CHINA PASSENGER VEHICLE SECTOR：OCTOBER SALES YOY GROWTH PAUSED WITH EVEN TOUGHER COMPS AHEAD
Chinese passenger vehicle （PV） wholesale volume increased 0.4% YoY （0.4%MoM） in October, in line with our expectation, with a healthy inventory situation.While there is upside risk to our 1.6% 2017 China PV sales growth forecast, withincreasing last-minute purchases before the year-end expiry of tax cut stimulus,we remain cautious as extra selling efforts still seem inevitable to beat the highsales base. Our preferred OEM names are BAIC Motor, Brilliance and GuangzhouAuto-H （GAC-H） on their key brands' sales strength.
A lack of October YoY wholesale growth on high base
Based on China Association of Automobile Manufacturers' （CAAM） October salesdata, SUV sales were up 13.9% YoY （accounting for 43.4% of China PV sales）。While local brands' October SUV sales made up 62.3% of total SUV sales, overalllocal brand sales recorded a 1.8% YoY decline with market share loss in the sedansegment. Although the sub-1.6L PV segment recorded 4.4% YoY sales volumedrop in October, there was a 1.3% MoM sales increase, implying a continuation oflast-minute purchase demand, in our view. Meanwhile, above-1.6L PV wholesalesales improved 13.4% YoY in October, on our estimates, probably driven by decentpremium brand sales amid the Chinese consumption upgrade.
Inventory expectation remains benign, but selling pressure on the rise
The China Automobile Dealers Association （CADA） reported that the Septemberdealer inventory index eased MoM to 1.21 months, and its October inventoryalert index is at 49.9%, implying dealers' continual optimism. Although theChina Passenger Car Association （CPCA） and WAYS forecast that Novembermainstream PV （i.e., excluding mini-car） wholesale volume will rise 1.7% YoY, westill think the monthly PV wholesale YoY growth could be flattish or negative, on ahigh base. We also think stronger selling efforts, such as discounts, official pricecuts and low-rate auto financing packages are still needed, especially for brandswith slower sales/higher inventory.
We prefer premium exposure and SUV segment outperformers
We use P/E to value auto OEMs and base our target prices for auto dealers onDCF analysis. Our OEM preferred names are BAIC Motor and Brilliance, givenstrong sales at their premium JV brands, while BAIC Motor will also benefit fromits Hyundai JV recovery. We also rate GAC-H a Buy, as we see resilient sales and
□ .V.i.n.c.e.n.t. .H.a./.F.e.i. .S.u.n./.Y.u.k.i. .L.u .德.意.志.银.行.股.份.有.限.公.司