ased on long-term tracking and in-depth surveys and research, CCID Consulting, China’s leading research, consulting and IT outsourcing service provider, the first Chinese consulting firm listed in Hong Kong (stock code: HK08235), recently released a monthly thematic report on China’s auto industry. The report focuses on hotspots and issues most customers concern about in the auto industry. Based on an analysis of profitability in the auto industry and the industry chain, the concurrent issue of Analysis of Investment Hotspots in China’s Auto Industry presents a key discussion of investment hotspots in the fields of the whole auto systems, auto parts and auto services. The report conducts a comprehensive evaluation of overall investment returns in the key fields and the financial abilities of Type A listed companies, analyzes in-depth investment risks in the industry and provides industry investors with a forward-looking investment analysis report.
CCID Consulting points out that in 2006, China’s auto output and sales volume reached 7.28 million sets and 7.215 million sets, respectively, up by 27.3% and 25.1% year-on-year, topping the 6 million-set mark at one stroke. This made China the world’s third country to pass the output threshold of 7 million sets. Annual output grew by over 1.5 million sets. Despite a slowdown, the auto industry is expected to continue to maintain a good growth momentum in 2007. Among cars and business vehicles, the heavy truck, medium- and large-scale passenger car and parts industries will continue to maintain fast growth. In the auto services field, face-lifting, maintenance and auto finance will also become new investment hotspots.
Passenger vehicle sales reached 5.176 million sets, up by 30% year-on-year. Of this, 3.829 million standard passenger vehicles (cars) were sold, up by 36.9% year-on-year; 238,000 SUVs were sold, up by 21.2% year-on-year; 191,000 MPVs were sold, up by 22.6% year-on-year. In 2006, the auto sales volume increased by 1.458 million sets. Of this, passenger vehicle sales grew by 1.205 million sets, accounting for 82.7%, while standard passenger vehicle sales were up by 1.04 million sets, accounting for 71.4%.
Heavy truck has become the biggest flashing point for investment among business vehicles. In 2006, 2.04 million business vehicles were sold, up by 14.23% year-on-year, accounting for 28.3% of the total auto sales volume. Over 300,000 heavy trucks were sold, up by 29.9% year-on-year. Of this, semi-trailer towing vehicle sales grew by 64.2%. Business vehicle sales were up by 253,000 sets. Of this, heavy truck sales grew by 70,700 sets, accounting for 27.96%, while light truck sales were up by 100,000 sets, accounting for 39.58%.
Dongfeng Group, FAW and China National Heavy Duty Truck Group accounted for 62.8% of the heavy truck market. Heavy trucks are now in a preliminary monopolistic position and the industry is rather concentrated. Leading enterprises in the industry can get excess returns. Also, stable demand growth is expected in the next 5 years. There are long-term investment opportunities for leading companies. These opportunities are clearer than those for cars.
In the auto parts industry, leading enterprises and integration are the main themes of attention. Through many years of development, China’s auto parts industry is gaining a growing position in the auto industry. The level of manufacturing has been notably improved. Some enterprises have gained the ability of independent development and system supply. However, auto parts only account for some 35% of the total revenues and some 40% of the profits in China’s auto industry, notably lower than the international average of 60%-70%. This implies that there is still a very big room for China’s auto parts industry to grow in the future.
On the other hand, industry competition pressures have generated a growing demand for integration and capital. Existing parts makers want to become bigger and more competitive, while new entrant enterprises are willing to grow bigger. This has generated a rising demand for integration through M&As and an increase in capital expenditure. For listed domestic auto parts makers, which are small in overall size, an effective means to meet the above demand is to raise funds in the capital market. This situation is expected to occur more. In the near future, Weichai Power will complete its integration of Torch Automotive and get listed. In 2007Q2, Wanxiang Qianchao will also acquire the relevant assets of its parent company to enrich its product portfolios and strengthen its earning power. Anhui Zhongding Sealing Parts also has a strong desire to acquire the relevant assets of its parent company.
For “Fig: Competition Pattern in China’s Auto Parts Industry”, please refer to http://www.ccidconsulting.com/upload_fr/07052501.jpg .
In 2006, output and sales in China’s auto making industry both grew fast. Fast growing revenues and fast growing profits formed a situation of double prosperity. Sales revenues in the whole year totaled RMB 1.526655 trillion, up by 28.72%, while profits totaled RMB 76.805 billion, up by 45.73%. Of this, sales revenues in the auto making industry reached RMB 849.330 billion, up by 26.84%, while profits totaled RMB 36.913 billion, up by 46.62%. In 2006, profit growth in the auto industry fell month by month. While output and sales both hit a new record high, industry profits failed to reach a historical high. With the adjustment of auto product structure, passenger vehicles, cars in particular, now account for over half of the total products. Cars’ inherent characteristic of “small profits but quick turnover” determines that expanded scale can only stabilize the absolute value of profits but have difficulty in raising profitability. By comparison, business vehicles medium- and large- sized passenger cars in particular, have “high added values”. Though their output and sales grow not as fast as cars, their earning power is far greater than that of passenger vehicles such as car.