What's new

Chang’an’s wholesale volume reached 194,406 units in June, up38.1% YoY and 11.7% MoM.

Comments

Domestic brands continue strengthening; monthly sales of Fordstabilizing at around 20,000 units. Chang’an’s June sales volumecontinued to rapidly grow MoM. Data from China Passenger CarAssociation shows sector wholesale and retail volume rose about 3%MoM in June, and Chang’an continued to significantly outperform thesector thanks to strong end-market demand, in our view. Wholesalevolume was 59,799 units for Chongqing Chang’an （+9.0% YoY and+24.5% MoM）， 21,315 units for Hefei Chang’an （up significantly YoYand largely flat MoM）， and 12,614 units for Chang’an Mazda （+30.8%YoY）。 Chang’an Ford’s wholesale volume was 22,125 units, exceeding20,000 units for 3 months in a row.

If domestic brands deliver earnings as we expect in 2Q20,Chang’an’s share prices should trend upwards. The firm bookedstrong sales volume in 2Q20. We estimate the 2Q20 investment lossfrom joint ventures and associate companies may narrow QoQ, whiledomestic brands may see positive recurring earnings if profitabilitycan return to 4Q19’s level. Chang’an-A’s share price has exceeded itsprevious high of Rmb12, and better-than-expected earnings couldoffer another catalyst, in our view. Looking ahead, as sector demandrecovers, we estimate domestic brands will benefit more from strongproduct cycles, and Chang’an Ford may continue reducing lossesthanks to new models of Ford and Lincoln. We believe the up-cycle ofChang’an’s domestic brands has just started.

Please see page 2 for more details.

Valuation and recommendation

Chang’an A-share and B-share are trading at 10.3x and 3.2x 2021eP/E. We maintain our 2020 and 2021 earnings forecasts andOUTPERFORM rating. Given rising average valuations, we raise ourA-share and B-share TPs 33% and 22% to Rmb16 （13x 2021e P/Ewith 24% upside） and HK$5.5 （4x 2021e P/E with 21% upside）。

Risks

Disappointing sales of new models; falling sales volume andsustained loss for Chang’an Ford.