– Roewe local brand: The operation achieved a better profit in 1H17
at themanufacturing level (i.e. excluding R&D expenses) and the RX5 SUV
– SAIC sold 520k local brand vehicles and expects to sell 650k-700k
units in2018. The gross profit margin of the local brand is around 20%.
Excluding R&D,operating profit improved in 9M17. The company expects
profitability to continueto improve going forward.
Deutsche Bank view – stable earnings growth outlook; Hold on
Tuopu released its 1H17results after market close. The company’s
1H17grossrevenue edged up by 40.1% YoY to RMB2.3bn, achieving 46% of our
originalFY17E revenue forecast. The revenue growth was mainly driven by
strong ordersfrom local brands OEM customers, such as Geely, SAIC Roewe,
and GACTrumpchi, according to the company. By product, revenue for shock
absorber anddecorative parts increased by 20.0%/71.0% YoY to
RMB1.0bn/1.1bn, respectively.1H17gross profit grew 34.4% YoY to
RMB683.1m with 1.2ppt YoY grossprofit margin contraction mainly due to
product mix deterioration with lesscontribution from shock absorber and
intelligent braking segments. Gross marginfor shock absorber and
decorative parts remained flat, improving 9/90bps YoY to35.0%/25.4%,
Going forward, the company will launch the RX3 SUV in 2H17E and more
modelsin future years. The brand is going to roll out more connected car
models (similarto i6 sedan and MG ZS SUV) and will consider capitalizing
a part of its R&D infuture years.
– SAIC expects the SUV segment to remain the growth driver and will
make uphalf of total PV sales in the next 2-3 years. To benefit from the
faster growth, thecompany will launch more SUVs in FY18E, and expects
SUV to account for atleast 30% of its total sales. Meanwhile, management
thinks price competition inthe SUV segment will intensify, especially
for low-end SUVs.
6% earnings growth on rising SG&A ratio and soft JVs contribution
On a quarterly basis, 2Q17revenue increased by 33.3% YoY (flattish
QoQ) toRMB1.2bn. Gross margin deteriorated 1.8ppt YoY (27bps QoQ) to
29.1%. 2Q17net profit increased by 50.0% YoY (24.2% QoQ) to