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1、Deutsche Bank Markets Research Asia China Automobiles key sector risks are better-/worse-than-expected auto sales To conclude, we believe that the worst is already behind us regarding Chinese auto dealer groups. Since Baoxin is completing the NCGA acquisition with the original proposed financing, i.
2、e. using less equity financing than our original prudent forecast, we raise FY13-14E EPS given less EPS dilution. We still prefer Baoxin given its significant potential from the growth of its after-sales business due to its younger store age, and the upcoming earnings contributions from its acquisit
3、ion. Our DCF-derived target price of HKD7.5, implying 11.7x FY13E P/E should be well supported by the companys 49% FY12-14E EPS CAGR. The key industry downside risk is an unexpected slowdown in auto sales, especially for higher-margin luxury auto sales. The key upside risk is stronger-than-expected
4、auto sales resilience that leads to better new car pricing and margins. This report changes estimates for Baoxin. For a detail listing of these changes, see Figure 2 on Page 5. 28 November 2012 Automobiles ample opportunities in second and third tier cities After our meeting with the dealership grou
5、ps management and some visits to stores in a second tier city, we think that the most difficult period of selling luxury cars at a depressed price is probably behind us and there is likely to be a mild recovery in margins in FY13E as we originally expected. What is more, we also re-affirm the ongoin
6、g strength of after-sales service demand and earnings contribution from our visit and think that investors should definitely pay attention to each auto dealer groups differentiation in this area (please also refer to our sector FITT report dated 6 November 2012). Last but not least, we are pleasantl
7、y surprised by the strong interest in luxury auto demand in the bigger second tier cities like Wuxi, which should provide ample room for companies like Baoxin to grow their new car sales and after-sales services in addition to their establishments in first tier cities. Wuxi city snapshot Figure 1: W
8、uxi city snapshot Population 6.4m Province Jiangsu 2011 GDP ranking by city 10 Number of Audi stores 2 Number of BMW stores 3 Number of Benz stores 4 Number of JLR stores 3 Source: Baidu, Company data, Deutsche Bank 28 November 2012 Automobiles 2) weaker-than-expected gross profit margin recovery fr
9、om selling new luxury cars; and 3) the execution risk regarding the integration of NCGAs network. Zhongsheng Buy on potential sales recovery of the Japanese brands and Mercedes Benz in FY13E Still deserving a premium to sector average We use DCF analysis to derive our target price for Zhongsheng (ba
10、sed on WACC of 10.1% and terminal growth of 1.0%). Our target price of HKD12.7 implies a FY13E P/E of 12.4x, at about a 13% premium to the US auto dealer groups 11x mid-cycle forward P/E valuation. We think that such a premium is justified since we expect Zhongsheng to deliver an exponential 46% FY1
11、2-14E EPS CAGR vs. a slower growth for the US peers in general. In addition, the implied target FY13E P/BV of 2.1x does not appear to be stretched, with 18-20% sustainable ROE. With ample upside to our target price, we rate Zhongsheng with a Buy recommendation. Figure 5: Zhongsheng rolling forward P
12、/E band EPS growth %CY10CY11CY12ECY13E 86.931.7-34.056.9 5 10 15 20 25 30 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 PEMeanMean - SDMean + SD Source: Company data, Bloomberg Finance LP, Deutsche Bank estimates 28 November 20
13、12 Automobiles 2) further under-performance of Mercedes Benz sales growth vs. peers; 3) consequent margin pressure due to weak sales and high inventory; and 4) slower-than-expected expansion in the after-sales business. Zhengtong Hold on slower-than-expected expansion pace Discount-to-Chinese-peers
14、average justified by slower growth We carry out a DCF analysis to derive the target price for Zhengtong (based on WACC of 10.2% and terminal growth of 1.0%). Our target price of HKD6.1 implies an FY13E P/E of 10.7x, or about at par with the US auto dealer groups 11x mid-cycle forward P/E valuation.
15、We think this is justified since, on the one hand, we expect Zhengtong to deliver a respectable 36% FY12-14E EPS CAGR vs. a slower growth for the US peers in general and, on the other hand, we foresee its growth pace lagging Chinese peers given slower-than-expected integration of the SCAS business.
16、On forward P/BV basis, the implied target FY13E P/BV of 1.4x does not appear to be stretched, in our view, with about 14-15% sustainable ROE. To conclude, with less upside to our target price vs. its peers, we rate Zhengtong with a Hold recommendation. Figure 6: Zhengtong rolling forward P/E band EP
17、S growth %CY11CY12ECY13E 40%24%43% 5 10 15 20 25 30 35 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 PEMeanMean -1 SDMean + 1 SD Source: Company data, Bloomberg Finance LP, Deuts
18、che Bank Risks Key upside risks for Zhengtong: 1) stronger-than-expected gross profit margin recovery from selling new luxury cars; 2) better-than-expected new car sales gross profit margin recovery; and 3) faster-than-expected improvement in operating/finance cost structure, post SCAS acquisition.
19、Key downside risks: 1) weaker-than-expected gross profit margin recovery from selling new luxury cars, and 2) failure to fully integrate SCASs network and streamline costs. 28 November 2012 Automobiles Price Performance 4 8 12 16 20 24 Mar 10Jun 10Sep 10Dec 10Mar 11Jun 11Sep 11Dec 11Mar 12Jun 12Sep
20、12 Zhongsheng Group HANG SENG INDEX (Rebased) Margin Trends 4.0 5.0 6.0 7.0 8.0 09101112E13E14E EBITDA MarginEBIT Margin Growth as a result, the recommendations may differ and the price targets and estimates of each may vary widely. In August 2009, Deutsche Bank instituted a new policy whereby analy
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