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We visited Chang’an’s domestic brand and Chang’an Ford 4S stores inChongqing on December 19. The price of Ford Escape 2.0T + 4WDwas announced on the same day.

Comments

We expect Chang’an’s domestic brand passenger vehicle (PV)business to achieve a full-year profit in 2019. Chang’an’s domesticbrands (PV business + Oshan + Kaicene) made a loss of Rmb1.3bn in1H19 and a profit of Rmb380mn in 3Q19. We expect Chang’an’sdomestic brands to make a profit of Rmb800mn in 4Q19, anddomestic brand PV business to make an even higher profit.

We expect Chang’an’s domestic brand PV sales volume in 2020 toincrease by 15% YoY to 800,000 units, thanks to contributions fromnew cars. Chang’an plans to launch Eado Plus and the first SUV modelof a new series (of a similar size to CS65) next year.

We expect new powertrain and new platform to help reduce costs.

The Blue Core NE Platform has launched a 1.4T engine. The 1.4T +7DCT powertrain can reduce costs considerably. The firm also plansto launch a modular platform MPA2 next year.

We expect Chang’an Ford to see a recovery in sales volume drivenby new cars such as Escape, and to reduce losses. The prices of thethree Escape models range from Rmb189,800 to Rmb218,800,attractive vs. competing models. We expect Escape, Explorer, andLincoln’s three models to boost Ford’s brands and sales.

Valuation and recommendation

Chang’an A/B is trading at 1.0x/0.4x 2020e P/B. We expect Decembersales volume growth, announcement of annual results, andintroduction of new cars and new brands to be positive share pricecatalysts. We maintain 2019 and 2020 earnings forecasts. Wemaintain OUTPERFORM for Chang’an A-share and B-share, withtarget prices of Rmb11.3 for A-share (1.2x 2020e P/B, 16% upside)and HK$7.4 for B-share (0.7x 2020e P/B, 72% upside).

Risks

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