What's new

Chang’an Automobile hosted a conference with its global partners on April 13. During the conference, it emphasized its strategic plans for self-owned brands as well alternative-fuel vehicle (AFV) brands, and its medium-term plan for 2022-2025.

Comments

Significant improvement in operational fine-tuning; solid target for 2022 sales volume. The firm has since 2017 improved internal growth momentum via optimizing its organizational structure, improving human resource development, and enhancing its incentive mechanism. It has continued to progress in advanced technologies and marketing in new channels. This has contributed to strengthening of self-owned brands, improving earnings, and better operating quality. The firm boasts clear product lines and strong product cycles, contributing to robust sales volume and sustained growth momentum. Chang’an plans to release 36 new products in 2022, including 19 models for self-owned brands (nine brand new products and 10 upgraded products). The firm expects full-year sales volume to rise 6.5% YoY to 2.45mn units in 2022 (that of self-owned brands up 5.9% YoY to 1.86mn), implying steady improvement in output and sales volume.

Launching new battery-electric vehicle brand Shenlan and further advancing “Beidou Tianshu” project; transition to electric and smart vehicles accelerating. The firm released its battery-electric vehicle (BEV) brand Shenlan, and plans to start mass production for models such as the C385, Lumin, and C673 in 2022. The first mass-produced model, the C385, is scheduled for release soon, which would directly compete with the Tesla Model 3. We expect the C385 to become a competitive model in the battery-electric sedan market priced at Rmb200,000/unit considering its large interior space, relatively affordable price, and innovations such as APA7.0. The Lumin is an A00-class urban vehicle, and outperforms peers in exterior design, safety and driving range. In addition, the Avatar 11 was included in the product announcement of the Ministry of Industry and Information Technology in March, and the interior design for a special version was released in April. Mass production is well on track for the Avatar 11, which is scheduled to come to market in 2Q22 and be delivered in 3Q22. For smart features, the firm boasts over 200 core technologies such as visual perception, and is a domestic pioneer in 26 technologies such as integrated adaptive cruise control and piloted parking. Thanks to self-development and cooperation, the firm will equip the Avatar 11 with smart assisted driving functions for highways and urban areas.

R&D investment to provide support; growing into a world-class automaker. Chang’an plans to build 2-3 overseas manufacturing bases by 2025, and establish local headquarters in Europe and North America at an opportune time. The firm plans to continue to pursue technological innovations, and invest over Rmb80bn in smart & electric transition and digitalization by 2025. It also plans to build a R&D team with headcount of about 20,000, including more than 6,000 for smart transition and software and over 5,000 for AFV. In the long term, we think that international expansion and the transition towards smart and electric vehicles will contribute to strong products. The firm plans to increase total sales volume to 4mn units by 2025 and 5.5mn units by 2030, including 3mn and 4.5mn for the Chang’an brand and 1.05mn and 2.7mn for AFV.

Financials and valuation

Chang’an A-share and B-share are trading at 13.1x and 3.4x 2022e P/E. We maintain earnings forecasts. We maintain OUTPERFORM for A-share and B-share with TP at Rmb16 (20x 2022e P/E with 56% upside) and HK$4.5 (5x 2022e P/E with 45% upside).

Risks

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