Chang’an’s November sales volume was 176,358 units, up 9.2% YoYand 7.5% MoM.

Comments

Chang’an Mazda and domestic brand driving rapid MoM salesvolume growth. Sales volume of Chang’an Mazda rose 12.6% YoY to12,512 units. Sales volume of Chongqing Chang’an and HefeiChang’an was 55,990 units (+2.9% YoY and +17.0% MoM) and 25,131units.

Retail demand remaining strong for domestic brand models.

November wholesale and retail sales volume of domestic brandmodels increased 23% and 21% YoY to 83,000 units and 81,000 units,significantly outperforming the sector and implying strongend-market demand.

Sales volume of PLUS versions strengthening MoM. Retail salesvolume of CS75, CS35, CS55 and EADO was 27,000 units (+124% YoY),15,000 units (+19% YoY), 11,000 units and 10,000 units (+8% YoY).

After launching PLUS version, sales volume of key models rapidlyramped up and improved MoM. We do not think the upside surprisein CS75 PLUS is an exception, and believe it signals comprehensiveimprovement in the competitiveness of domestic brand models.

See page 3 for details.

Valuation and recommendation

As sales volume improves, market starts to agree with our rationalethat domestic brand models enjoy sustainable sales volume growthand large earnings upside. Historically, the share price of Chang’anB-share has been slower to react than its A-share. If Chang’an A-sharebegins to trend upwards, its B-share discount may rapidly narrow. Wethus suggest watching investment opportunities in Chang’an B-share.

Chang’an A-share and B-share are trading at 1.0x and 0.4x 2020e P/B.

We maintain 2019-2020 earnings forecast, OUTPERFORM and TP atRmb11.3 (1.2x 2020e P/B with 24% upside) and HK$7.4 (0.7x 2020eP/B with 92% upside).

Risks

Disappointing performance of new domestic brand models; fallingsales volume and continued losses at Chang’an Ford.