Automotive Industry Investment Strategy in 2007

- Sharing the benefits of stable growth in the industry
In 2006, the country’s macroeconomic situation continued to be good, residents’ income levels improved significantly, and their spending power increased accordingly. As a result, the auto market once again regained its vitality. As of the end of October, the cumulative production and sales of automobiles in the country were 5.8911 million vehicles and 5.7658 million vehicles, respectively, an increase of 27.56% and 25.69% year-on-year, respectively, and the overall sales situation of the industry was relatively stable. Judging from the changes in automobile production and sales in each month, from January to March, the year-on-year growth was more significant, with production and sales reaching a record high in March, and production and sales in April-June showed a certain adjustment trend. Production and sales increased from July to September. It is expected to achieve more than 7 million units of production and sales throughout the year. The top five automotive groups in the top ten months of sales are still: SAIC, FAW, Dongfeng, Beiqi, and Chang'an. The sales volume is 994,500, 949,700, and 742,200 respectively. 550,000 and 550,300.
The operating conditions of the automotive industry in 2007 predict that the sales revenue of the automotive industry will be affected by both the growth of automobile sales and the decrease in prices. According to our analysis, the growth rate of sales (predicted to be more than 15%) will be greater than the rate of price decline (which is expected to be less than 5%). . It is estimated that in 2007, the auto industry will achieve a sales income of 1594.2 billion yuan, an increase of 13%; the profits of the auto industry will be mainly affected by the combined effect of sales volume, price, and cost. In the case of growth, the profit of passenger vehicles is mainly affected by the price; the profit of commercial vehicles is more affected by the cost factor. Based on our analysis of sales, prices, and cost factors, our entire industry achieved a profit of 80 billion yuan, an increase of 15% or more over the same period last year. Whether it is the entire industry or various segments, profits will increase year-on-year.
2007 Investment Strategies for the Automotive Industry The automotive industry is a cyclical industry. The cyclical nature of the industry determines that the volatility of automotive stocks is greater than the volatility of the broader market. Before 2001, the auto market was in an early stage of growth. The market grew slightly and accompanied by frequent but difficult to find regular small fluctuations. The performance of auto companies was poor, and the auto stocks were weaker than the broader market. From 2002 to 2003, it was a stage of concentrated short-term release of demand. After China's accession to the WTO, the accelerated entry of the International Automobile Group, the substantial reduction in tariffs, and the encouragement of car entry into the family, the growth rate of passenger cars has climbed to 80% at this stage. The "type of growth", the average annual growth rate of the entire industry as high as 50%, the performance of the automotive stock price is better than the broader market. From 2004 to 2005, it was a period of adjustment for fluctuations in growth, slowdown in vehicle sales growth, decline in product prices, and decline in corporate performance. In 2005, industry profits fell by as much as 40%, and automotive stocks performed poorly. We believe that the period from 2006 to 2012 is a period of stable growth, and the sales growth rate is expected to be over 15%, of which the growth rate of passenger vehicles is more than 20%. In 2006, the growth rate will exceed 20%. Although the auto industry recovered this year but the impact of refined oil prices and industrial overcapacity, the auto index followed the broader market volatility, but the dominant corporate stock price significantly ahead of the broader market trend.
Investing in stocks in the automotive industry requires companies to grasp the cyclical trends in the industry and have a competitive advantage in the industry. We believe that the automotive industry is still worth investing in the segment of the market has an advantage of automotive companies, with its own brand automotive companies and parts companies with a dominant position.
Although the auto industry will still face a series of uncertainties in 2007, it is expected that the automobile industry will increase its sales in 2007 under the combined effects of the continuous appreciation of the renminbi, falling oil prices, stabilization of raw material prices, and expansion of domestic demand and new rural construction. The rate is above 15%, of which the growth rate of passenger cars is above 20%. The profitability of the auto industry will continue to improve. Of course, the division among enterprises will also become more apparent, and the operating and profitability of the automotive sector leading enterprises will maintain steady growth. In view of this, to give the auto industry a "look" investment rating, the focus is on Shanghai Automotive (600104), Changan Automobile (000625), Yutong Bus (600066), China National Heavy Duty Truck (000951) and Golden Dragon Motors (600686).