What's new

Chang'an Automobile's January sales volume rose 10.0% YoY or 55.7% MoM to 277,244 units.

Comments

Supply bottleneck mitigated as expected; MoM sales of domestic brands strong. Chang'an Automobile's January sales volume rose 10.0% YoY or 55.7% MoM to 277,244 units, a significant increase MoM, outperforming the industry and hitting a monthly record high. January output grew 22.0% MoM to 247,484 units. The firm’s 4Q21 monthly average wholesale volume was 189,447 units, and its output and sales growth both slowed due to chip supply restrictions, particularly on domestic brands. We think the supply bottleneck has been mitigated and chip supply has improved markedly MoM based on the firm’s January output and sales. We expect strong demand to be reflected in the 1Q22 output and sales, and the monthly sales to stay above 200,000 units. We also note the strong sales of domestic brands:

For domestic brands, January sales volume was 121,454 units for Chongqing Chang'an (+4.9% YoY or +98.9% MoM), 21,953 units for Hebei Chang'an (+242.3% YoY or +310.3% MoM), and 32,820 units for Hefei Chang'an (-9.9% YoY but +116.1% MoM). Sales volume of CS75, CS55 and EADO was 33,590, 30,316 and 21,883 units, ramping up MoM. In addition, the number of the firm’s newly insured vehicles in January was 143,406 units, down 5.3% YoY but up 18.8% MoM, with strong MoM end market demand.

For joint-venture brands, sales volume in January was 24,853 units for Chang'an Ford (-17.5% YoY or -32.6% MoM), 1,115 units for the Ford Focus (+20.5% MoM), and 3,358 units for the Ford ESCAPE (+5.3% MoM). Sales volume for Chang'an Mazda was 19,888 (+67.7% YoY or +186.9% MoM), and 10,676 units for the Mazda Axela (+16.5% MoM).

Low valuation offering safety margin; 4Q21 earnings expected to grow solidly; cycle of new products to bolster earnings growth. Share prices of the OEM sector have dropped over 30% since November 2021, mainly due to growing market concerns over demand and profitability. The number of registered vehicles slightly fell in January, and wholesales declined 8.2%. We expect concerns over demand to gradually ease and we think the current valuation offers value for money. We expect the firm’s 4Q21 net profit to exceed Rmb1bn with robust earnings growth, referring to its quarterly sales, 1-3Q21 net profit and the relative targets of equity incentives. We foresee a strong cycle of new products in 2022 supported by new models such as Avatar 11 and C385. We expect the firm’s earnings to grow thanks to reduced procurement cost and improved profitability in joint venture brands. We expect catalysts to increase the firm’s valuation.

Valuation and recommendation

We keep our earnings forecast and OUTPERFORM ratings unchanged. Chang’an A- and B-shares are trading at 15.9x and 4.0x 2022e P/E. Given the worsening market sentiment, we cut our TPs for Chang’an A- and B-shares 10% and 10% to Rmb22.5 (29x 2022e P/E with 80% upside) and HK$6.6 (7x 2022e P/E with 79% upside).

Risks

Disappointing rebound in sector demand and/or performance of new vehicles.