Automotive industry: 2006 production and sales review can be described as a feast

In 2006, China's auto production and sales amounted to 7.28 million vehicles and 7.251 million vehicles, an increase of 27.3% and 25.1% year-on-year, exceeding the 6 million-unit scale and becoming the third country in the history of international automobile development to reach 7 million vehicles. With an annual output of more than 1.5 million vehicles, this may be a unique feast in the history of automobile development.

Passenger car sales reached 5.176 million units, an increase of 30.0% year-on-year, including 3.829 million basic passenger cars (sedans), an increase of 36.9% year-on-year; SUV sales were 238,000, an increase of 21.2% year-on-year; MPV sales were 191,000. The year-on-year increase was 22.6%. In 2006, the increase in automobile sales was 1.458 million, of which the number of passenger cars increased by 12.05 million, and the contribution rate reached 82.7%, while the increase of basic passenger cars was 1.04 million, with a contribution of 71.4%.

In 2006, the sales volume of commercial vehicles reached 2.04 million units, an increase of 14.23% year-on-year, accounting for 28.3% of the total sales of automobiles. The pattern based on passenger vehicles is even more pronounced. Heavy-duty trucks sold more than 300,000 vehicles, an increase of 29.9% over the same period last year, of which semi-trailer tractors grew by 64.2%. The total number of commercial vehicles increased by 253,000, including 70,700 heavy-duty trucks, which contributed 27.96%, and 100,000 light-duty trucks, which contributed 39.58%.

The industry efficiency has improved substantially. From January to November, the industry’s total industry revenue reached 1,432.15 billion yuan, an increase of 30.1% year-on-year, and a profit of 70.4 billion yuan, an increase of 44.1% year-on-year.

Of which, the total profit of automobile vehicles was 34.5 billion yuan, a year-on-year increase of 47.7% (calculated according to the same period of 2005 data after adjustment in 2006); the profit of the spare parts industry was 28.4 billion yuan, an increase of 40.2% over the same period last year.

In 2006, the ex-factory price index of sedan products maintained a good level. The price index of trucks in commercial vehicles continued to rise steadily, and the price index of passenger car products continued to fall as we had expected in the previous period. In November 2006, the car price index fell by 2.21 percentage points month-on-month, which was the largest in recent years. However, this may not be a trend signal, and the data for the follow-up month is worthy of attention.

It is expected that the auto industry will continue to maintain a good development trend in 2007, but the growth rate will slow down. Heavy buses in commercial vehicles, commercial vehicles, and large buses in passenger cars will continue to maintain rapid growth.

Maintain a rating on the industry's holdings. Maintain Buy rating for car companies Changan Automobile (000625), FAW Xiali (000927) and Shanghai Automotive (600144); Commercial vehicle companies Jianghuai Automobile (600418), Foton Motor (600166) and Shuguang Stock (600303) Buy rating, China National Heavy Duty Truck (000,951), Dongfeng Motor (600,006), Hunan Torch (000,549) and other holdings rating.

In 2006, China’s auto production and sales volume exceeded 7 million units, reaching 7.28 million vehicles and 7.215 million vehicles, respectively, an increase of 27.3% and 25.1% year-on-year. China also surpassed the 6 million-class scale in one stroke and became the third country in the history of international automobile development to reach 7 million vehicles. The annual new output exceeds 1.5 million vehicles, which may be unprecedented in the history of automobile development.

1. Production and sales review in 2006

1.1 Overall sales increase by more than 25%

In 2006, the total automobile production and sales amounted to 7.28 million units and 7.215 million units respectively, an increase of 27.3% and 25.1% year-on-year respectively; of which, 5.233 million and 5.176 million units were passenger cars, which were up 32.8% and 30.0% year-on-year respectively; and the sales and sales of commercial vehicles were 204.7 years. 10,000 vehicles and 2.04 million vehicles were up 15.3 and 14.2% year-on-year respectively.

Monthly sales of automobile sales reached a record high of 758,600 units in December, a year-on-year increase of 22.2%. At the end of the year, it was the traditional sales season. In addition, some manufacturers increased their shipments in order to impact sales throughout the year. Therefore, sales in December generally hit new highs. Sales in most of the subsequent January were significantly reduced due to festivals and other factors. .

1.2 Passenger vehicle sales exceeded 5 million

In 2006, passenger car sales exceeded 5 million vehicles, reaching 5.176 million vehicles, an increase of 30.0% year-on-year. The total sales of basic passenger cars (sedans) reached 3.829 million, an increase of 36.9% year-on-year; cumulative sales of SUVs totaled 238,000, an increase of 21.2% year-on-year; MPV sales were 191,000, an increase of 22.6% year-on-year; cross-over passenger cars (micro Passenger cars sold 918,000 vehicles, an increase of 10.4% year-on-year.

Passenger cars, especially basic passenger cars, were the mainstay of the growth in car sales in 2006. In 2006, the increase in automobile sales was 1.458 million, of which the number of passenger cars increased by 12.05 million, and the contribution rate reached 82.7%, while the increase of basic passenger cars was 1.04 million, with a contribution of 71.4%.

1.3 Steady Growth of Commercial Vehicles

In 2006, the sales volume of commercial vehicles reached 2.04 million, an increase of 14.23% year-on-year, accounting for 28.3% of the total sales of automobiles, and a further drop from 30.9% in 2005. The pattern of passenger vehicles in China’s auto market is even more pronounced.

In terms of subdivided products, sales of heavy-duty vehicles (including heavy-duty trucks, heavy-duty chassis, and semi-trailer tractors) exceeded 300,000, a year-on-year increase of 29.9%, among which the growth of semitrailer tractors reached 64.2%; sales of light trucks was 85.5. Millions, a year-on-year increase of 13.3%.

In 2006, the total number of commercial vehicles increased by 253,000, including 70,700 heavy-duty trucks, which contributed 27.96%, while the incremental contribution of semi-trailer tractors was 14.18%, the contribution of heavy-duty chassis was 18.03%, and the increase of light trucks was 100,000. Vehicle, contributes 39.58%.

1.3.1 The biggest highlights of heavy-duty vehicles - commercial vehicles

The biggest bright spot of commercial vehicles in 2006 was heavy-duty vehicles. We pointed out in the reports for the end of 2005 and early 2006 that heavy-duty trucks will come out of the trough under the guidance of semi-trailer tractors, and the actual growth rate of the market is still beyond our optimistic expectations.

In 2006, the cumulative sales of heavy vehicles reached 307,000, an increase of 30% year-on-year. Monthly sales of heavy-duty vehicles remained relatively stable in most of the months of 2006, generally exceeding 25,000 vehicles. The year-on-year high growth rate was mainly due to the low base in the second half of 2005. We have determined that the heavy-duty vehicle market will continue to grow rapidly in the future, and the market fluctuation will decrease.

Judging from the subdivision of heavy-duty vehicles, the cumulative sales of semitrailer tractors totaled 92,700 units, an increase of 64.18% year-on-year; the chassis sales amounted to 159,600 units, an increase of 40.11% year-on-year; the heavy truck sales amounted to 55,000 units, a year-on-year decrease of 15.34%. Factors that lead to changes in the sales structure of heavy-duty vehicles include: Measures to control overloading, including toll-by-weight, etc., which make light-weight tractors grow rapidly, while long-haul logistics, port logistics, etc. continue to grow, but also lead to the rapid growth of tractor demand; chassis demand The growth reflects the growth in demand for various types of retrofits and special-purpose vehicles, and the development of commercial vehicles is also a trend.

From the perspective of market share, Dongfeng Group, China FAW Group and China National Heavy Duty Truck Group occupy the 62.8% share of the heavy vehicle market. From the perspective of changes in corporate shares, the three companies in the Steyr platform in 2006 saw significant growth in the market share of China National Heavy Duty Truck Group, Shaanxi Heavy Duty Truck and Foton Motor. The market share of Sinotruk increased by 0.9 percentage points year-on-year. An increase of 3.8 percentage points, while Foton Motor increased by 3.9 percentage points. The market share of Dongfeng Group and FAW Group, which are traditionally dominated by heavy-duty trucks, has declined significantly. This reflects the gradual shift of the market to large-tonnage products.

Heavy-vehicle market competition in 2007 is still fierce, and the industry structure is expected to remain relatively stable. With the adjustment of the product mix of Dongfeng Group and FAW Group, we expect its market competitiveness will increase. After the completion of Weichai absorption consolidation, if the integration is successful, the competitiveness of Shaanxi Sinotruk will continue to increase; the cooperation between Foton Motor and Dai-ke will intensify. It will greatly increase the competitiveness of its products and its ability to continue to develop. It may be the most dramatic scene in the heavy-duty vehicle market. China National Heavy Duty Truck Group will continue to maintain large tonnage as the leading position in the heavy-duty vehicle market, but the challenges it faces will intensify.

1.3.2 Bus Industry

According to the statistics of the Automobile Industry Association, the overall growth of the bus industry was weak. In 2006, a total of 191,000 buses (excluding chassis) were sold, an increase of only 6.9% year-on-year. Among them, 21,000 were for large buses, an increase of 5.85%; sales of medium-sized passenger cars were 25,600, an increase of 22.9% year-on-year; light buses were 144,300, an increase of 4.68% year-on-year. In addition, the cumulative sales of passenger cars chassis 97,900, an increase of 8.12%. Our focus on large and medium-sized passenger vehicles sold a total of 46,600 vehicles, an increase of 14.4% year-on-year. If one considers that it also contains high-growth passenger car exports, the growth in domestic passenger car demand is actually lower than the above rate.

In addition, December was the peak season for traditional passenger car sales. However, sales figures for large and medium-sized passenger cars in December 2006 were frustrating. They sold a total of 6,201 large and medium-sized passenger vehicles, a year-on-year decrease of 1.8%. Among them, 3002 were sold by large passenger cars, down 12.6% year-on-year, and 3199 medium-sized passenger cars, up 22.9% year-on-year. This contrasts with the market's optimistic expectations for the bus industry. We speculate that one of the reasons for this is that the December of 2006 is farther from the Spring Festival in 2007, and the traditional peak season at the end of the year is largely due to the purchase companies preparing for the Spring Festival passenger transport peak. The Chinese New Year in late spring in February. Therefore, the passenger transport enterprises have sufficient time to purchase cars in January 2007. Another possible reason is that the statistical data of the buses of the Automobile Industry Association is not comprehensive, and some important bus companies have not included the statistics and the deviations in the data.

From the point of view of sub-products for passenger cars, we insist that bus buses are the products with the greatest growth prospects in the future, and are also the golden period for the development of bus passenger cars. At present, there are more than 300,000 buses in various locations, most of which are in urgent need of upgrading. The implementation of the “bus-first” strategy and the increase in government financial resources also make it possible to upgrade large-scale buses. This point can be seen from the rapid growth of Dandong Huanghai Automotive's recent performance held by Shuguang Co., Ltd. (600303), a leading bus company. The golden period of road passenger coaches and tourist coaches has been completed in the past few years. Large-scale product replacements have been completed. The future is more from normal renewal, and the speed and scale of renewal are also affected by serious excesses in transportation capacity, railway network construction, and speed-up. The impact is uncertain.

2. Significant growth in industry benefits

The substantial improvement in the efficiency of the auto industry in 2006 was in line with our expected result in the report at the end of 2005. The major reasons for the substantial increase in industry profits in 2006 include: strong demand, stable prices, falling prices of raw materials such as steel, and rising capacity utilization of enterprises. We expect the industry benefit will continue to improve in 2007, but the rate will be significantly lower than the level in 2006.

The ex-factory price index, as we have pointed out several times since 2005, has maintained a good level of ex-factory prices for sedan products in 2006, which is actually better than we expected. The price of most products is at a reasonable level, and the strong demand and rising capacity utilization rate of enterprises are the main factors for price stability.

The price index of trucks in commercial vehicles continued to rise steadily. The passenger car product price index continued to fall as we expected in the previous period. This may be related to the intensified competition in the passenger car market. There are numerous passenger car manufacturers in China, but the demand growth has been limited, the market structure has not reached a stable state, and companies have not Technology, R&D, and other aspects really opened up the gap. Most of the competition is homogeneous and low-level. However, the current level of the price index is still in a healthy state, and follow-up trends are worth paying attention to.

In November 2006, the sedan price index changed, with a month-on-month decline of 2.21 percentage points. This is the largest magnitude in recent years. The price index also fell below 95, the lowest point in 2006. We believe this may not be a trend signal and the data for subsequent months should be corrected.

One of the important reasons for making this judgment is the change in gross margins. In most cases, the lower the price index is, the lower the price, and the corresponding gross profit rate will decline. In 2006, the gross margin of the entire vehicle industry was at a good level, and in November 2006, the gross margin of the entire vehicle industry reached 17.84%, which was a high point since 2004. The profits and profit margins were all at a good level. The sharp decline in the chain price of the ex-factory price index in November was inconsistent with the improvement in the gross profit margin. The reason seems to be explained by the fact that the cost has fallen even more, but this is not entirely consistent with the actual situation in the industry.

Another possible factor is the lag in price adjustments, that is, changes in prices in November may be reflected in December's data, or statistical differences.

Industry-wide profit growth of 44.1%

Under the influence of strong demand, stable prices and lower prices of raw materials, the profits of the auto industry rebounded sharply in 2006. From January to November, the whole industry of the auto industry realized revenue of 1,321.5 billion yuan, an increase of 30.1% year-on-year, and a profit of 70.4 billion yuan, an increase of 44.1% year-on-year.

From the perspective of major sub-sectors, the total income of the automobile industry from January to November 2006 was 734.2 billion yuan, a year-on-year increase of 28.5%, and the profit was 34.5 billion yuan, a year-on-year increase of 47.7% (calculated based on the 2005 same period of 2005 adjusted data). The income from the parts and components industry was 470.1 billion yuan, up 35.2% year-on-year; the profit was 28.4 billion yuan, up 40.2% year-on-year. In November, the profits of the parts and components industry continued to maintain a good growth trend. We believe that with the continuous growth of car demand, increase in the number of possessions, and the huge demand for Chinese auto parts and components in the international market, the parts and components industry will continue to maintain its momentum of rapid development.

3. Investment advice and key company reviews: The growth premium or the general increase in the valuation level?

The rapid growth of the auto industry in 2006 seems to once again aroused the market's enthusiasm for auto stocks, especially for the highly optimistic expectations in 2007, which makes the revaluation of car stocks and the increase in valuation levels as an important factor in the continued rise in stock prices. , And the market seems to be happy with the optimistic expectations of analysts, which has contributed to higher valuations.

We do not think that the story of the increase in valuation can be perfectly described. It is only a vision of the bullish atmosphere at this particular stage. The "mean return" may be the universal gravity of the financial market, and the level of valuation cannot be separated from its constraints. The optimistic development of the industry is expected to be accompanied by a certain degree of increase in liquidity due to the increase in valuation is understandable and acceptable, but will eventually return to the long-term equilibrium level.

Explaining the company's valuation level with a growth premium may be more persuasive. Because there is universality behind the increase in the valuation level, the good growth of the industry does not necessarily mean the continuous growth of the performance of all companies, which is the so-called "sunset industry" and "sunrise enterprise" debate. The market often finds companies that produce excellent or even superior businesses in seemingly unpromising industries, and examples of failed business operations in fast-growing industries abound.

We continue to be optimistic about the prospects for the development of China's auto industry. The next five to ten years will be a period of sustained and rapid growth. However, we also clearly understand that fluctuations in the industry are unavoidable, and that the stock market will react violently to 2 months or even 1 month of car sales data. Under such circumstances, maintaining a certain safety margin is very important. Necessary, for long-term investors with enough patience, it is more important to find companies with sustainable growth potential.

Key Company Review

The future automobile market growth still comes from passenger vehicles, especially basic passenger cars, that is, cars, so we still maintain our Buy rating on Changan Automobile (000625), FAW Xiali (000927) and Shanghai Automotive (600104).

Overweight rating. In the short-term, the valuation level has reached a reasonable range, but considering a longer period of time, the growth of performance can still bring good returns, but it requires a little more patience.

Changan Automobile (000625):

The market’s enthusiasm for Chang’an Automobile is mainly due to the rapid growth of Chang’an Ford Mazda Motor Co., Ltd., and the mini vehicle’s gradual reversal of the trend. In the previous report, we clearly pointed out that the protagonist of the car growth story in 2006 was Chang An Ford. He also expressed his appreciation and respect for Chang'an's efforts in independent research and development, and believed that he would obtain relevant results in due course. At a certain stage in the future, self-owned brand cars will still be difficult to make significant contributions to finance, but they can amortize fixed costs and improve the financial status of the mini-vehicle business.

FAW Xiali (000927):

The story is still focused on Tianjin Toyota. The company's own efforts seem to have become embellishment and nobody cares. We still maintain a good development expectation for Tianjin Toyota Motor, but it also reminds us that overly optimistic expectations may not be realistic. An important reason is that Tianjin Toyota is just an assembly plant, with core components such as engines and sales operations.

The relative growth of the commercial vehicle market is slow, but some companies may grow into internationally competitive companies. For trucks, the bright spots in 2007 may still be heavy-duty vehicles, and we are optimistic that the corresponding leading companies include China National Heavy Duty Truck (000951) and Hunan Torch (000549, which absorbs the combined Weichai Power); the most growing part of the passenger car market. It is a bus, and it is optimistic about the corresponding Dandong Huanghai Automobile, which is controlled by Shuguang Co., Ltd. (600303). Fukuda Motor (600166) is a business distressed company and its fundamentals are gradually improving. We are very clear about the market's controversy over the company and the company's existing problems, but we also see the company's strategic adjustment efforts, and believe that with the Dai Dai - With the deepening of cooperation, the company's value will be gradually reflected.

Jianghuai Automobile (600418)

Jianghuai Automobile is a comprehensive automobile company with the most development potential. In 2006, it was a strategic adjustment period for the company. The business scope covered a series of light, medium, and heavy trucks, multi-purpose (MPV) commercial vehicles and SRV, and a car that is about to make breakthroughs. . The accumulation of independent innovation capability of the company and self-sufficiency in the core components of the automobile are powerful guarantees for the continued growth in the future. The replacement of new products by Ruifeng MPV in 2007 will solve the problem of product updates; sales of heavy-duty truck products on the basis of 2006 are expected to double and continue to grow rapidly; we are optimistic about its SRV products. The biggest concern in the market comes from JAC's commitment to the development of a sedan project. The factual results may prove that this is completely redundant. We believe that JAC has no obstacles in terms of market access. It is only a matter of time, and the date is getting closer and closer. For competence, I believe that as long as the automotive industry has deep insights, it can be recognized that the company has sufficient capabilities in terms of the accumulation of manufacturing experience, production of core components, branding, and management. Success is only a matter of time and patience. Investors will surely get satisfactory returns.

Shuguang shares (600303)

The company carried out product and business integration. The entire vehicle business including SUV and coach assets entered Dandong Huanghai Automobile Company. The company’s shareholding ratio increased from 51% to approximately 77%, and the axle business with axle and axle still remained with the company. The maternal operation forms two clear development paths for the vehicle and its components.

Huanghai Automobile is the most advantaged bus manufacturer. Benefiting from the "bus priority" policy, the company's performance has increased significantly in recent years and will continue to grow rapidly.

The company's axle components business has a good momentum of development and has successfully achieved the breakthrough of the suspension bridge for passenger cars. The future development space is vast. The export component business also continued to grow.

Foton Motors (600166)

In 2006, the product structure was improved. The growth rate of low-end light trucks with large bases slowed down, while that of mid- to high-end light trucks drastically increased. The market share of medium-heavy trucks Auman was ranked first among peers.

The important content of the company's strategic adjustment is to improve the self-sufficiency of core components, including engines, transmissions, and axles. It has signed a cooperation agreement with Cummins to set up a joint venture to produce 2.8L and 3.8L high-efficiency light vehicle engines. This is an important step for the company to increase the competitiveness and profitability of light vehicles, especially light trucks.

Daimler-Chrysler’s shareholding opened up a long-term development space. The company issued a targeted additional 297 million shares to Dai-Ke, and Dai-Kai accounted for 24% of the company’s total issued share capital. Dai Ke's shareholding is only the first step in the cooperation between the two parties. Based on the previous cooperation framework, Dai-ke will cooperate with the company in the areas of heavy-duty trucks and their engines to develop medium- and heavy-duty trucks from Mercedes-Benz and the company’s existing brands. As a global leader in commercial vehicles, especially the heavy-duty truck industry, Mercedes-Benz will improve Futian's product structure, enhance the company's existing product technology and brand reputation, and enhance the company's product competitiveness and profitability. The company's long-term development prospects are clear. It also marks the new milestone for the development of Foton Motor.
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