / GL, which have increased every month since launch. The strong sales from Boyue indicates that thegearbox shortage was largely resolved in Sep. 2017. On the other hand, despite Trumpchi still suffering from gearboxshortages for the GS8, other models have compensated for the drop. Particularly, star model GS4 sales exceeded30,000 units and new SUV, GS3, ramped up to 4,417 units of sales, representing MoM growth of 4.9x. BesideTrumpchi, other brands under GAC （02238 HK） also remained robust, seeing GAC PV sales climb 18.2% yoy. EvenGreat Wall Motor （02333 HK）， which has underperformed in the past few months, returned back onto track for growth,recording 4.5% yoy increase for Sep. 2017 sales. Sales mix started to shift with focus on the WEY brand, which bothVV7 and VV5 have been rather strong, making 7,444 and 4,569 units of sales, respectively. Luxury brands continued tosee strong growth. Although Brilliance BMW sales dropped 25.4% yoy, 5-series sales exceeded 10,000 units, up 39.3%MoM. We expect sales to grow faster in the next quarter as 5-series sales further improves. We also see the 1-seriescontinue along its improvement track, rising above 4,000 units of sales for the first time since launch.
Sector View: Our top pick has changed to Brilliance China （01114 HK, “Buy”） due to its strong product cycle ahead; weexpect that sales from the 5-series should speed up in the fourth quarter. Other companies that have a “Buy” ratinginclude Geely Auto （00175 HK, “Buy”）， Guangzhou Automobile （02238 HK, “Buy”） and Sinotruk （03808 HK, “Buy”）。
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