文档介绍：23 July 2004
Asia Pacific/China
Automobile Manufacturers
Equity Research
Research team
Jeannie Cheung, CFA
852 2101 7663
@
Raymond Ho, CA
852 2101 6407
@

Source: CSFB Research.
China Auto Sector

In low gear
UNDERWEIGHT the sector
Concerns over declining margins, rising inventory due to ‘hyper-speed’ capacity growth and intensifying
competition from imports are all well known to the market. However, negative surprises on car sales and
earnings, due to the cyclical demand slowdown in 2H04 and 2005, are expected to trigger further downside
on share prices.
petition will kill returns
Our analysis shows that chronic oversupply of passenger cars over the next five to seven years,
particularly in the mid- to high-end segment, and petition and pricing pressure will erode the
extraordinary margins/returns currently enjoyed by car makers in China.
Key findings
While stocks have fallen by so much and appear tempting at the current level, negative news flows and
downgrades to earnings and returns remain the key risks, which are not yet fully priced in. We are
UNDERWEIGHT the sector, and downgrade our ratings on Denway Motor and Brilliance China to
UNDERPERFORM after further earnings cuts to reflect the cyclical slowdown in demand growth next year.
We initiate coverage of Geely Auto with a NEUTRAL rating and Chongqing Changan Auto with an
OUTPERFORM. For investors looking for long-term value in the sector, our only preferred stock is
Chongqing Changan Auto.
Companies mentioned: Geely Automobile (, HK$.54, NEUTRAL, TP HK$), Denway Motor (,
HK$, UNDERPERFORM, TP HK$), Chongqing Changan Auto -B (, HK$, OUTPERFORM, TP
HK$), Brilliance China Automotive (, HK$, UNDERPERFORM, TP HK$).
FOR IMPORTANT DISCLOSURE INFORMATION relating to analyst certification, the Firm’s rating system, valuation methods and
potential confl