china: automobiles - jrj.com.cnpg.jrj.com.cn/acc/res/cn_res/indus/2013/9/28/817f... · 9/28/2013...

September 28, 2013

China: Automobiles

Equity Research

Identifying 3 winning growth strategies; Geely up to CL-Buy, Changan (A)/GAC (H) to Buy

3 possible winning strategies for car makers

We believe Chinese auto firms with purely local

brands can (1) grow the profitability of those

brands via quality/brand image/pricing upgrades. It

is crucial to balance cost advantages while

investing more into R&D and quality, in our view.

As for those firms that derive most of their profit

from joint ventures (JVs) but also have local brand

operations, they can (2) maintain the profitability of

their JVs and grow their local brands via leveraging

the know-how of their JV partners; and/or (3) grow

their JV profitability via the introduction of more

new models, refreshing of existing models, further

localization of components, and stricter cost control.

Geely/Great Wall rank as local leaders; GAC/Changan better placed growing JVs

To identify potential industry leaders, we score

auto firms in our coverage based on several

criteria. Our results suggest that Geely/Great Wall

stand out in terms of local brand leadership.

Among the firms with substantial JV exposure,

SAIC screens as having high return on capital and

a strong balance sheet, while Guangzhou Auto

(GAC)/Changan/Brilliance appear better placed to

grow their JV profit due to strong product cycles.

3 Buy upgrades; Geely onto CL, SAIC off

We upgrade Geely to Buy, and add the stock to our

Conviction List (CL), due to its top ranking in terms

of local brand leadership, improving product

mix/ASP, and synergy with Volvo. We also upgrade

Changan (A) and GAC (H) to Buy given the strong

product cycles of their major JVs (Changan-

Ford/GAC-Honda/GAC-Toyota/GAC-Fiat) and

attractive valuation vs. peers. We take SAIC off CL

on its relatively low earnings growth vs. peers, but

stay Buy on attractive near-term valuation.

Sinotruk down to Sell; Neutral on Dongfeng/Great Wall (H)/BYD

We downgrade Sinotruk to Sell on its declining

market share and weak return outlook (consistently

at the fourth quartile). We are Neutral-rated on

Dongfeng (upgrade), Great Wall (H) (upgrade), and

BYD (downgrade). For our coverage universe, we

revise our 2013E-15E EPS on company-specific

factors, and introduce 2016E EPS. Reflecting our

estimate revisions and the roll forward of

valuation timeframe (now 2014E P/B vs. 2014E-16E

average ROE), we adjust our target prices.

RELATED RESEARCH

Steering through policy waves; local leaders to benefit; Buy

Great Wall (H); Baoxin off CL, April 17, 2013

GEELY COMES OUT TOPS FOR LOCAL BRAND

LEADERSHIP

Source: Company data, Gao Hua Securities Research.

Yipeng Yang +86(10)6627-3189 [email protected] Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies

covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Yuqian Ding +86(10)6627-3327 [email protected] Beijing Gao Hua Securities Company Limited

The Goldman Sachs Group, Inc. Global Investment Research

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September 28, 2013 China: Automobiles

Goldman Sachs Global Investment Research 2

Table of contents

Overview: Identifying local/JV leaders; Geely (onto CL), Changan (A), GAC (H) up to Buy 3

Identifying winning strategies for robust medium-term growth 5

Scorecard system highlights Geely/Great Wall as local winners, Changan/GAC JV winners 9

GS Scorecard Part 1: Geely, Great Wall, and BYD shine in terms of local brand leadership 10

GS Scorecard Part 2: JV exposure favors Changan, GAC 26

GS Scorecard Part 3: Return of capital – Great Wall best placed 31

GS Scorecard Part 4: Balance sheet strength generally strong, excluding BYD 32

Rolling forward valuation; Buy Geely (on CL), Changan (A), and GAC (H) 33

Geely: Up to CL-Buy on product mix/ASP expansion and synergy with Volvo 39

GAC (H): Up to Buy on JV profitability turnaround 42

Changan (A): Up to Buy on stronger-than-expected Ford volume/profitability 45

Sinotruk: Down to Sell on market share loss and sustained fourth quartile ROE 47

SAIC: Off Conviction List, but retain Buy on attractive near-term valuation 50

Dongfeng: Downgrade to Neutral on relatively low growth profile 52

Great Wall (H): Downgrade to Neutral on fair valuation 54

BYD: Upgrade to Neutral on improved visibility of EV growth/policy 56

Appendix: Global autos valuation comparisons 61

Disclosure Appendix 65

The prices in the body of this report are based on the market close of September 26, 2013.



Overview: Identifying local/JV leaders; Geely (onto CL), Changan (A), GAC (H) up to Buy

Identifying winning growth strategies for different types of car makers in China

In China, we identify three possible winning growth strategies for two different types of car makers. For auto firms with purely local

brands (herein referred to as ‘pure local players’), we believe they can (1) grow the profitability of their local brands via quality/brand

image/pricing upgrades. It is crucial to balance their cost advantages while investing more in R&D and quality, in our view. For auto

firms that derive most of their profit from joint ventures (JVs) but also have local brand operations (herein referred to as ‘JV

players’), we believe they can (2) maintain the profitability of their JVs and grow their local brands via leveraging the know-how of

their JV partners; and/or (3) grow their JV profitability via the introduction of more new models, refreshing of existing models,

further localization of components, and stricter cost control.

Introduction of a scorecard system to identify potential local/JV leaders

We develop a scorecard system to identify the potential local and JV leaders: (1) Among the pure local players, Geely/Great

Wall/BYD occupy the top three rankings. Nevertheless, BYD has weak return/balance sheet strength hence we believe Geely/Great

Wall could be the potential long-term local leaders. Geely enjoys the top ranking under the local brands leadership criteria mainly

due to its high score in quality, CO2 efficiency, low-cost positioning, economies of scale, and innovative patents. Great Wall has also

scored well in terms of profitability, CO2 efficiency, low-cost positioning, and economies of scale. (2) For the JV players, none of

their local brands scored well compared to the pure local players, but Changan and SAIC may be better placed for their local brands

to achieve breakeven over the next three years. (3) Among JV players, SAIC/Dongfeng are currently well positioned in terms of their

JV exposures, particularly SAIC, whose major JVs are both strong in return on capital and balance sheet strength. However, both

companies score relatively low in growth potential due to their high market share base and profitability of their major JVs.

GAC/Changan/Brilliance may be better placed to grow their JV profit as a result of strong JV product cycles.

Rolling forward P/B-ROE valuation

For most of the auto firms in our coverage, we continue to use P/B-ROE as our main valuation methodology because of its

consistently high correlation with share price movements over time (current R-square at 0.74/0.91 for A/H shares). We roll forward

our valuation from 2013E P/B vs. 2013E-15E average ROE to 2014E P/B vs. 2014E-16E average ROE as we believe investors are

starting to look at 2014 P/B and ROE when making their investment decisions. For BYD, we continue to use the SOTP valuation due

to its different business nature (covering auto assembly, handset assembly and service, electric vehicle battery, solar panel, and

others). For Changan (B), we continue to use the A-B premium methodology (unchanged at 30%) since the B-share market is

segregated from the other markets. For Weichai (A/H), we continue to use the SOTP valuation due to the public listing of its

associate company Kion in June 2013, and apply an unchanged 5% conglomerate discount based on empirical cases. We newly

apply a 12% valuation discount on SAIC and Dongfeng to reflect their relatively low growth profiles vs. peers in the next three years.



Three Buy upgrades: Geely (onto CL), Changan (A), GAC (H)

We upgrade Geely to Buy from Neutral, and add the stock to our Conviction List (CL), primarily due to its top ranking in terms of

local brand leadership, improving product mix/ASP, and synergy with Volvo. We also upgrade Changan (A) and GAC (H) to Buy

from Neutral on strong product cycles of their major JVs (Changan-Ford/GAC-Honda/GAC-Toyota/GAC-Fiat) as well as attractive

valuation vs. peers. We downgrade Sinotruk to Sell from Neutral on declining market share and weak return outlook (ROE

consistently lying at the fourth quartile). We also downgrade Dongfeng and Great Wall (H) to Neutral from Buy. We see Dongfeng as

having relatively low earnings growth, and believe Great Wall (H)’s shares have fully priced in the company’s strong profit growth,

following the recent share price rally. We upgrade BYD to Neutral from Sell on strong electric vehicle (EV) growth outlook and

favorable policy environment. We take SAIC off CL on relatively low earnings growth, but keep the stock as Buy on attractive near-

term valuation.

Exhibit 1: We adjust our target prices; upgrade Geely to Buy and add it to our Conviction List, upgrade GAC (H)/Changan (A) to Buy, downgrade Dongfeng/Great

Wall (H) to Neutral, downgrade Sinotruk to Sell, upgrade BYD to Neutral, and remove SAIC from our Conviction List but retain Buy

Valuation summary – China auto coverage

* denotes the stock is on our regional Conviction List.

Source: Datastream, Gao Hua Securities Research.

Valuation Summary - China Auto 9/26/2013 12 Month 12 Month TP PotentialTicker Company Name Currency Rating Close TP-new TP-old Chg. up/downside Methodology Target 2014E PB Key risks3836.HK Harmony HKD Buy 6.12 8.36 8.08 3.5% 36.6% PB-ROE: H Share 2.3 Weaker price/margin erosion of luxury and super luxury new car sales0175.HK Geely HKD Buy* 3.96 5.20 4.16 25.0% 31.3% PB-ROE: H Share 1.8 Lower government subsidy; lower vol/price of new models000625.SZ Changan (A) CNY Buy 10.11 12.98 10.24 26.8% 28.4% PB-ROE: A Share 2.6 Lower vol/price of SUV/low-end sedan/minivan600418.SS JAC CNY Buy 9.05 11.32 9.17 23.4% 25.1% PB-ROE: A Share 1.9 SUV volume/pricing due to competition; Lower than expected commercial vehicle1293.HK Baoxin HKD Buy 7.22 8.97 7.32 22.5% 24.2% PB-ROE: H Share 2.6 Price/margin erosion of new car sales; potential restriction from BMW on new car sales post NCGA acquisition600104.SS SAIC CNY Buy 13.40 16.42 20.59 -20.2% 22.5% PB-ROE: A Share 1.3 Higher price/margin erosion; weaker local brand sales1728.HK Zhengtong HKD Buy 5.01 6.10 5.22 16.9% 21.8% PB-ROE: H Share 1.3 Lower price/volume of luxury car, esp. JLR and Volvo.2238.HK GAC HKD Buy 8.38 10.12 6.36 59.1% 20.8% PB-ROE: H Share 1.4 Lower vol. of new models; lower JVs' margin000338.SZ Weichai (A) CNY Neutral 19.37 21.84 19.85 10.0% 12.7% SOTP NA Weaker/stronger than expected export growth; ASP/MS gain on strict Implementation of Euro IV emission standard000800.SZ FAW Car CNY Neutral 13.21 14.89 12.84 15.9% 12.7% PB-ROE: A Share 1.7 Progress in the restructuring; higher/lower vol of new models and price200625.SZ Changan (B) HKD Neutral 11.45 12.65 9.61 31.6% 10.5% A-B premium NA Higher/lower vol/price of SUV/low-end sedan/minivan2333.HK Great Wall (H) HKD Neutral 42.85 46.01 41.03 12.1% 7.4% PB-ROE: H Share 2.8 Higher/lower price erosion; higher/lower volume in compact SUV/sedan;1211.HK BYD HKD Neutral 34.10 35.17 13.00 170.5% 3.1% SOTP NA Higher/lower vol/price of new car models; higher/lower e-bus sales; higher/lower subsidy1114.HK Brilliance HKD Neutral 11.84 11.89 10.02 18.7% 0.4% PB-ROE: H Share 2.5 Higher/lower vol./price; higher/lower electric vehicle expenditure600741.SS Huayu CNY Not rated 9.36 NA NA NA NA NA NA NA1899.HK Xingda HKD Neutral 3.60 3.52 3.50 0.5% -2.3% PB-ROE: H Share 0.9 Higher/lower radial cord/sawing wire price erosion 0489.HK Dongfeng HKD Neutral 11.76 11.47 13.66 -16.1% -2.5% PB-ROE: H Share 1.2 Higher/lower price/volume; slower recovery of Nissan/Honda’s sales 0881.HK Zhongsheng HKD Neutral 12.50 10.88 8.64 25.9% -13.0% PB-ROE: H Share 1.7 Strong/lower price/volume of luxury car; Japanes brands recovery2338.HK Weichai (H) HKD Neutral 30.75 25.90 23.93 8.2% -15.8% SOTP NA Weaker/stronger than expected export growth; ASP/MS gain on strict Implementation of Euro IV emission standard601633.SS Great Wall (A) CNY Neutral 48.89 40.41 35.86 12.7% -17.3% PB-ROE: A Share 3.2 Higher/lower price erosion; higher/lower volume in compact SUV/sedan;0425.HK Minth HKD Neutral 16.08 12.96 12.00 8.0% -19.4% PB-ROE: H Share 1.3 Quicker/slower Japanese brands vol. recovery; higher/lower pricing3808.HK Sinotruk HKD Sell 3.98 3.12 3.31 -5.7% -21.6% PB-ROE: H Share 0.4 Higher vol of HDT domestic/export market



Identifying winning strategies for robust medium-term growth

JVs contribute majority of profits in China’s passenger car industry

The auto companies in our coverage produce about two-third of the total passenger cars sold in China, and as such we believe that

the financial summary of our coverage acts as a good proxy to the China passenger car industry. In 2012, 70% of coverage volume

and 97% of coverage profit were contributed by JVs. The local brands from JV players lost 15% of coverage profit despite 8%

volume share, while local brands from the pure local players contributed 22% coverage volume/18% coverage profit. By 2015E, we

believe JVs may still contribute bulk of the volume/profit of the industry, but with lower shares. We also estimate the volume/profit

from local brands, especially from the pure local players, to increase faster than the industry.

Exhibit 2: In 2012, JVs contributed 70% of coverage volume... Volume in ‘000 units

Exhibit 3: ...but 97% of coverage profit Profit in Rmb mn

Source: IHS, Company data.


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

JVs JV players' localbrands

Pure local players Total

70%8%

22% 100%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000



97% -15% 18% 100%



Exhibit 4: By 2015E, we expect JVs to contribute 66% of coverage volume...

Volume in ‘000 units

Exhibit 5: ...and 78% of coverage profit

Profit in Rmb mn

Source: IHS, Gao Hua Securities Research.


We expect local brands to grow slightly faster than JV brands and achieve 35% market share in

2020E

In our previous report, Six industry trends determine long-term view: Buy Great Wall (H) and Dongfeng, Sell BYD, dated February 24

2012, we explained our view that Chinese local brands could regain China market share by upgrading their product/image. We

believe that local brands could grow slightly faster than JV brands and achieve 35% market share in 2020E.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000



66%11%

23% 100%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000



78% -4%

26% 100%



Exhibit 6: We see six trends on China car market size and structure evolvement

Source: Global Insight, Gao Hua Securities Research.

Stocks implications

Brilliance (BMW) is growing faster

Within international brands:

Changan (Ford),GAC (Honda/Toyota/Fiat) might better placed in growing JV profit

Within Domestic brands:

Geely/Great Wall stand out as potential long-term winners

Geely/Great Wall

BYD

Trends

2. Luxury fever

4.Structural shift to local brands: some stand out as potential long-term winners

5.Growing export

6.Electrification: HEV/PHEV/EV to reach 5% car market by 2020E

Electric car:Incl.: HEV/PHEV/EV

Overseas market/ export

Int’l mainstream brands

Domestic brands

China car market size and structure evolvement

Market size (k unit)

CAGR

Domestic market :Int’l luxury brands

1.Growth sustained at 7% to 2020E

2000

705

3.4%

76.5%

20.1%

0.7%

0%

3.Divergence within mainstream international brands in growth

2005

3,267

36%

3.4%

68.6%

28.0%

1.2%

0%

2010

11,626

29%

5.8%

63.6%

30.6%

4.0%

0.1%

2020E

24,864

7%

10.0%

55.0%

35.0%

6.0%

5.0%

2013E

15,548

10%

8.7%

61.8%

29.5%

4.5%

0.2%



We see three possible winning growth strategies for two different types of car makers in China

For pure local players:

1. To grow the profitability of pure local brands

For pure local players, we believe a possible winning strategy is to grow the profitability of their pure local brands via

product/quality/brand image/pricing upgrade. Usually, pure local brands are relatively weak in quality, brand image and have to

resort to attractive pricing in order to attract customers. We believe that a potential way to success for pure local players is to

upgrade their product, quality, brand image as well as price to grow market share as well as profitability. During the process of

upgrading, we believe it is crucial to balance cost advantages while investing more into R&D/product/quality, hence we develop a

comprehensive scorecard system, analyzing eight different categories which may impact long-term competitiveness of local brands.

Based on our scorecard, we identify Geely and Great Wall as potential long-term winners among companies with purely local

brands.

For JV players:

2. To maintain profitability of JVs and to grow local brands

In our view, the first strategic approach is to maintain the profitability of JVs and to grow local brands via leveraging the know-how

learned from the JV partners. In general, the product and quality from JV players’ local brands are relatively higher than the pure

local players, but none of their local car brands are profitable so far due to the lack of low-cost positioning, low economies of scale,

and low capacity utilization. Most local brands from JV players currently are weak in EV as well. Among JV players, we believe that

Changan and SAIC may have better opportunities to achieve breakeven of their local brands in the coming three years due to their

relatively balanced positions in quality/innovation/pricing as well as scale/low-cost positioning. If Changan can improve its price/mix

and SAIC can improve its scale (especially to increase the average sales volume per platform), they could achieve higher ranking

with their local brands.

3. To grow profitability of JVs

We believe another possible winning strategy for JV players is to grow the JV profitability via introduction of more new models,

refreshing of existing models, further localization of key components, and stricter cost control. However, as products and brands of

JVs are controlled by foreign partners (Chinese partners/listcos are more or less like the financial investors of the JVs), we develop a

separated/much-simplified scorecard focusing on profitability and growth of the JVs rather than the drivers of JVs’ competitiveness

in the long run. We see SAIC/Dongfeng as well positioned currently, especially the former, which is also strong in return and

balance sheet strength. However, both companies score relatively low in growth potential. We believe that GAC/Changan/Brilliance

may be better placed to grow their JV profit due to strong product cycles.



Scorecard system highlights Geely/Great Wall as local winners, Changan/GAC JV winners

We classify auto companies with a JV structure such as SAIC//Dongfeng/Changan/GAC/Brilliance as “JV players”, and those without

such as Great Wall/Geely/BYD/FAW Car/JAC as “pure local players”. In general, JV players also have local brand operations, but

most of the volume/profit is contributed by their JV operations and their local passenger car brands are unprofitable. In contrast, the

pure local players derive substantial profit contribution from their local brands.

In order to make apple-to-apple comparisons, our scorecard consists of four different parts to identify the local and JV winners in

our coverage:

1. A comprehensive local brands scorecard system with eight dimensions to identify potential long-term winner among local

brands. The local scorecard is suitable to evaluate all listcos as they all have local brands.

2. A simplified scorecard for JVs with focus on current and future financial result, since we believe that the JV players are more or

less like financial investors of their JVs: They do not own the brands, products, or core technology of the JVs and their foreign

partners control most of the intellectual property rights of the brands/products/technology. The simplified JV scorecard is

suitable to evaluate the current and future JV exposure of JV players, namely, SAIC//Dongfeng/Changan/GAC/Brilliance.

3. In order to reflect the overall return situation of the listco, we also add current and future return of capital for each listco. We

view CROCI as an important parameter to ascertain how well companies translate their competitive advantage into financial

return.

4. Long-term participants are likely to benefit from strong balance sheets, which provide a good basis for companies to invest in

new technologies, maintain product development levels, and manage the cyclical and structural challenges facing the industry.

Hence, we rank balance sheet strength of each listco.

We have the following findings from our scorecard analysis (see Exhibits 7 and 8 for details):

Among local brands, Geely/Great Wall/BYD are ranked as top 3. Nevertheless, BYD has weak return/balance sheet strength

hence we choose Geely/Great Wall as the potential long-term local winners.

Geely is ranked as No. 1 in the local brands leadership scorecard mainly due to its high score in quality, CO2 efficiency, low cost

position, economies of scale, and innovative patent.

Great Wall is very strong in profitability, CO2 efficiency, low cost position, and economies of scale.

Among JV players, we see none of their local brands score well compared to pure local players, esp. in terms of high COGS,

low utilization, and weak EV development. Changan and SAIC might have better opportunities to achieve breakeven of their

local brands in 3 years as they achieve relative high score in local brand leadership among JV players.

Among JV players, SAIC/Dongfeng are positioned well currently in their JV exposures, esp. SAIC’s major JVs are strong in both

return and Balance Sheet strength. However both companies score relatively low in growth potential due to high bases of

market share and profitability of their major JVs. GAC/Changan/Brilliance may be better placed to grow their JV profit as a result

of strong JV product cycles.



Exhibit 7: GS auto scorecard summary: SAIC/Dongfeng lead in current JV exposure while Changan/GAC excel in JV growth; Geely/Great Wall/BYD rank high

among local players

GS auto scorecard summary

Note: The dotted-line rectangles refer to key highlights; the number of points represents the scores of each local brand, the more the points, the better the score.


GS Scorecard Part 1: Geely, Great Wall, and BYD shine in terms of local brand leadership

We have developed a scorecard system to evaluate the local brands long-term competitiveness in order to identify the potential

long-term winner of the local brands. We quantify 8 criteria: price/mix, low cost position, economies of scales, innovation, EV and

CO2 efficiency, Quality, exports, and local brand profitability. Although none of the local brands under our coverage is a stand-out

leader in all dimensions and each of them has its own strengths and weaknesses, we believe Geely, Great Wall, and BYD are the

comparative local brand leaders. We have also taken into account our scorecard analysis for our rating changes.

Listco SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JACPart 1: Local brand leadership ●● ● ●●● ● ● ●●●● ●●●●● ●●●● ●●● ●●

Part 2: JV exposureCurrent position ●●●●● ●●● ● ● ●● NA NA NA NA NAGrowth potential ●● ● ●●●● ●●●● ●●●● NA NA NA NA NA

Part 3: Return of capital CROCI - 2012 ●●●●● ●●● ●●● ●● ●●●● ●●●●● ●●● ●● ● ●●●CROCI - 2015E ●●● ●● ●●● ●● ●●● ●●●●● ●●● ● ●● ●●●

Part 4: B/S strength (gearing) ●●●● ●●●● ●●●● ●●●● ●●●● ●●●● ●●●● ● ●●● ●●●●●

JV players Pure local players



Exhibit 8: GS Auto scorecard part 1: Local brand leadership is intended to evaluate local brands on the rankings in eight dimensions GS Auto Scorecard overview – local brand leadership

Note: The number of points represents the scores of each local brand, the more the points, the better the score.

Source: China Auto Market, Company data, Gao Hua Securities Research.

Part 1: Local brand leadership1. Pricing/mix SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●● ●●● ●● ●● ●●●● ●● ●● ● ●●●●● ●●1.1 Average unit price (2013E) ●● ●●● ● ●●● ●●●● ●● ● ● ●●●●● ●●1.2 Price premium (2013E) ●●● ●● ●● ● ●●● ●● ●● ● ●●●●● ●2. Low cost position SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●● ●●● ●●●● ●● ●●● ●●●● ●●●● ●●● ●●●● ●●●2.1 Salary of the production sites (2012) ● ●●●● ●●●●● ●●● ●●●● ●●●●● ●●●● ●●● ●●●●● ●●●●2.2 Units per employee (2012) ●●●●● ●●● ●●●● ●●● ●● ●● ●●●● ● ●●●● ●●●2.3 Capacity utilization (2010-2012 averag●● ●● ●● ● ●●● ●●●●● ●●●● ●●●● ●●●● ●●●3. Economies of scale SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●● ●●● ●●● ●●● ● ●●●● ●●● ●●●● ●●●● ●●●3.1 Size in Unit (2013E) ●●● ●●● ●●●● ●● ● ●●●●● ●●●●● ●●●●● ●●● ●●●3.2 Size in Revenue (2013E) ●●● ●●● ●●● ●● ● ●●●●● ●●●● ●●●● ●●●● ●●3.3 No. and percentage of cars produced ● ●●● ●●● ●●●●● N/A ●●● ● ●●● ●●●●● ●●●●4. Innovation SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●●● ●●● ●●● ●●●● ●● ●● ●● ●●● ● ●●4.1 R&D budget (2012) ●●●●● ●●●● ●● ●● ● ●● ●● ●●● ● ●●4.2 R&D/Sales (2012) ●●● ●● ●●● ●●●●● ●● ● ●● ●●● ● ●●4.3 Patent ●● ● ●●●●● ● ● ●● ●●●● ●● ●● ●5. EV and CO2 efficiency SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●● ●●● ●●● ●● ● ●●●● ●●● ●●●●● ●● ●●5.1 Fuel efficienct cars Sales (2012) ●●●● ●●● ●●● ● ● ●●● ●●●●● ●●●● ● ●●5.2 Fuel consumption (2012) ●●● ●●● ●●●●● ●● ● ●●●● ●●●● ●●●●● ●●● ●●5.3 EV sales(2013E) ● N/A ● N/A N/A N/A ● ●●●●● ● ●●5.4 Battery/BMS for EV (2013E) ●● ●● ●● N/A N/A N/A ●● ●●●●● ●● ●●6. Quality SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●●●● ●● ●●●● ●●●● ●●● ●●● ●●●●● ●●● ●●● ●●●6.1 JD Power overall score (2012) ●●●●● ●● ●●●● N/A ●●● ● ●●●●● ●●● ●● ●●6.2 Crash Test (2012) ●●●● ● ●●●● ●●●● N/A ●●●● ●●●●● ●●● ●●● ●●●7. Export % sales (2012) SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

● ● ● ● ●●● ●●●● ●●●●● ●●●● ● ●●●8. Local brand profitability SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW car JAC

●● ●● ●● ● ● ●●●●● ●●●● ●●● ●●● ●●●8.1 Net earnings (2012) ● ● ●● ● ●● ●●●●● ●●● ●●● ●● ●●8.2 Net earnings (2015E) ● ● ● ● ● ●●●●● ●●● ●● ●● ●●8.3 NPM (2012) ●● ●●● ●● ● ● ●●●●● ●●●● ●●●● ●●● ●●●●8.4 NPM (2015E) ●● ●● ●● ● ● ●●●●● ●●●● ●●● ●●● ●●●

Score (1 to 5 is from low to high) ●● ● ●●● ● ● ●●●● ●●●●● ●●●● ●●● ●●




1. Pricing/mix

In our view, pricing and product mix are the key building blocks with which auto companies create a competitive advantage. The

realized average price per unit sold can vary significantly across different car companies. Product mix is one key factor that explains the

differences in average prices, i.e. a small car manufacturer such as Geely or BYD will have a lower average unit price compared to that

of FAW Car, which offers a greater proportion of larger vehicles. In Exhibit 9, we plot the average realized price per unit (passenger cars

only) against a theoretical (based on a car company’s product mix) average price, in an attempt to isolate an OEM’s price premium.

Exhibit 9: FAW Car has the highest ASP while BYD sold cars at low prices

GS scorecard part 1 - local brand leadership: 1. Pricing/mix

Note: The number of points represents the score in the category. The more the points, the better the score.

Source: Gao Hua Securities Research.

Exhibit 10: Average unit price In Rmb, 2013E

Exhibit 11: Price premium Real vs. theoretical ASP by company, Rmb, 2013E

Note: Local brand only.

Note: Our theoretical price is based on market price average. Due to their low pricing than JV products, the local brands are all located below the pricing line.

Source: Gao Hua Securities Research. Source: Gao Hua Securities Research.

Part 1: Local brand leadership1. Pricing/mix SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●● ●●● ●● ●● ●●●● ●● ●● ● ●●●●● ●●1.1 Average unit price (2013E) ●● ●●● ● ●●● ●●●● ●● ● ● ●●●●● ●●1.2 Price premium (2013E) ●●● ●● ●● ● ●●● ●● ●● ● ●●●●● ●

72

43

60

123

53 52

71

8981

100

0

20

40

60

80

100

120

140

SAIC ChangAn JAC FAW car BYD Geely Greatwall GAC Dongfeng Brilliance

0

20

40

60

80

100

120

140

‐ 20 40 60 80 100 120 140 160 180

Theoretical ASP

Real A

SP

SAIC

ChangAn

JAC

FAW car

BYDGeely

Greatwall

GAC

Dongfeng

Brilliance



2. Low-cost position

The automotive industry is a highly competitive industry which must cope with overcapacity, productivity improvement and rising

labor costs. To determine the relative cost position of the companies across our coverage universe, we analyze three key factors: (1)

Salary of the production sites; (2) revenues per employee; (3) capacity utilization.

Exhibit 12: Geely/Great Wall/Changan/FAW Car lead the low-cost position, while GAC’s low ranking is partly due to its small scale as a late comer GS Scorecard part 1 - local brand leadership: 2. Low-cost position



Exhibit 13: Salary of the production sites Annual average salary in the cities where the production sites locate, in Rmb ‘000,

2012

Exhibit 14: Units per employee Units per employee, 2012

Note: BYD has relatively lower units per employee partly due to higher degree of vertical integration.

Source: CEIC.

Source: Company data.

2. Low cost position SAIC ChangAn JAC FAW Car BYD Geely Greatwall GAC Dongfeng Brilliance●●● ●●●● ●●● ●●●● ●●● ●●●● ●●●● ●● ●●● ●●●

2.1 Salary of the production sites (2012) ● ●●●●● ●●●● ●●●●● ●●● ●●●● ●●●●● ●●● ●●●● ●●●●2.2 Units per employee (2012) ●●●●● ●●●● ●●● ●●●● ● ●●●● ●● ●●● ●●● ●●2.3 Capacity utilization (2010-2012 average) ●● ●● ●●● ●●●● ●●●● ●●●● ●●●●● ● ●● ●●●

71.42

41.7344.42

41.47

52.7348.34

39.29

54.88

48.6045.76

0

10

20

30

40

50

60

70

80


35

28

2325

5

26

12

21 20

13

0

5

10

15

20

25

30

35

40




Exhibit 15: Capacity utilization (2010-2012 average)

Capacity utilization in %, 2010-2012 average


53%50%

66%

81%

72% 74%

95%

30%

48%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




3. Economies of scale

Due to high costs associated with quality/product upgrade, we believe economies of scale are becoming more important. To

establish a relative scale, we focus on: (1) size in unit; (2) size in revenues; (3) the total number of cars and percentage of cars

produced from the top-three platforms.

Exhibit 16: Great Wall/FAW Car screen as the leaders in terms of economies of scale GS Scorecard part 1 - local brand leadership: 3. Economies of scale



3. Economies of scale SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC●● ●●● ●●● ●●● ● ●●●● ●●● ●●●● ●●●● ●●●

3.1 Size in Unit (2013E) ●●● ●●● ●●●● ●● ● ●●●●● ●●●●● ●●●●● ●●● ●●●3.2 Size in Revenue (2013E) ●●● ●●● ●●● ●● ● ●●●●● ●●●● ●●●● ●●●● ●●3.3 No. and percentage of cars produced in top 3 platforms (2013E) ● ●●● ●●● ●●●●● N/A ●●● ● ●●● ●●●●● ●●●●



Exhibit 17: Size in unit Passenger car volumes only. For JVs volumes counted by shareholding %, in ‘000

units, 2013E

Exhibit 18: Size in revenue Passenger car revenue only. For JVs, revenue counted by shareholding %, in Rmb

mn, 2013E



Exhibit 19: % of cars produced in top 3 platforms

Car volume from top3 platform as % of total volume, 2013E


316

413

251280

562 572

620

115

277

14

0

100

200

300

400

500

600

700


23

18

15

34

30 30

44

10

22

1

0

5

10

15

20

25

30

35

40

45

50


64%

72%

78%

84%

75%

65%

74%

83%

72%

N/A0%

10%

20%

30%

40%

50%

60%

70%

80%

90%




4. Innovation

We believe the emergence of long-term industry structural winners is likely to be driven by innovation capability, which enables

companies to constantly upgrade their products and expand market share/penetration. In order to assess the innovation activities,

we compare: (1) R&D budget (absolute amount, total spending include both capitalized expenditure and expenditure charged to

P&L; (2) R&D/sales; (3) number of patents (innovative only, excluding design patents).

Exhibit 20: SAIC has the highest R&D budget, GAC’s investment is the highest in terms of R&D as % of sales, while Changan/Geely lead in number of patents

GS Scorecard part 1 - local brand leadership: 4. Innovation


Source: State Intellectual Property Office of P.R.C, Company data, Gao Hua Securities Research.

4. Innovation SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC●●●● ●●● ●●● ●●●● ●● ●● ●● ●●● ● ●●

4.1 R&D budget (2012) ●●●●● ●●●● ●● ●● ● ●● ●● ●●● ● ●●4.2 R&D/Sales (2012) ●●● ●● ●●● ●●●●● ●● ● ●● ●●● ● ●●4.3 Patent ●● ● ●●●●● ● ● ●● ●●●● ●● ●● ●



Exhibit 21: R&D budget

R&D expense, in Rmb mn, 2012

Exhibit 22: R&D as % of sales

R&D as % of sales, 2012



5,756

1,694

952637

2,576

1,023 9571,126

4,174

226

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000


5.02%

5.75%

3.27%2.72%

5.80%

4.15%

2.22%

8.69%

3.37%3.81%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%




Exhibit 23: Innovation - Patent

No. of patents by the end of June 2013

Source: State Intellectual Property Office of P.R.C, Gao Hua Securities Research.

320

1202

78

183250

1005

398

36 1465

0

200

400

600

800

1000

1200

1400




5. Electric Vehicle (EV) and CO2 efficiency

This part of our scorecard is intended to quantify company’s ability to cope with the tighter fuel consumption regulation and the

R&D capabilities in EV/battery. We use 2012 fuel consumption data announced by MIIT. However, product-mix is one key factor that

helps explain the differences in fuel consumption: i.e. a small car manufacturer such as Geely or BYD will have a lower average fuel

consumption compared with FAW Car, which offers a greater proportion of larger vehicles. Below we plot the average fuel

consumption per unit (passenger cars only) against a theoretical (based on a car company’s product mix) fuel consumption, in an

attempt to isolate an OEM’s mix effect. We also evaluation the EV sales and whether the company has developed battery/battery

management system (BMS) for EV.

Exhibit 24: BYD is strong in both EV and CO2 efficiency while Geely excels in fuel efficient car sales GS Scorecard part 1 - local brand leadership: 5. EV and CO2 efficiency



5. EV and CO2 efficiency SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC●●● ●●● ●●● ●● ● ●●●● ●●● ●●●●● ●● ●●

5.1 Fuel efficient cars Sales (2012) ●●●● ●●● ●●● ● ● ●●● ●●●●● ●●●● ● ●●5.2 Fuel consumption (2012) ●●● ●●● ●●●●● ●● ● ●●●● ●●●● ●●●●● ●●● ●●5.3 EV sales(2013E) ● N/A ● N/A N/A N/A ● ●●●●● ● ●●5.4 Battery/BMS for EV (2013E) ●● ●● ●● N/A N/A N/A ●● ●●●●● ●● ●●



Exhibit 25: Fuel efficient car sales

As % of total volume, 2012

Exhibit 26: Fuel consumption

Real fuel consumption vs. standard, in litre/100km, 2012



Exhibit 27: EV sales

EV sales volume in unit, 2013E

Exhibit 28: BYD is the only OEM owning both Battery/BMS Technology

Battery/Battery management system technology, 2013E


Note: The score is defined by whether an OEM owns Battery/BMS technology.


50%

35%

19%

0%

52%

66%

38%

0%

27%

0%0%

10%

20%

30%

40%

50%

60%

70%


4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

4.00 5.00 6.00 7.00 8.00 9.00 10.00

Briliance

Real

Fu

el C

on

sum

pti

on

Standard Fuel Consumption

GAC

Changan

Dongfeng

JAC

FAWSAIC

Greatwall

Geely

BYD

300100

700

100

6,802

50 N/A N/A N/A N/A0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


2 2 2 2

5

2

N/A N/A

2

N/A0

1

2

3

4

5

6




6. Quality

In the process of brand/product upgrade, we believe quality improvement is the key to change the previous customer perception of

low price/low quality on local brands. Here we compared JD Power overall score (including 5 dimensions: Vehicle Dependability

Study, Initial Quality Study, APEAL Study, Sales Satisfaction Index and Customer Service Index) of the models from local brands as

well as the crash test score from CATARC (China Automotive Technology and Research Center), the official institution carrying on C-

NCAP (China New Car Assessment Program) safety test in China. We see Geely and SAIC take the lead in product quality.

Exhibit 29: We see Geely and SAIC take the lead in product quality GS Scorecard: 6 – EV and CO2 efficiency


Source: JD Power, CATARC, Gao Hua Securities Research

Exhibit 30: JD power overall score

2012

Exhibit 31: Crash test

2012

Note: The JD power overall score is the average of 5 dimensions: Vehicle Dependability Study, Initial Quality Study, APEAL Study, Sales Satisfaction Index and Customer Service Index.

Source: JD Power.

Source: CATARC.

6. Quality SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC●●●●● ●● ●●●● ●●●● ●●● ●●● ●●●●● ●●● ●●● ●●●

6.1 JD Power overall score (2012) ●●●●● ●● ●●●● N/A ●●● ● ●●●●● ●●● ●● ●●6.2 Crash Test (2012) ●●●● ● ●●●● ●●●● N/A ●●●● ●●●●● ●●● ●●● ●●●

3.00

2.71

2.36 2.38

2.62

2.95

2.09

N/A

2.25

2.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50


45.7744.60

41.40 42.28 42.50

47.43

44.60 45.08

37.31

N/A0

5

10

15

20

25

30

35

40

45

50




7. Export

In our view, China car market growth might sustain at high single digit in the long run (CAGR at 7% from 2013E to 2020E). With the

domestic growth slowing down, we believe overseas market is becoming a more and more important growth driver for Chinese

OEMs. We believe the overseas market provides ample room for local brands to grow in the future while the opportunities remain

limited for JVs. We see Geely/Great Wall/BYD best positioned in export.

Exhibit 32: Geely/Great Wall/BYD have more export exposure GS Scorecard 7 – strategic positioning/transformation



Exhibit 33: Geely is doing well in export, booking 22% export as % of sales in

2012 Export as % of total revenue, 2012


7. Export % sales (2012) SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC● ● ● ● ●●● ●●●● ●●●●● ●●●● ● ●●●

0%1%

11%

0%

15%

22%

14%

0% 0%

10%

0%

5%

10%

15%

20%

25%




8. Local brand profitability

We also compare the absolute net earnings as well as net profit margin (NPM) percentage of local brands (including both current

status and future estimations) to assess their profitability. We see Great Wall and Geely as the most profitable companies among

the local peers based on their highest net earnings and NPM in both 2012 and 2015E.

Exhibit 34: Great Wall screens as the best company in local brand profitability in China, followed by Geely GS Scorecard 7 – local brand profitability



8. Local brand profitability SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW car JAC●● ●● ●● ● ● ●●●●● ●●●● ●●● ●●● ●●●

8.1 Net earnings (2012) ● ● ●● ● ●● ●●●●● ●●● ●●● ●● ●●8.2 Net earnings (2015E) ● ● ● ● ● ●●●●● ●●● ●● ●● ●●8.3 NPM (2012) ●● ●●● ●● ● ● ●●●●● ●●●● ●●●● ●●● ●●●●8.4 NPM (2015E) ●● ●● ●● ● ● ●●●●● ●●●● ●●● ●●● ●●●



Exhibit 35: Net earnings

In Rmb mn, 2012

Exhibit 36: Net earnings

In Rmb mn, 2015E



Exhibit 37: Net profit margin In %, 2012

Exhibit 38: Net profit margin In %, 2015E



-2,000

-1,000

200

-756

793

2,040

5,038

-1,503 -1,200-225

-3,000

-2,000

-1,000

01,000

2,000

3,000

4,000

5,000

6,000SA

IC

Cha

ngAn JAC

FAW

car

BYD

Gee

ly

Gre

atw

all

GAC

Don

gfen

g

Brilli

ance

-1,000 -600

1,1002,134 1,589

4,557

11,464

-1,207 -300 -150-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

SAIC

Cha

ngAn JAC

FAW

Car

BYD

Gee

ly

Gre

atw

all

GAC

Don

gfen

g

Brilli

ance

-9.6%-7.0%

1.7%

-2.6%

3.0%

8.3%

13.2%

-18.4%

-6.1%

-16.3%-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

SAIC

Chan

gAn

JAC

FAW

car

BYD

Gee

ly

Gre

atw

all

GAC

Don

gfen

g

Brilli

ance

-4.0% -2.5%

3.6% 4.1% 4.5%

9.5%

15.1%

-10.0%

-5.0%

-12.0%-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

SAIC

Cha

ngAn JAC

FAW

car

BYD

Gee

ly

Gre

atw

all

GAC

Dong

feng

Brilli

ance



GS Scorecard Part 2: JV exposure favors Changan, GAC

We apply a simplified scorecard for JVs with focus on current and future financial results, since we believe that the JV players are

more or less like financial investors to their JVs: the Chinese auto firms do not own the brands, products, or core technology of the

JVs while their foreign partners control most of the intellectual property rights on the brand/product/technology of JVs. The

simplified JV scorecard is suitable to evaluate the JVs of SAIC/Dongfeng/Changan/GAC/Brilliance. Among these JV players, we see

SAIC and Dongfeng as well positioned with their strong current volume, and profitability (NPM %), while we expect

Changan/GAC/Brilliance to enjoy higher growth in the next three years.

Exhibit 39: SAIC ranks highly in terms of current JV exposure, while Changan/GAC/Brilliance display greater growth potential

GS Scorecard 7 – Strategic positioning/transformation



Part 2: JV exposure1. Current position SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

●●●●● ●●● ● ● ●● NA NA NA NA NA1.1 JV volume (2012) ●●●●● ●●● ●● ●● ● NA NA NA NA NA1.2 JV profit (2012), 100% ●●●●● ●●● ● ● ● NA NA NA NA NA1.3 JV NPM (2012) ●●●●● ●●●● ● ● ●●● NA NA NA NA NA

2. growth potential SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC●● ● ●●●● ●●●● ●●●● NA NA NA NA NA

2.1 JV 2012-2015E volume CAGR ● ● ●●● ●●●● ●●●●● NA NA NA NA NA2.2 JV 2012-2015E earnings CAGR ●● ● ●●●●● ●●● ●●● NA NA NA NA NA2.3 JV NPM change (2015E vs. 2012) ●● ● ●●●●● ●●●● ●●● NA NA NA NA NA




Exhibit 40: Greatest JV contribution for SAIC in terms of volume…

JV volume in unit, 100% counted, 2012

Exhibit 41: …and profit

Net profit in Rmb mn, 100% counted, 2012



Exhibit 42: JV NPM JV NPM in %, 2012

Exhibit 43: JV 2012-2015E volume CAGR JV volume 2012-2015E CAGR, in %



2,672,666

670,286 581,708

1,542,798

160,849

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

SAIC ChangAn GAC Dongfeng Brilliance

38,000

3,2425,043

19,940

4,650

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000


12.0%

5.0%5.5%

10.8%

8.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


12.4%

20.7%

24.3%

14.1%

28.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%




Exhibit 44: JV 2012-2015E earnings CAGR

JV net profit 2012-2015E CAGR, in %

Exhibit 45: JV NPM change (2015E vs. 2012)

JV NPM change, 2015E vs. 2012, in %



11.3%

62.0%

34.2%

2.7%

29.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%


-0.2%

3.8%

2.3%

-2.6%

0.8%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%




We believe Changan (A), GAC (H) may benefit from market share/NPM expansion of Changan-Ford, GZ-Honda, GZ-Fiat

In Exhibit 46, we compare international car makers’ global market share vs. China market share in 2012 and 2015E based on

IHS/Global Insight data. We observe that laggards with strong product cycles are likely to gain market share, e.g., Ford/PSA. We also

see OEMs which opened new production JVs in China are likely to obtain market share as well (e.g., Fiat and Mitsubishi). Hence, we

believe Changan (A) and GAC (H) may benefit from the rising market share of Ford, Fiat and Mitsubishi. Although Dongfeng should

benefit from PSA’s rising market share in China, we see this as having a less beneficial impact on Dongfeng, as PSA only

contributes a small portion of Dongfeng’s net profit (c.10%).

Exhibit 46: We estimate that Ford, PSA, Fiat, and Mitsubishi will gain market share in China Market share in %, in 2012 and 2015E




In Exhibit 47, we compare international car makers’ global NPM vs. their China JVs’ NPM in 2012 and 2015E based on company

disclosure and our estimation. We see NPM expansion for OEMs such as Changan-Ford, GZ-Honda, and GZ-Fiat, due to their strong

product cycle and increase of localization rate. We also believe current JV leaders like Shanghai-Volkswagen (SVW) and Shanghai-

GM (SGM) may largely maintain their high NPM in the coming 3 years albeit with limited upside due to a high base. We believe

Changan (A) and GAC (H) may benefit from margin expansion of Changan-Ford, GZ-Fiat and GZ-Honda.

Exhibit 47: We estimate that Changan-Ford/GZ-Honda/GZ-Fiat will expand NPM

Net profit margin in %, 2012 and 2015E

Abbrev notes: CA-F: Changan-Ford; CA-M: Changan-Mazda; CA-S: Changan-Suzuki; GZ-T: GZ-Toyota; GZ-H: GZ-Honda;

GZ-F: GZ-Fiat; B-BMW: Brilliance-BMW; SGM: SAIC-GM; SVW: SAIC-VW; DF-N: DF-Nissan; DF-H: DF-Honda; DF-P: DF-PSA;




GS Scorecard Part 3: Return of capital – Great Wall best placed

We view CROCI as an important parameter to ascertain how well companies translate their competitive advantages into financial

returns. Great Wall holds the number one spot among peers.

Exhibit 48: Great Wall ranks No. 1 in terms of return on capital



Exhibit 49: Great Wall currently enjoys the highest CROCI… %, 2012

Exhibit 50: …and we see this trend continuing in 2015E %, 2015E



Part 3: Return of capital (CROCI)SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

CROCCROCI (2012) ●●●●● ●●● ●●● ●● ●●●● ●●●●● ●●● ●● ● ●●●CROCI (2015E) ●●● ●● ●●● ●● ●●● ●●●●● ●●● ● ●● ●●●


40.2%

17.7% 20.1%

-0.6%

10.7%

23.9%

44.6%

9.5%

22.8%

36.3%

-5.0%0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%

SAIC

Cha

ngAn JAC

FAW

car

BYD

Gee

ly

Gre

atw

all

GAC

Don

gfen

g

Bril

lianc

e22.0%

25.1% 23.5%

16.5%

11.7%

26.4%

38.0%

17.0% 15.7%

27.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

SAI

C

Cha

ngA

n

JAC

FAW

car

BYD

Gee

ly

Gre

atw

all

GAC

Don

gfen

g

Bril

lianc

e



GS Scorecard Part 4: Balance sheet strength generally strong, excluding BYD

In the long term, China auto firms are likely to benefit from a strong balance sheet, which may enable them to invest in new

technologies, maintain product development levels, and manage the cyclical and structural challenges facing the industry.

Exhibit 51: JAC has the strongest balance sheet, while BYD appears to be weak



Exhibit 52: BYD has the highest gearing

Gearing ratio, 2013E


Part 4: B/S strength (gearing)SAIC Dongfeng ChangAn GAC Brilliance Greatwall Geely BYD FAW Car JAC

Gearing (2013E) ●●●● ●●●● ●●●● ●●●● ●●●● ●●●● ●●●● ● ●●● ●●●●●


-14%-2%

-35%

5%

62%

-9%-21%

0%

-17%

-1%

-40%

-20%

0%

20%

40%

60%

80%

SAIC

Cha

ngAn JAC

FAW

car

BYD

Gee

ly

Gre

atw

all

GAC

Don

gfen

g

Brilli

ance



Rolling forward valuation; Buy Geely (on CL), Changan (A), and GAC (H)

P/B-ROE remains our main methodology; rolling forward to 2014E P/B vs. 2014E-16E average ROE

We continue to use P/B-ROE as our primary valuation methodology because of its consistently high correlation with share price

movements over time (current R-square at 0.74/0.91 for A/H shares). We roll forward our valuation timeframe from 2013E P/B vs.

2013E-15E average ROE to 2014E P/B vs. 2014E-16E average ROE as we believe investors are starting to look at 2014 P/B and ROE

when making their investment decisions.

We highlight below the valuation premium/discount applied to our coverage:

We keep our 10% premium on Great Wall (A/H) to reflect its first quartile ROE/CROCI over the medium term;

We continue to apply a 10% premium on Baoxin given its first quartile ROE/CROCI;

We continue to apply a 34% premium on FAW Car in light of the planned asset injection/FAW Group listing;

We lower our premium for Brilliance to 15% (was 20%) as we believe our change to 2014E-16E ROE has already captured part of

its strong medium-term growth;

We continue to apply a 10% discount (equivalent to previous 0.1X P/B discount) on Xingda due to its small market cap of less

than US$1 bn;

We newly apply a 12% discount (in line with the historical valuation discount since January 2011) to SAIC and Dongfeng to

reflect their low growth profiles in the next three years;

We do not apply any premium/discount for the rest of our coverage.

We adopt different valuation methodologies for the following stocks:

BYD: We continue to use the SOTP valuation due to its different business nature (covering auto assembly, handset assembly

and service, electric vehicle battery, solar panel, and others);

Changan (B): We continue to use the A-B premium methodology (unchanged at 30%) since the B-share market is segregated

from other markets;

Weichai (A/H): We continue to use the SOTP valuation due to the public listing of its associate company Kion in June 2013. We

apply an unchanged 5% conglomerate discount based on empirical cases. Please refer to our previous report, Weichai Power

(H): Up to Neutral after pullback; softer HDT outlook fully priced in, July 4, 2013 for details.



Exhibit 53: Among the A-shares, we believe Changan, SAIC, and JAC are

undervalued relative to the sector P/B (X) 2014E vs. average ROE 2014E-16E, auto sector, A-share

Exhibit 54: Among H-shares, we believe Geely, GAC, Baoxin, Zhengtong, and

Harmony are undervalued relative to the sector while Sinotruk looks

overvalued P/B (X) 2014E vs. average ROE 2014E-16E, auto sector, H-share

Note: We use GH estimates for SAIC/FAW-Car/ChangAn/Weichai/JAC/Great Wall (A) (in blue dots), Wind consensus EPS and BPS for the rest which we do not cover.

Note: Reuters consensus EPS and BPS for Qingling and Xinyi, GH estimates for the rest.

Source: Datastream, Wind, Gao Hua Securities Research.

Source: Datastream, Reuters, Gao Hua Securities Research.

R² = 0.7355

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0% 5% 10% 15% 20% 25% 30% 35%

SAIC

Changan(A)

Foton

Weichai (A)

JAC

CNHTC Jiangling

Yutong

King Long

Dongfeng

Fuyao

Great Wall (A)

Average ROE (2014-16E)

P/B (2014E)

FAW Car

R² = 0.912

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0% 5% 10% 15% 20% 25% 30% 35%

Dongfeng

GAC

Geely

Sinotruk

Great Wall (H)

Weichai (H)

Brilliance

Minth

Qingling

Baoxin

Zhengtong

Zhongsheng

Xingda

Average ROE (2014-16E)

P/B (2014E)

Harmony

BYD



Exhibit 55: Historically, SAIC and Dongfeng trade at c. 12% valuation discount

on low growth Valuation premium/discount is defined as residual value

Exhibit 56: We believe Dongfeng/SAIC may sustain their P/B discount in

future the next 2 years due to their continuously low EPS growth Valuation premium/discount is defined as residual value

Source: Datastream, IBES, Gao Hua Securities Research.

Source: Datastream, Gao Hua Securities Research.



Adjusting target prices on earnings estimate revisions and roll forward of valuation timeframe

For our coverage universe, we revise our 2013E-15E EPS on company-specific factors (see Exhibit 57 for details), introduce 2016E

EPS, roll forward our valuation timeframe, and adjust our 12-month target prices accordingly. Our target price revisions are the

largest for BYD H (+171% to HK$35.17 mainly due to inclusion of electric vehicle business value into the target price) and SAIC (-20%

to Rmb16.42 primarily due to application of 12% valuation discount for slow growth). We upgrade Geely to Buy from Neutral, and

add the stock to our Conviction List (CL), primarily due to its top ranking in terms of local brand leadership, improving product

mix/ASP, and synergy with Volvo. We also upgrade Changan (A) and GAC (H) to Buy from Neutral on strong product cycles of their

major JVs (Changan-Ford/GAC-Honda/GAC-Toyota/GAC-Fiat) as well as attractive valuation vs. peers. We downgrade Sinotruk to

Sell from Neutral on declining market share and weak return outlook (ROE consistently lying at the fourth quartile). We also

downgrade Dongfeng and Great Wall (H) to Neutral from Buy. We see Dongfeng as having relatively low earnings growth, and

believe Great Wall (H)’s shares have fully priced in the company’s strong profit growth, following the recent share price rally. We

upgrade BYD to Neutral from Sell on strong electric vehicle (EV) growth outlook and favorable policy environment. We take SAIC off

CL on relatively low earnings growth, but keep the stock as Buy on attractive near-term valuation.

For the remaining companies in our coverage with no rating changes:

Brilliance (Neutral; TP HK$11.89; 0.4% upside potential): We see strong margins underpinned by improved economy of scale,

which is driven by robust Brilliance-BMW volume coming from low-end 3 series launch and the removal of supply bottleneck of

Tiexi plant. Hence, we revise up our 2013E-15E EPS by 10%-11%. We lower our premium for Brilliance to 15% (was 20%) as we

believe our change to 2014E-16E ROE has already captured part of its strong medium-term growth. We raise our 12-month P/B-

ROE based target price to HK$11.89 (prior: HK$10.02) on higher estimates and roll forward of P/B-ROE valuation timeframe. Our

target price is based on 2014E P/B of 2.5X, reflecting 29% average 2014E-16E ROE.

Baoxin (Buy; TP HK$8.97; 24% upside potential): We slightly adjust our 2013E EPS and revise up our 2014E/15E EPS by 1%/5%

to reflect strong volume and margin outlook of BMW. Our 10% valuation premium is unchanged (reflecting the secular growth

trend of the aftermarket business and its first quartile ROE). We raise our 12-month P/B-ROE based target price to HK$8.97

(prior: HK$7.32) on higher estimates and roll forward of P/B-ROE valuation timeframe. Our target price is based on 2014E P/B of

2.6X, reflecting 29% 2014E-16E average ROE.

Zhengtong (Buy; TP HK$6.10; 22% upside potential): We fine-tune our 2013E-15E EPS by 1%-2% to reflect stronger-than-

expected BMW volume and margin. We raise our 12-month P/B-ROE based target price to HK$6.10 (prior: HK$5.22) on higher

estimates and roll forward of P/B-ROE valuation timeframe. Our target price is based on 2014E P/B of 1.3X, reflecting 15%

2014E-16E average ROE.

JAC (Buy; TP Rmb11.32; 25% upside potential): In August, we revised up our 2013E-15E car market forecast to

14.1%/12.0%/10.0% (for more details, please refer to China: Automobiles: August car market up 14.2% yoy; raise 2013E growth

to 14.1% on low tier cities’ expansion, September 8, 2013) and we also expect a better recovery in the truck market boosted by

replacement demand. Within JAC’s target segments (LDT/MPV/SUV), we continue to expect further market share gain and ASP

increase driven by new versions of trucks/cars, such as new Shuailing light truck, new Refine MPV and S5 SUV. As a result, we

raise our 2013E-2015E EPS estimate revisions by 4%/10%/13%. We raise our 12-month P/B-ROE based target price to Rmb11.32

(prior: Rmb9.17) on higher estimates and roll forward of P/B-ROE valuation timeframe. Our target price is based on 2014E P/B of

1.9X, reflecting 20% 2014E-16E average ROE.



FAW Car (Neutral; TP Rmb14.89; 13% upside potential): We revise up our 2013E-15E EPS by 3%-6% to factor in stronger-than-

expected SUV product cycle (X80 achieves meaningful monthly volume at c. 5K units after 2Q launch; Mazda CX-7 to be

launched in 4Q). We raise our 12-month P/B-ROE based target price to Rmb14.89 (prior: Rmb12.84) on higher estimates and roll

forward of P/B-ROE valuation timeframe. We keep our 34% restructuring premium on the stock. Our target price is based on

2014E P/B of 1.7X, reflecting 18% 2014E-16E average ROE.

Minth (Neutral; TP HK$12.96; 19% downside potential): In the next three years, Minth is likely to further diversify its client base

and geographical mix with its continuous effort to expand both domestic and overseas businesses. We raise our 2014E-15E EPS

by 6%/9% to factor in increasing higher-margin global sourcing orders and improving economies of scale of its overseas plants.

We raise our 12-month P/B-ROE based target price to HK$12.96 (prior: HK$12.00) on higher estimates and roll forward of P/B-

ROE valuation timeframe. Our target price is based on 2014E P/B of 1.3X, reflecting 15% 2014E-16E average ROE.

Zhongsheng (Neutral; TP HK$10.88; 13% downside potential): Mercedes-Benz is broadening its range with new launches

addressing its previous absence from fast growing segments, especially in China: The CLA compact sedan (2013), and GLA

compact SUV (2014). In 2014, Mercedes will launch an all-new C-class, which is currently its best-selling product. We revise up

Zhongsheng’s 2014E-15E EPS by 2%/7% to factor in volume/margin improvement from its Mercedes-Benz exposure and better-

than-expected mid-to-high end new car sales margin. We raise our 12-month P/B-ROE based target price to HK$10.88 (prior:

HK$8.64) on higher estimates and roll forward of P/B-ROE valuation timeframe. Our target price is based on 2014E P/B of 1.7X,

reflecting 19% 2014E-16E average ROE.

Weichai (A/H) (Neutral/ Neutral; TP Rmb21.84/HK$25.90; 13% upside potential/16% downside potential): In August, the HDT

market booked strong growth at 34.7%, indicating a better-than-expected recovery in 2H driven by the emergence of

replacement demand and a pick-up in the macro economy. On back of a stronger HDT market, we revise up our 2013E-15E EPS

by 3%- 5%. We raise our 12-month SOTP-based target price to Rmb21.84/HK$25.90 (prior: Rmb19.85/HK$23.93) on higher

estimates and introduction of EV valuation.

Harmony (Buy; TP HK$8.36; 37% upside potential): We revise down 2014E-15E by 5%/14% reflecting the luxury new store

expansion slowdown. We revise up our 12-month P/B-ROE based target price to HK$8.36 (prior: HK$8.08) as the roll forward of

P/B-ROE valuation timeframe more than offsets the estimates revision. Our target price is based on 2014E P/B of 2.3X, reflecting

26% 2014E-16E average ROE.

Xingda (Neutral; TP HK$3.52; 0.5% upside potential): We keep our 2013E-15E estimates unchanged. We slightly adjust our 12-

month P/B-ROE based target price to HK$3.52 (prior: HK$3.50) factoring in roll forward of P/B-ROE valuation timeframe and 10%

small cap valuation discount (previously 0.1X P/B discount). Our target price is based on 2014E P/B of 0.9X, reflecting 11%

2014E-16E average ROE.

Huayu (Not Rated): We fine-tune our 2013E-15E by 1%-2% on the back of strong total car market growth (we revised up the

2013E-15E total passenger car market forecast to 14.1%/12.0%/10.0% from 11.0%/8.5%/8.0% in our previous report China:

Automobiles: August car market up 14.2% yoy; raise 2013E growth to 14.1% on low tier cities’ expansion, September 8, 2013.



Exhibit 57: We revise our 2013E-15E EPS, and introduce 2016E EPS Summary of revisions to earnings estimates


EPS change summary (Rmb) 2016E

On shore New Old Diff. New Old Diff. New Old Diff. New600104.SS SAIC 1.96 1.96 0% 2.02 2.03 0% 2.13 2.13 0% 2.19600741.SS Huayu 1.21 1.19 2% 1.23 1.22 1% 1.22 1.19 2% 1.23000625.SZ Changan (A) 0.82 0.78 5% 1.25 1.18 6% 1.50 1.31 14% 1.75600418.SS JAC 0.73 0.71 4% 1.06 0.96 10% 1.26 1.12 13% 1.52000800.SZ FAW Car 0.76 0.74 3% 1.11 1.07 4% 1.31 1.24 6% 1.47601633.SS Great Wall (A) 2.87 2.87 0% 3.72 3.72 0% 4.26 4.26 0% 4.69000338.SZ Weichai (A) 2.03 1.93 5% 2.34 2.26 3% 2.56 2.47 4% 2.75

Off shore New Old Diff. New Old Diff. New Old Diff. New0881.HK Zhongsheng 0.60 0.60 0% 0.87 0.85 2% 1.11 1.04 7% 1.301293.HK Baoxin 0.51 0.51 ‐1% 0.66 0.65 1% 0.89 0.84 5% 1.021728.HK Zhengtong 0.40 0.39 2% 0.49 0.48 1% 0.59 0.58 1% 0.733836.HK Harmony 0.54 0.54 0% 0.78 0.82 ‐5% 0.90 1.05 ‐14% 1.023808.HK Sinotruk 0.16 0.16 0% 0.23 0.23 0% 0.31 0.31 0% 0.381899.HK Xingda 0.26 0.26 0% 0.31 0.31 0% 0.38 0.38 0% 0.432238.HK GAC (H) 0.42 0.36 18% 0.71 0.58 24% 0.99 0.66 48% 1.352333.HK Great Wall (H) 2.87 2.87 0% 3.72 3.72 0% 4.26 4.26 0% 4.690489.HK Dongfeng 1.25 1.25 0% 1.22 1.21 1% 1.25 1.21 3% 1.311114.HK Brilliance 0.74 0.67 11% 0.90 0.81 10% 1.02 0.93 10% 1.230175.HK Geely 0.33 0.34 ‐1% 0.41 0.39 5% 0.52 0.47 10% 0.620425.HK Minth 0.91 0.91 0% 1.08 1.02 6% 1.25 1.15 9% 1.452338.HK Weichai (H) 2.03 1.93 5% 2.34 2.26 3% 2.56 2.47 4% 2.751211.HK BYD (H) 0.50 0.50 0% 0.77 0.74 4% 0.95 0.91 5% 1.12200625.SZ Changan (B) 0.82 0.78 5% 1.25 1.18 6% 1.50 1.31 14% 0.01

2013E 2014E 2015E



Geely: Up to CL-Buy on product mix/ASP expansion and synergy with Volvo

Source of opportunity

We upgrade Geely to Buy from Neutral, and add the stock to our Conviction List (CL) due to:

1. Number one ranking in our screen for long-term local leaders: Geely enjoys the best ranking in product

quality and export, and is also ranked well in low-cost positioning, economies of scale, EV and CO2

efficiency, and innovation (especially the innovative patent);

2. Increasing ASP thanks to improving mix of upgraded sedan and SUV (volume mix to increase from 2012’s

39% to 2016E’s 60%);

3. Relatively strong new product cycle: Geely EC9 mid-sized sedan and the EX8 upgraded SUV are likely to be

launched by the end of 2014;

4. Improvement of earnings quality: Government subsidy mix may decrease from 40% of PBT in 2011 to 5%

in 2016E;

5. Solid EPS growth from 2012-16E at 22% per year based on stable improvement in quality/price/product mix;

6. Synergy with Volvo: New CMA platform jointly developed with Volvo is scheduled to be unveiled in

2015E/16E, and may improve compact/small car products of Geely;

7. Asset injection potential regarding parentco’s JV with Volvo in China;

8. Initiative to streamline different brands in China (done in overseas market). Currently, Geely is selling cars

under 3 different brands, namely Gleagle, Shanghai Englon, and Emgrand, which may unnecessarily

complicate the product positioning and distribution network management. A potential way of streamlining is

to use Geely as the sole brand like what the company did in overseas markets.

Catalyst

Further expansion of ASP/product mix via increasing sales volume from more expensive/high margin SUV and

Emgrand sedan; launch of new SUV model EX8 and new mid-sized sedan EC9 by the end of 2014.

Valuation

We fine-tune our 2013E EPS, and increase our 2014E/15E EPS by 4%/10% to reflect Geely’s strong new product

cycle from 2014E. We raise our 12-month P/B-ROE based target price to HK$5.20 (was HK$4.16) due to our revised

earnings estimates, and roll forward of valuation timeframe. Implying 31% upside potential, our target price is

based on 2014E P/B of 1.8X, reflecting 21% 2014E-16E average ROE. We believe Geely’s valuation is attractive at

7.6X 2014E P/E and 1.4X 2014E P/B. It has one of the lowest P/Es among its auto H-share peers.

Key risks

Weaker-than-expected Emgrand sedan/SUV volume/ASP growth; lower-than-expected exports.

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

Geely Automobile Holdings (0175.HK)

Asia Pacific Autos & Autoparts Peer Group Average

Key data Current

Price (HK$) 3.96

12 month price target (HK$) 5.20

Market cap (HK$ mn / US$ mn) 23,147.9 / 2,985.3

Foreign ownership (%) --

12/12 12/13E 12/14E 12/15E

EPS (Rmb) 0.27 0.33 0.41 0.52

EPS growth (%) 30.6 23.7 23.0 25.9

EPS (diluted) (Rmb) 0.22 0.28 0.30 0.30

EPS (basic pre-ex) (Rmb) 0.27 0.33 0.41 0.52

P/E (X) 8.8 9.3 7.6 6.0

P/B (X) 1.5 1.7 1.4 1.2

EV/EBITDA (X) 6.4 6.7 4.9 3.8

Dividend yield (%) 0.9 0.9 1.0 1.4

ROE (%) 18.2 19.5 19.5 21.2

CROCI (%) 23.9 25.9 25.1 26.4

50

55

60

65

70

75

80

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Sep-12 Dec-12 Apr-13 Jul-13

Price performance chart

Geely Automobile Holdings (L) MSCI China (R)

Share price performance (%) 3 month 6 month 12 month

Absolute 17.5 2.9 43.0

Rel. to MSCI China 0.9 0.5 26.7

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/26/2013 close.



Geely (0175.HK): Summary financials

Profit model (Rmb mn) 12/12 12/13E 12/14E 12/15E Balance sheet (Rmb mn) 12/12 12/13E 12/14E 12/15E

Total revenue 24,627.9 31,962.6 37,561.2 47,916.8 Cash & equivalents 4,188.9 4,174.0 4,864.1 5,355.4

Cost of goods sold (19,209.0) (24,722.1) (28,864.6) (36,630.9) Accounts receivable 11,569.2 14,011.0 16,465.2 21,004.6

SG&A (2,881.1) (3,643.7) (4,206.9) (5,270.8) Inventory 1,822.3 2,345.3 2,738.3 3,475.0

R&D -- -- -- -- Other current assets 2,274.7 2,085.0 1,980.8 1,881.7

Other operating profit/(expense) 105.3 104.7 141.8 204.8 Total current assets 19,855.0 22,615.3 26,048.3 31,716.8

EBITDA 2,643.1 3,701.5 4,631.5 6,219.9 Net PP&E 7,007.7 8,001.8 9,011.8 10,161.4

Depreciation & amortization (860.1) (932.1) (1,008.4) (1,095.1) Net intangibles 2,820.7 2,492.6 2,164.6 1,836.5

EBIT 1,783.0 2,769.4 3,623.2 5,124.8 Total investments 198.8 311.1 423.4 535.6

Interest income 42.2 69.9 69.6 81.1 Other long-term assets 1,497.6 1,604.4 1,604.4 1,604.4

Interest expense (236.8) (142.8) (109.5) (63.3) Total assets 31,379.8 35,025.3 39,252.4 45,854.7

Income/(loss) from uncons. subs. (1.7) 0.0 0.0 0.0

Others 942.4 720.0 620.0 500.0 Accounts payable 9,814.8 10,837.1 12,257.6 15,053.8

Pretax profits 2,529.1 3,416.5 4,203.3 5,642.6 Short-term debt 1,378.9 1,378.9 878.9 878.9

Income tax (479.3) (638.3) (785.4) (1,054.3) Other current liabilities 5,499.3 5,559.6 5,612.6 5,709.5

Minorities (9.8) (12.8) (15.1) (19.4) Total current liabilities 16,693.1 17,775.6 18,749.1 21,642.2

Long-term debt 1,373.6 1,373.6 590.6 90.6

Net income pre-preferred dividends 2,040.0 2,765.3 3,402.8 4,568.9 Other long-term liabilities 109.0 123.5 124.0 124.5

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 1,482.7 1,497.2 714.7 215.2

Net income (pre-exceptionals) 2,040.0 2,765.3 3,402.8 4,568.9 Total liabilities 18,175.8 19,272.8 19,463.8 21,857.4

Post-tax exceptionals 0.0 0.0 0.0 0.0

Net income 2,040.0 2,765.3 3,402.8 4,568.9 Preferred shares 0.0 0.0 0.0 0.0

Total common equity 12,886.7 15,422.4 19,443.4 23,632.7

EPS (basic, pre-except) (Rmb) 0.27 0.33 0.41 0.52 Minority interest 317.4 330.2 345.3 364.7

EPS (basic, post-except) (Rmb) 0.27 0.33 0.41 0.52

EPS (diluted, post-except) (Rmb) 0.22 0.28 0.30 0.30 Total liabilities & equity 31,379.8 35,025.3 39,252.4 45,854.7

DPS (Rmb) 0.02 0.03 0.03 0.04

Dividend payout ratio (%) 7.6 8.3 7.8 8.3 BVPS (Rmb) 1.56 1.86 2.20 2.68

Free cash flow yield (%) 13.8 1.0 5.4 5.0

Growth & margins (%) 12/12 12/13E 12/14E 12/15E Ratios 12/12 12/13E 12/14E 12/15E

Sales growth 17.5 29.8 17.5 27.6 CROCI (%) 23.9 25.9 25.1 26.4

EBITDA growth 27.8 40.0 25.1 34.3 ROE (%) 18.2 19.5 19.5 21.2

EBIT growth 25.1 55.3 30.8 41.4 ROA (%) 6.9 8.3 9.2 10.7

Net income growth 32.2 35.6 23.1 34.3 ROACE (%) 18.6 21.7 22.5 25.4

EPS growth 30.6 23.7 23.0 25.9 Inventory days 30.2 30.8 32.1 31.0

Gross margin 22.0 22.7 23.2 23.6 Receivables days 163.9 146.1 148.1 142.7

EBITDA margin 10.7 11.6 12.3 13.0 Payable days 163.4 152.5 146.0 136.1

EBIT margin 7.2 8.7 9.6 10.7 Net debt/equity (%) (10.9) (9.0) (17.2) (18.3)

Interest cover - EBIT (X) 9.2 38.0 90.9 NM

Cash flow statement (Rmb mn) 12/12 12/13E 12/14E 12/15E Valuation 12/12 12/13E 12/14E 12/15E

Net income pre-preferred dividends 2,040.0 2,765.3 3,402.8 4,568.9

D&A add-back 860.1 932.1 1,008.4 1,095.1 P/E (analyst) (X) 8.8 9.3 7.6 6.0

Minorities interests add-back 9.8 12.8 15.1 19.4 P/B (X) 1.5 1.7 1.4 1.2

Net (inc)/dec working capital 1,502.7 (1,942.6) (1,426.7) (2,480.0) EV/EBITDA (X) 6.4 6.7 4.9 3.8

Other operating cash flow 25.1 97.3 104.8 99.5 EV/GCI (X) 1.3 1.5 1.2 1.0

Cash flow from operations 4,437.6 1,864.8 3,104.4 3,303.0 Dividend yield (%) 0.9 0.9 1.0 1.4

Capital expenditures (1,922.1) (1,598.1) (1,690.3) (1,916.7)

Acquisitions 0.0 0.0 0.0 0.0

Divestitures 115.5 0.0 0.0 0.0

Others (264.4) (112.3) (112.3) (112.3)

Cash flow from investments (2,071.0) (1,710.4) (1,802.5) (2,028.9)

Dividends paid (common & pref) (183.8) (169.5) (229.8) (282.8)

Inc/(dec) in debt (1,460.5) 0.0 (1,283.0) (500.0)

Common stock issuance (repurchase) 617.7 0.2 901.0 0.0

Other financing cash flows (181.5) 0.0 0.0 0.0

Cash flow from financing (1,208.1) (169.3) (611.8) (782.8)

Total cash flow 1,158.5 (14.8) 690.0 491.3 Note: Last actual year may include reported and estimated data.

Source: Company data, Goldman Sachs Research estimates.



Buy Geely on improving ASP/product mix, lower dependency on subsidy, and steady improvement of return

Exhibit 58: We estimate a stable increase ASP due to...

Geely ASP, 2009-2016E, ‘000 Rmb

Exhibit 59: ...continuous product mix improvement

Sales volume mix, 2009-2016E



Exhibit 60: Decreasing dependency on government subsidy

Government subsidy % PBT, 2009-2016E

Exhibit 61: We see steady ROE/CROCI improvement in coming years

ROE/CROCI, 2008-2016E



-

10

20

30

40

50

60

70

2009 2010 2011 2012 2013E 2014E 2015E 2016E

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013E 2014E 2015E 2016E

EC7/EC8/EC9 sedan GX7/SX7/EX8 SUV others upgraded models other models on old platform

0%

10%

20%

30%

40%

50%

2009 2010 2011 2012 2013E 2014E 2015E 2016E



GAC (H): Up to Buy on JV profitability turnaround


We upgrade GAC (H) to Buy from Neutral as:

1. We observe the inflection point of JV profitability appeared in 1H13, and expect the JV profit growth to

accelerate in the next two years, mainly on strong product cycles of its major JVs:

Honda: Crider volume higher than expectations; new Accord (3Q13) and Fit (1Q14) launches may

improve margins;

Toyota: New Yaris (4Q13) on EFC platform may have significant cost advantages vs. the old version; new

Corolla platform will launch in 2014E to fill the blank in the compact sedan segment;

Fiat: New model Viaggio NB in 4Q13 and potential localization of Fiat/Jeep SUV models in late 2014E or

2015E could help reduce losses;

Mitsubishi new Pajero/Outlander SUV models to be localized;

Localization of Acura models (SUV-X) in 2016E;

Potential localization of Lexus models in 2016E;

As a result, we expect the blended NPM of its JVs to rise to 8.8% in 2016E from 2012’s 5.5%.

2. We also believe GAC’s local brands may achieve significant volume growth: GS5 mid-sized SUV has been

selling well and the new compact SUV GS3 will be launched in 2015. Also, we do not see the GAC local

brands breaking even in the near term, albeit losses may be narrowed.

Catalyst

Strong product cycle of GAC-Honda/GAC-Toyota in the next one year; strong sales volume as a result of new

product launches during 2013-15; announcement of localization plan of Fiat/Jeep/Acura/Lexus.

Valuation

We increase our 2013E/2014E/15E EPS 18%/24%/48% on GAC JVs’ strong new product cycle and recovering

profitability (see Exhibit 62 for more details). We raise our 12-month P/B-ROE based target price to HK$10.12 (was

HK$6.36) given our revised estimates, and roll forward of valuation timeframe. Implying 21% upside potential,

our target price is based on 2014E P/B of 1.4X, reflecting 16% 2014E-16E average ROE. We believe GAC (H)’s

valuation is attractive at 9.3X 2014E P/E and 1.1X 2014E P/B. It has one of the lowest P/Es among its auto H-share

peers.

Key risks

Weaker-than-expected JVs’ volume/ASP/NPM; later-than-expected localization of Jeep/Acura/Lexus.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Guangzhou Automobile Group Co (2238.HK)


Key data Current

Price (HK$) 8.38




12/12 12/13E 12/14E 12/15E

EPS (Rmb) 0.18 0.42 0.71 0.99

EPS growth (%) (74.4) 136.2 69.7 38.0

EPS (diluted) (Rmb) 0.18 0.42 0.71 0.99


P/E (X) 30.2 15.7 9.3 6.7

P/B (X) 1.1 1.3 1.1 1.0

EV/EBITDA (X) NM NM NM NM

Dividend yield (%) 0.4 1.1 1.9 2.7

ROE (%) 3.8 8.3 12.9 15.8

CROCI (%) 9.5 13.0 15.4 17.0

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0



Guangzhou Automobile Group Co (L) Hang Seng China Ent. Index (R)


Absolute 15.9 32.8 67.9

Rel. to Hang Seng China Ent. Index 0.8 37.6 53.4




GAC (2238.HK): Summary financials




SG&A (2,147.3) (2,620.5) (2,971.4) (4,001.1) Inventory 1,397.4 1,953.6 2,228.7 3,001.0



EBITDA (789.4) (260.2) (181.1) (243.8) Net PP&E 5,927.4 6,414.6 6,719.5 7,221.9

Depreciation & amortization (667.6) (1,112.7) (1,154.3) (1,220.3) Net intangibles 3,076.5 2,804.3 2,532.1 2,259.9

EBIT (1,457.0) (1,372.9) (1,335.4) (1,464.1) Total investments 17,056.6 19,152.0 22,911.3 28,396.9



Income/(loss) from uncons. subs. 622.4 809.1 1,113.5 1,280.5

Others 2,027.6 3,300.5 4,690.0 6,219.4 Accounts payable 6,375.7 8,913.2 10,168.3 13,692.3

Pretax profits 1,000.0 2,466.6 4,216.3 5,807.7 Short-term debt 2,514.7 2,514.7 2,514.7 2,514.7

Income tax 64.8 107.4 201.0 293.3 Other current liabilities 139.3 492.8 828.8 1,140.0

Minorities 69.2 104.8 127.9 173.0 Total current liabilities 9,029.8 11,920.8 13,511.8 17,346.9

Long-term debt 7,776.1 7,776.1 7,776.1 7,776.1


Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 8,340.3 8,340.3 8,340.3 8,340.3





EPS (basic, pre-except) (Rmb) 0.18 0.42 0.71 0.99 Minority interest 921.8 1,117.0 1,319.1 1,509.1



DPS (Rmb) 0.02 0.08 0.13 0.18


Free cash flow yield (%) (7.0) (2.7) (2.5) (1.7)


Sales growth (79.5) 43.4 14.6 34.7 CROCI (%) 9.5 13.0 15.4 17.0

EBITDA growth (115.4) 67.0 30.4 (34.7) ROE (%) 3.8 8.3 12.9 15.8

EBIT growth (138.5) 5.8 2.7 (9.6) ROA (%) 2.1 5.1 7.9 9.7

Net income growth (73.5) 136.2 69.7 38.0 ROACE (%) 4.5 8.4 13.0 15.9

EPS growth (74.4) 136.2 69.7 38.0 Inventory days 79.6 37.7 41.2 38.3


EBITDA margin (6.1) (1.4) (0.9) (0.9) Payable days 321.9 172.0 188.1 174.7

EBIT margin (11.2) (7.4) (6.3) (5.1) Net debt/equity (%) 3.0 0.0 (2.0) (3.6)

Interest cover - EBIT (X) NM NM NM NM



D&A add-back 667.6 1,112.7 1,154.3 1,220.3 P/E (analyst) (X) 30.2 15.7 9.3 6.7

Minorities interests add-back (69.2) (104.8) (127.9) (173.0) P/B (X) 1.1 1.3 1.1 1.0

Net (inc)/dec working capital 1,581.7 549.0 288.3 870.8 EV/EBITDA (X) NM NM NM NM

Other operating cash flow (2,828.9) (4,095.4) (5,759.2) (7,485.6) EV/GCI (X) 0.7 0.8 0.7 0.6

Cash flow from operations 485.2 140.3 100.7 706.4 Dividend yield (%) 0.4 1.1 1.9 2.7


Acquisitions (1,211.4) 0.0 0.0 0.0


Others 6,488.6 1,973.3 1,984.5 1,983.6

Cash flow from investments 2,329.1 672.3 813.0 549.5

Dividends paid (common & pref) (1,287.0) (128.7) (482.2) (818.1)

Inc/(dec) in debt 38.5 0.0 0.0 0.0



Cash flow from financing (1,737.6) 171.3 (152.2) (455.1)

Total cash flow 1,076.7 983.9 761.5 800.8 Note: Last actual year may include reported and estimated data.




Buy GAC (H) on recovering JV profitability, resulting from the strong product cycle of its JVs with Honda and Toyota

Exhibit 62: GAC-Honda and GAC-Toyota will refresh most of their models in the coming 2 years with Honda Crider/Toyota Corolla Sportline filling the blanks of

GAC in the C segment GAC-Honda/GAC-Toyota product cycles, 2013E-16E


Toyota Honda

Segment/partner GAC FAW GAC Dongfeng

E • Crown• Prado• Land Cruiser

D • Lexus ES(potentially16E)

• Highlander(15E)

• Camry

• Reiz • Acura SUV-X(16E)

• Accord (3Q13E)• Odyssey

• Spirior• Jade (3Q13)

C • Corolla Sportline(14E)

• Corolla• Corolla EX• RAV 4

(4Q13E)• Pirus

• Crider (2Q13) • CR-V• CIVIC

B • Yaris (4Q13E) • Vios (4Q13E) • City Fengfan• Lilian S1• Fit (1Q14E)• Fit SUV (14E)



Changan (A): Up to Buy on stronger-than-expected Ford volume/profitability


We upgrade Changan (A) to Buy from Neutral as:

1. We believe the NPM of Changan-Ford would increase significantly from 5.9% in 2012 to 12.0% in 2016E due

to:

We estimate 22%/4% volume/ASP CAGR from 2012 to 2016E;

Strong new product lineup of Ford: New Focus (2012); Kuga/Ecosport/Mondeo (2013); Edge (2014); and

Lincoln (2015) (the new Mondeo took 7% market share in the US mid-sized sedan segment vs. 3% for the

old Mondeo in China in 2012);

Production bottleneck to be removed via capacity expansion and optimization of supplychain (including

overall car and key components, such as gearbox) for Ford from 2014E;

2. We believe the Mazda CX-5 (2.4% market share in the US compact SUV segment in 2012) may help the

Changan-Mazda JV to improve the volume and profitability;

3. We expect the local brands to outperform in terms of volume (1H13 car volume up by 92% yoy) but

profitability to remain weak on low ASP and high R&D/marketing expenses. We do not see the local brands

breaking even in 3-4 years.

We maintain Neutral on Changan B.

Catalyst

Strong product cycle of Changan Ford; strong sales volume of Ford as a result of new product launches.

Valuation

We increase our 2013E/14E/15E EPS by 5%/6%/14% to reflect Changan-Ford’s strong new product cycle and

robust profitability growth. We raise our 12-month P/B-ROE based target price for Changan (A/B) to

Rmb12.98/HK$12.65 (was Rmb10.24/HK$9.61) due to our higher estimates and roll forward of valuation

timeframe. Implying 28% upside potential, our target price for Changan (A) is based on 2014E P/B of 2.6X,

reflecting 27% 2014E-16E average ROE. We believe Changan (A)’s valuation is attractive at 8.5X 2014E P/E and

2.1X 2014E P/B. It has one of the lowest P/Es among its auto A-share peers.

Key risks

Weaker-than-expected Ford/Mazda/Suzuki JVs’ volume/ASP/NPM; lower-than-expected local branded passenger

car and minivan’s volume/profitability.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Chongqing Changan Auto (A) (000625.SZ)


Key data Current

Price (Rmb) 10.11

12 month price target (Rmb) 12.98

Market cap (Rmb mn / US$ mn) 42,474.6 / 6,938.7


12/12 12/13E 12/14E 12/15E

EPS (Rmb) 0.31 0.82 1.25 1.50

EPS growth (%) 52.6 167.2 51.9 20.1

EPS (diluted) (Rmb) 0.31 0.82 1.25 1.50


P/E (X) 16.3 12.3 8.1 6.7

P/B (X) 1.5 2.5 2.0 1.7

EV/EBITDA (X) 47.5 48.8 36.0 33.6

Dividend yield (%) 1.0 1.3 2.5 3.7

ROE (%) 9.6 22.6 27.8 27.0

CROCI (%) 17.7 21.5 24.4 25.1

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

5

6

7

8

9

10

11

12



Chongqing Changan Auto (A) (L) Shanghai - Shenzhen 300 (R)


Absolute 6.5 14.1 97.5

Rel. to Shanghai - Shenzhen 300 (3.1) 23.2 80.9




Changan A (000625.SZ): Summary financials




SG&A (5,320.1) (6,666.1) (7,515.9) (8,170.9) Inventory 4,911.0 5,346.9 6,098.2 6,629.7



EBITDA 506.8 963.8 1,299.3 1,412.6 Net PP&E 14,435.7 15,643.6 17,511.8 19,738.7

Depreciation & amortization (1,164.1) (1,535.6) (1,679.3) (1,850.6) Net intangibles 2,143.0 1,810.6 1,478.3 1,145.9

EBIT (657.2) (571.8) (380.0) (438.0) Total investments 7,829.2 10,707.5 15,043.4 20,172.9



Income/(loss) from uncons. subs. 7.8 7.8 7.8 7.8


Pretax profits 1,327.4 3,819.9 5,818.5 6,990.4 Short-term debt 1,250.0 750.0 750.0 750.0

Income tax 87.6 0.0 0.0 0.0 Other current liabilities 4,686.2 5,076.1 5,627.4 6,215.3

Minorities 31.4 44.9 53.0 58.4 Total current liabilities 25,198.3 28,104.9 31,786.5 34,589.0

Long-term debt 2,955.3 2,955.3 2,955.3 3,555.3

Net income pre-preferred dividends 1,446.4 3,864.9 5,871.5 7,048.8 Other long-term liabilities 2,573.0 2,573.0 2,573.0 2,573.0






EPS (basic, pre-except) (Rmb) 0.31 0.82 1.25 1.50 Minority interest (122.0) (167.0) (220.0) (278.4)



DPS (Rmb) 0.05 0.13 0.25 0.37






EBIT growth 39.5 13.0 33.5 (15.3) ROA (%) 3.5 7.9 10.4 10.9





EBIT margin (2.2) (1.4) (0.8) (0.9) Net debt/equity (%) 4.0 (2.1) (2.2) 0.3




D&A add-back 1,164.1 1,535.6 1,679.3 1,850.6 P/E (analyst) (X) 16.3 12.3 8.1 6.7

Minorities interests add-back (31.4) (44.9) (53.0) (58.4) P/B (X) 1.5 2.5 2.0 1.7

Net (inc)/dec working capital (269.5) 1,516.0 802.1 586.8 EV/EBITDA (X) 47.5 48.8 36.0 33.6


Cash flow from operations 511.9 2,160.4 2,089.0 1,954.4 Dividend yield (%) 1.0 1.3 2.5 3.7




Others 1,207.0 1,498.3 1,873.7 2,342.1

Cash flow from investments (3,679.7) (911.1) (1,340.2) (1,401.4)

Dividends paid (common & pref) (192.2) (233.1) (623.0) (1,174.3)

Inc/(dec) in debt 3,243.5 (500.0) 0.0 600.0



Cash flow from financing 2,514.7 (733.1) (623.0) (574.3)

Total cash flow (653.2) 516.1 125.9 (21.3) Note: Last actual year may include reported and estimated data.




Sinotruk: Down to Sell on market share loss and sustained fourth quartile ROE


We downgrade Sinotruk to Sell from Neutral given the following reasons:

1. We believe the strong Heavy Duty Truck (HDT) market yoy growth in recent months was mainly due to a low-

base comparison, and we expect full-year HDT market growth to moderate to 15%/10%/10% in

2013E/14E/15E. We believe growth would mainly come from logistics demand (i.e., trailer/flat-bed types of

HDT), while demand for FAI/mining-related products like dumpers would remain weak;

2. Sinotruk is gradually losing its market share from over 20% in 2006-2010 to 16.6% in the first eight months of

2013, as its products are mainly FAI/mining-related dumpers. We believe it may be difficult for the company

to maintain its current market share in light of the weak demand for dumpers;

3. The sales volume of newly developed high-end products based on technologies of MAN (MANG.DE, covered

by our European auto analyst Stefan Burgstaller) is relatively low due to the lack of an aftersales network.

Although we are positive on the sales potential of its new products in light of their strong performance in

emission and fuel consumption, we believe it would take time to develop the aftersales network and sales

volume may only increase gradually in the near term;

4. We expect the company’s 2013E-16E ROE to remain in the fourth quartile (the lowest among our coverage).

Nevertheless, Sinotruk remains one of the leading HDT makers in China in terms of market share, product quality,

and aftersales. Its partnership with MAN provides the company with leading technologies in both truck and

engine.

Catalyst

Continuous market share loss in the near term; weaker-than-expected sales volume of high-end products based

on MAN technologies; weak 2H2013 results.

Valuation

Our 2013E-15E EPS are unchanged. Based on the roll forward of our valuation timeframe, we cut our 12-month

P/B-ROE based target price to HK$3.12 (was HK$3.31), implying 22% downside potential. Our target price is based

on 2014E P/B of 0.4X, reflecting 4% 2014E-16E average ROE. We believe Sinotruk’s valuation is rich at 13.5X

2014E P/E and 0.4X 2014E P/B. It has one of the highest P/Es among its auto H-share peers (excluding BYD).

Key risks

Stronger-than-expected HDT market recovery; ASP/market share gain on strict implementation of Euro IV

emission standard by end 2014E; stronger-than-expected export growth.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Sinotruk (Hong Kong) (3808.HK)


Key data Current

Price (HK$) 3.98




12/12 12/13E 12/14E 12/15E

EPS (Rmb) 0.04 0.16 0.23 0.31

EPS growth (%) (87.6) 255.7 45.5 35.3

EPS (diluted) (Rmb) 0.04 0.16 0.23 0.31


P/E (X) 84.0 19.7 13.5 10.0

P/B (X) 0.6 0.5 0.4 0.4

EV/EBITDA (X) 15.2 8.9 8.1 7.3

Dividend yield (%) 0.4 1.7 2.5 3.3

ROE (%) 0.7 2.3 3.3 4.4

CROCI (%) 6.8 9.0 6.3 6.6

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0



Sinotruk (Hong Kong) (L) Hang Seng China Ent. Index (R)


Absolute 4.5 (8.5) (12.5)

Rel. to Hang Seng China Ent. Index (9.2) (5.2) (20.1)




Sinotruk (3808.HK): Summary financials




SG&A (3,945.7) (4,297.7) (4,713.4) (5,183.3) Inventory 7,560.5 8,421.8 9,263.7 10,256.2

R&D -- -- -- -- Other current assets 959.7 1.3 1.3 1.3


EBITDA 1,200.9 1,995.2 2,360.9 2,818.8 Net PP&E 12,835.9 13,450.6 13,751.5 14,052.6

Depreciation & amortization (995.6) (1,060.6) (1,080.7) (1,100.8) Net intangibles 550.6 386.7 222.7 58.8

EBIT 205.4 934.6 1,280.2 1,718.0 Total investments 219.3 219.3 219.3 219.3





Pretax profits 321.4 761.2 1,047.9 1,372.3 Short-term debt 5,388.2 6,388.2 7,388.2 8,888.2

Income tax (149.0) (190.3) (262.0) (343.1) Other current liabilities 3,278.2 3,384.1 3,451.1 3,526.6


Long-term debt 5,619.0 4,219.0 4,219.0 4,219.0

Net income pre-preferred dividends 124.0 440.9 641.5 867.7 Other long-term liabilities 643.7 643.7 643.7 643.7


Net income (pre-exceptionals) 124.0 440.9 641.5 867.7 Total liabilities 23,294.5 23,903.2 25,896.8 28,564.5


Net income 124.0 440.9 641.5 867.7 Preferred shares 0.0 0.0 0.0 0.0


EPS (basic, pre-except) (Rmb) 0.04 0.16 0.23 0.31 Minority interest 1,806.0 1,797.9 1,788.9 1,778.9



DPS (Rmb) 0.02 0.05 0.08 0.10


Free cash flow yield (%) 1.0 (10.2) (10.4) (11.0)



EBITDA growth (54.3) 66.1 18.3 19.4 ROE (%) 0.7 2.3 3.3 4.4

EBIT growth (87.8) 355.1 37.0 34.2 ROA (%) 0.3 1.0 1.4 1.8

Net income growth (87.6) 255.7 45.5 35.3 ROACE (%) 1.7 3.3 4.0 4.7

EPS growth (87.6) 255.7 45.5 35.3 Inventory days 142.5 115.8 116.5 116.1



EBIT margin 0.7 3.0 3.7 4.4 Net debt/equity (%) 29.5 35.1 41.0 47.0

Interest cover - EBIT (X) 0.4 2.1 2.7 3.1


Net income pre-preferred dividends 124.0 440.9 641.5 867.7



Net (inc)/dec working capital (909.4) (1,975.5) (1,588.1) (1,875.4) EV/EBITDA (X) 15.2 8.9 8.1 7.3

Other operating cash flow 534.6 783.8 (150.9) (169.8) EV/GCI (X) 0.6 0.6 0.6 0.6

Cash flow from operations 793.2 439.8 127.7 84.8 Dividend yield (%) 0.4 1.7 2.5 3.3

Capital expenditures (670.0) (1,511.5) (1,217.6) (1,238.0)



Others 139.0 0.0 0.0 0.0

Cash flow from investments (528.3) (1,511.5) (1,217.6) (1,238.0)

Dividends paid (common & pref) (217.9) (41.4) (147.3) (214.3)

Inc/(dec) in debt (4,611.5) (400.0) 1,000.0 1,500.0


Other financing cash flows (37.4) (138.1) (153.5) (171.6)

Cash flow from financing (4,866.8) (579.5) 699.2 1,114.1

Total cash flow (4,601.9) (1,651.2) (390.7) (39.0) Note: Last actual year may include reported and estimated data.




Exhibit 63: We revise up our HDT total market estimates in 2013E-15E to

15%/10%/10% given a low base in 2012, recovering replacement demand,

and potential pre-purchase before emission upgrade Volume in ‘000 units, 2000-2015E

Exhibit 64: Sinotruk is losing share among HDT peers

Top 10 HDT maker’s market share in %, 2005-2013 August YTD

Source: China Auto Market, Gao Hua Securities Research.

Source: China Auto Market.

83 147

245 256 371

237 307

495 496 605

970 856

603 693 762 839 16%

77.4%67.0%

4.2%

45.0%

-36.2%

29.9%

60.9%

0.3%

22.0%

60.3%

-12.4%-29.6%

15.0%10.0% 10.0%

-100%

-60%

-20%

20%

60%

100%

0

200

400

600

800

1000

1200

1400

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

E

2014

E

2015

EHDT Sales Volume Growth rate (YoY)

19%

21%21% 21% 20% 20%

17% 18% 17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005

2006

2007

2008

2009

2010

2011

2012

2013

YTD

Sanhuan

Hualing

Jianghuai

Beiben

SAIC-Iveco-HongyanFoton

Shaanxi Zhongqi

Sinotruk

FAW

Dongfeng



SAIC: Off Conviction List, but retain Buy on attractive near-term valuation

What happened

We remove SAIC from our Conviction List due to its relatively slow profit growth from its JVs among peers and

lower-than-expected local brands volume growth. We now apply a 12% valuation discount (based on SAIC’s

historical trading range) to factor in its low growth profile. Nevertheless, we retain our Buy rating on the stock

due to its well positioned JV business (which we believe should sustain the current high level of profitability) and

attractive near-term valuation.

1. SAIC has continuously garnered the highest share (more than 20%) in China’s passenger car market

since 2010;

2. Currently, its JVs with Shanghai General Motors (SGM) and Shanghai Volkswagen (SVW) are well

positioned among all JVs in China: SGM and SVW continue to be industry leaders in terms of market

share, brand image, profitability, and management capability;

3. SAIC continues to generate high returns: In 2012, the company generated 18.5% ROE which is in the

second quartile among our coverage. We expect 2015E ROE to remain at a relatively high level of 14.6%.

Since we added SAIC to our Conviction Buy list on September 16, 2011, the stock has fallen 11.0% versus 9.2%

decrease for the Shanghai-Shenzhen 300. We believe the underperformance was due to market concerns on its

low growth profile.

Current view

We believe SGM’s product cycle is likely to remain under pressure before 2015 due to under-investment in R&D

by the General Motors group during the difficult 2008-2010 period. However, we remain positive on SVW’s

product cycle throughout the next three years, and SGM’s product cycle after 2015, as the General Motors group

has resumed its R&D investment since early 2010. We also see risks of higher-than-expected brand-building and

R&D expenses for local brands, and believe it may be difficult for SAIC’s local brand ROEWE/MG to achieve

breakeven in the next three years.

Valuation

We made no adjustment to our 2013E-15E EPS. We lower our 12-month P/B-ROE based target price to Rmb16.42

(was Rmb20.59) on the back of our newly applied valuation discount and roll forward of valuation timeframe. Our

target price is based on 2014E P/B of 1.3X, reflecting 14% 2014E-16E average ROE. SAIC is currently trading at

6.9X 2014E P/E and 1.0X 2014E P/B (vs. A-share peers average of 8.8X 2014E P/E).

Key risks

Lower-than-expected car volume/pricing/GPM of SGM/SVW; slower-than-expected new model launches; higher-

than-expected brand-building and R&D expenses for local brands.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





SAIC Motor (600104.SS)


Key data Current

Price (Rmb) 13.40

12 month price target (Rmb) 16.42

Market cap (Rmb mn / US$ mn) 114,118.9 / 18,642.6


12/12 12/13E 12/14E 12/15E

EPS (Rmb) 1.88 1.96 2.02 2.13

EPS growth (%) 2.6 3.9 3.2 5.4

EPS (diluted) (Rmb) 1.88 1.96 2.02 2.13


P/E (X) 7.5 6.9 6.6 6.3

P/B (X) 1.3 1.1 1.0 0.9

EV/EBITDA (X) 4.8 10.6 10.6 10.7

Dividend yield (%) 4.2 4.4 4.5 4.8

ROE (%) 18.5 16.6 15.3 14.6

CROCI (%) 40.2 33.6 24.0 22.0

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

11

12

13

14

15

16

17

18

19



SAIC Motor (L) Shanghai - Shenzhen 300 (R)


Absolute 0.0 (9.5) 7.3

Rel. to Shanghai - Shenzhen 300 (9.1) (2.2) (1.7)




SAIC (600104.SS): Summary financials




SG&A (45,742.8) (48,678.0) (53,843.7) (60,031.5) Inventory 24,950.8 31,175.4 33,766.8 37,235.0


Other operating profit/(expense) 1,922.6 3,092.5 3,655.8 4,030.3 Total current assets 189,154.7 185,395.1 195,057.0 206,172.3

EBITDA 32,574.7 14,830.3 15,501.6 16,269.2 Net PP&E 32,825.9 38,876.6 45,041.4 51,651.2


EBIT 26,073.4 10,410.2 10,496.3 10,646.7 Total investments 69,263.9 85,477.4 102,934.0 121,907.7


Interest expense (761.7) (1,140.4) (1,273.1) (1,450.4) Total assets 317,203.0 335,660.9 368,145.1 404,044.9



Pretax profits 40,156.4 37,949.8 39,332.2 41,329.1 Short-term debt 37,607.2 34,607.2 34,607.2 34,607.2

Income tax (6,628.1) (5,884.4) (6,098.8) (6,408.4) Other current liabilities 45,939.2 45,793.2 46,000.1 46,362.6

Minorities (12,776.5) (10,501.0) (10,979.5) (11,458.5) Total current liabilities 156,351.7 149,213.5 155,140.4 163,158.2

Long-term debt 946.8 946.8 946.8 946.8










DPS (Rmb) 0.60 0.59 0.61 0.64





EBITDA growth (12.4) (54.5) 4.5 5.0 ROE (%) 18.5 16.6 15.3 14.6

EBIT growth (11.9) (60.1) 0.8 1.4 ROA (%) 6.5 6.6 6.3 6.1






Interest cover - EBIT (X) NM 20.0 15.8 13.1



D&A add-back 6,501.2 4,420.1 5,005.2 5,622.5 P/E (analyst) (X) 7.5 6.9 6.6 6.3

Minorities interests add-back 12,776.5 10,501.0 10,979.5 11,458.5 P/B (X) 1.3 1.1 1.0 0.9

Net (inc)/dec working capital (27,727.8) (13,918.9) (1,381.1) (1,802.7) EV/EBITDA (X) 4.8 10.6 10.6 10.7




Acquisitions 0.0 (99.0) 0.0 0.0


Others (1,738.6) 11,460.7 11,945.2 12,925.4

Cash flow from investments (17,023.3) 1,795.0 1,578.9 1,497.3

Dividends paid (common & pref) (3,307.7) (6,615.3) (6,469.3) (6,676.2)

Inc/(dec) in debt (6,744.6) (3,000.0) 0.0 0.0


Other financing cash flows 6,954.0 0.0 0.0 0.0

Cash flow from financing (2,410.4) (9,615.3) (6,469.3) (6,676.2)

Total cash flow (11,312.1) (1,020.9) 2,560.7 1,657.4 Note: Last actual year may include reported and estimated data.




Dongfeng: Downgrade to Neutral on relatively low growth profile

What happened

We downgrade Dongfeng to Neutral from Buy due to its relatively slow earnings growth during 2013E-16E

among its peers. We expect its local brands to continue making losses during the aforesaid period, offsetting the

recovery of Japanese brand volume/margin and earnings increase from its JV with Peugeot-Citroën (PSA) as a

result of its strong product cycle. We also now apply a 12% valuation discount (derived from its historical trading

range) to factor in the company’s low growth profile.

Since we added Dongfeng to our Buy list on February 24, 2012, the stock has fallen 25% versus MSCI China’s 2%

increase. We believe the underperformance was due to market concerns on its low growth profile.

Current view

We slightly raise our 2014E-15E EPS by 1%/3% reflecting normalized Japanese brands volume/margin and PSA

product cycle; Peugeot 2008 to be launched in 2014. 2013E EPS is unchanged.

Valuation

Given our newly applied valuation discount, earnings estimate revision, and roll forward of valuation timeframe,

we lower our 12-month P/B-ROE based target price to HK$11.47 (from HK$13.66). Our target price is based on

2014E P/B of 1.2X, reflecting 14% 2014E-16E average ROE.

Key risks

Stronger-/weaker-than-expected Japanese brand volume/pricing/margin.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Dongfeng Motor (0489.HK)


Key data Current

Price (HK$) 11.76




12/12 12/13E 12/14E 12/15E

EPS (Rmb) 1.05 1.25 1.22 1.25

EPS growth (%) (13.5) 18.8 (2.5) 2.8

EPS (diluted) (Rmb) 1.05 1.25 1.22 1.25


P/E (X) 9.4 7.4 7.6 7.4

P/B (X) 1.6 1.3 1.1 1.0

EV/EBITDA (X) NM NM NM NM

Dividend yield (%) 1.5 2.2 2.1 2.2

ROE (%) 18.1 18.4 15.6 14.2

CROCI (%) 22.8 20.3 17.4 15.7

50

52

54

56

58

60

62

64

66

68

70

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0



Dongfeng Motor (L) MSCI China (R)


Absolute 11.4 14.6 30.2

Rel. to MSCI China (8.1) 11.3 15.9




Dongfeng (0489.HK): Summary financials




SG&A (2,206.3) (4,200.9) (4,453.1) (4,676.4) Inventory 1,198.0 5,083.2 5,515.6 5,996.9



EBITDA (1,233.4) 102.7 216.6 400.9 Net PP&E 2,430.0 3,658.8 4,834.0 5,965.1

Depreciation & amortization (210.0) (423.1) (553.7) (679.4) Net intangibles 414.0 397.4 380.9 364.3

EBIT (1,443.4) (320.4) (337.1) (278.5) Total investments 32,247.0 43,254.5 54,013.1 65,076.8

Interest income 652.5 384.8 279.7 152.6 Other long-term assets 375.0 393.8 413.4 434.1

Interest expense (250.0) (126.6) (63.3) 0.0 Total assets 62,366.0 84,275.1 92,119.4 102,764.8



Pretax profits 9,128.3 10,915.4 10,638.0 10,937.7 Short-term debt 2,302.0 2,302.0 0.0 0.0



Long-term debt 0.0 0.0 0.0 0.0


Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 106.0 106.0 106.0 106.0


Post-tax exceptionals (14.0) 0.0 0.0 0.0






DPS (Rmb) 0.15 0.20 0.20 0.20


Free cash flow yield (%) 7.9 (4.5) (2.3) (2.3)




EBIT growth (111.7) 77.8 (5.2) 17.4 ROA (%) 10.1 14.7 11.9 11.1

Net income growth (13.5) 18.8 (2.5) 2.8 ROACE (%) 32.3 23.2 17.6 15.0

EPS growth (13.5) 18.8 (2.5) 2.8 Inventory days 435.3 47.0 73.1 73.0


EBITDA margin (18.4) 0.4 0.7 1.2 Payable days 1,226.4 153.5 236.8 236.6

EBIT margin (21.5) (1.1) (1.1) (0.8) Net debt/equity (%) (29.0) (17.0) (9.9) (4.4)




D&A add-back 210.0 423.1 553.7 679.4 P/E (analyst) (X) 9.4 7.4 7.6 7.4


Net (inc)/dec working capital (1,379.0) (1,912.9) (193.1) (215.1) EV/EBITDA (X) NM NM NM NM

Other operating cash flow (776.1) (11,254.4) (11,017.9) (11,335.8) EV/GCI (X) 1.8 1.3 1.1 1.0

Cash flow from operations 7,134.0 (1,970.8) (157.7) (76.0) Dividend yield (%) 1.5 2.2 2.1 2.2

Capital expenditures (336.0) (1,635.4) (1,712.2) (1,794.0)



Others 0.0 0.0 0.0 0.0

Cash flow from investments (336.0) (1,635.4) (1,712.2) (1,794.0)

Dividends paid (common & pref) (1,551.0) (1,292.0) (1,750.9) (1,706.3)

Inc/(dec) in debt 0.0 0.0 (2,302.0) 0.0


Other financing cash flows (30,206.0) (3.1) (3.2) (3.4)


Total cash flow (24,959.0) (4,901.2) (5,926.0) (3,579.7) Note: Last actual year may include reported and estimated data.




Great Wall (H): Downgrade to Neutral on fair valuation

What happened

We downgrade Great Wall (H) to Neutral from Buy as we believe current valuations are fair and justify the strong

growth/earnings momentum in the medium term. We maintain Neutral on Great Wall (A). Great Wall’s

fundamentals stay intact as we believe the company should sustain its strong volume growth momentum as well

as GPM expansion in the medium term, driven by:

A strong product pipeline (H2/H8 to be launched by the end of FY13);

Product mix improvement (SUV % in volume mix increased to 52% in 1H13 vs. 43% in 1H12);

Increasing economies of scale (26% volume growth in 2013E; we expect the company to achieve total

volume of 782,123 units, including pick-ups).

Since we added Great Wall (H) to our Buy list on April 17, 2013, the stock has risen 47.8% vs. 3.1% of the Hang

Seng China Ent. Index.

Current view

Our 2013E-15E earnings are unchanged as we have already factored in the upcoming new product launches and

higher-than-peers volume/margin expansion.

Valuation

We raise our 12-month P/B-ROE based target price for Great Wall (A/H) to Rmb40.41/HK$46.01 (from

Rmb35.86/41.03) mainly on the roll forward of our valuation timeframe. Our Great Wall (A/H) target prices are

based on 2014E P/B of 3.2X/2.8X, reflecting 32% 2014E-16E average ROE.

Key risks

Stronger-/weaker-than-expected total car market demand; higher-/lower-than-expected SUV competition;

stronger/weaker exports; stronger/weaker volume/price/GPM of upcoming new models.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Great Wall Motor Co. (2333.HK)


Key data Current

Price (HK$) 42.85




12/12 12/13E 12/14E 12/15E

EPS (Rmb) 1.87 2.87 3.72 4.26

EPS growth (%) 53.4 53.4 29.7 14.4

EPS (diluted) (Rmb) 1.87 2.87 3.72 4.26


P/E (X) 7.6 11.8 9.1 7.9

P/B (X) 2.0 3.7 2.9 2.3

EV/EBITDA (X) 4.9 8.5 6.5 5.5

Dividend yield (%) 4.0 2.5 3.3 3.8

ROE (%) 29.8 35.5 35.8 32.3

CROCI (%) 44.6 44.8 42.6 38.0

8,500

9,500

10,500

11,500

12,500

13,500

14,500

15

20

25

30

35

40

45



Great Wall Motor Co. (L) Hang Seng China Ent. Index (R)


Absolute 29.7 59.6 111.6

Rel. to Hang Seng China Ent. Index 12.7 65.4 93.3




Great Wall H (2333.HK): Summary financials




SG&A (3,400.1) (4,160.5) (5,357.4) (6,108.3) Inventory 2,695.1 3,464.3 4,516.7 5,222.2



EBITDA 7,547.8 11,427.2 15,067.7 17,507.5 Net PP&E 14,008.8 19,010.7 25,035.3 31,797.4

Depreciation & amortization (944.2) (1,267.5) (1,788.3) (2,271.3) Net intangibles 2.2 2.1 2.0 1.9

EBIT 6,603.6 10,159.7 13,279.4 15,236.1 Total investments 48.1 67.4 86.7 106.1





Pretax profits 6,841.0 10,489.4 13,601.5 15,558.7 Short-term debt 51.7 51.7 51.7 51.7

Income tax (1,119.0) (1,715.7) (2,224.7) (2,544.9) Other current liabilities 6,228.4 7,114.2 7,891.5 8,380.2


Long-term debt 0.0 0.0 0.0 0.0










DPS (Rmb) 0.57 0.86 1.12 1.28


Free cash flow yield (%) (0.3) 1.3 2.6 4.4




EBIT growth 66.5 53.8 30.7 14.7 ROA (%) 15.0 18.2 18.8 17.6











Net (inc)/dec working capital (2,222.2) (2,015.0) (2,214.4) (1,465.7) EV/EBITDA (X) 4.9 8.5 6.5 5.5

Other operating cash flow (108.1) (445.5) (490.8) (297.0) EV/GCI (X) 2.1 3.9 2.8 2.2





Others 508.5 0.0 0.0 0.0


Dividends paid (common & pref) (912.7) (1,734.2) (2,620.1) (3,397.3)

Inc/(dec) in debt 1.0 0.0 0.0 0.0




Total cash flow (770.1) (422.8) 26.9 1,091.8 Note: Last actual year may include reported and estimated data.




BYD: Upgrade to Neutral on improved visibility of EV growth/policy

What happened

We upgrade BYD to Neutral from Sell on supportive new electric vehicle (EV) policy in China. The Ministry of

Finance (MoF) has recently announced a new 2013-2015 EV policy, which we believe is likely to boost BYD’s EV

sales as the policy stipulates that the EV sales in each showcase city should include at least 30% of EVs not locally

produced. See page 59 for our detailed analysis.

Since we added BYD to our Sell list on May 19, 2010, the stock has fallen 41.3% vs. MSCI China’s 9.4% rise.

Current view

In our view, BYD should be a major beneficiary of the new policy as it is the EV leader, and we believe the

company would be able to manage a national sales coverage in China. Reflecting a brighter outlook for EV/HEV

models, we revise up our 2014E-15E EPS by 4%/5%, respectively. We keep our 2013E EPS unchanged.

Valuation

We raise our 12-month SOTP-based target price to HK$35.17 (was HK$13.00) factoring in: 1) newly added EV

valuation; 2) higher earnings estimates for its handset business; and 3) roll forward of the P/B-ROE valuation

timeframe, which slightly increases the valuation for BYD’s traditional internal combustion engine car business.

Please see Exhibits 67 and 68 for details.

Key risks

Higher/lower car volume/margin and EV sales.

Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





BYD Company (1211.HK)


Key data Current

Price (HK$) 34.10




12/12 12/13E 12/14E 12/15E

EPS (Rmb) 0.03 0.50 0.77 0.95

EPS growth (%) (94.2) 1,333.0 55.8 23.7

EPS (diluted) (Rmb) 0.03 0.50 0.77 0.95


P/E (X) NM 54.3 34.9 28.2

P/B (X) 1.6 2.8 2.6 2.4

EV/EBITDA (X) 13.0 15.2 12.6 11.2

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 0.4 5.4 7.8 8.9

CROCI (%) 10.7 7.7 11.6 11.7

50

55

60

65

70

75

10

15

20

25

30

35



BYD Company (L) MSCI China (R)


Absolute 28.4 35.9 157.2

Rel. to MSCI China 6.0 31.9 128.8




BYD H (1211.HK): Summary financials




SG&A (4,713.4) (6,055.6) (6,911.3) (7,665.2) Inventory 7,344.8 8,985.8 10,310.8 11,435.5



EBITDA 4,041.9 5,417.1 6,492.9 7,201.1 Net PP&E 35,432.0 37,428.5 39,327.1 41,272.1


EBIT 785.8 1,956.7 2,868.3 3,413.3 Total investments 952.1 1,004.2 1,061.7 1,124.8





Pretax profits 290.7 1,573.3 2,391.7 2,947.5 Short-term debt 11,287.8 15,287.8 14,787.8 13,787.8



Long-term debt 7,341.3 5,341.3 5,341.3 5,341.3

Net income pre-preferred dividends 81.4 1,166.1 1,816.5 2,247.3 Other long-term liabilities 1,293.9 1,228.7 1,228.7 1,228.7


Net income (pre-exceptionals) 81.4 1,166.1 1,816.5 2,247.3 Total liabilities 45,863.4 51,791.2 54,674.5 56,546.5


Net income 81.4 1,166.1 1,816.5 2,247.3 Preferred shares 0.0 0.0 0.0 0.0





DPS (Rmb) 0.00 0.00 0.00 0.00


Free cash flow yield (%) (4.3) (0.7) 1.4 2.0




EBIT growth (56.9) 149.0 46.6 19.0 ROA (%) 0.1 1.6 2.3 2.7

Net income growth (94.1) NM 55.8 23.7 ROACE (%) 2.1 5.2 6.8 7.6

EPS growth (94.2) 1,333.0 55.8 23.7 Inventory days 70.7 67.7 69.7 70.8



EBIT margin 1.8 3.6 4.5 4.9 Net debt/equity (%) 62.7 62.3 55.1 46.8



Net income pre-preferred dividends 81.4 1,166.1 1,816.5 2,247.3

D&A add-back 3,256.1 3,460.3 3,624.6 3,787.8 P/E (analyst) (X) NM 54.3 34.9 28.2


Net (inc)/dec working capital 1,440.9 1,320.4 341.5 326.0 EV/EBITDA (X) 13.0 15.2 12.6 11.2

Other operating cash flow 645.4 (1,695.4) (57.4) (63.2) EV/GCI (X) 1.1 1.6 1.4 1.3




Divestitures 133.8 133.8 133.8 133.8

Others 2,406.7 (300.6) (249.0) (257.0)


Dividends paid (common & pref) 0.0 0.0 0.0 0.0

Inc/(dec) in debt (116.8) 2,000.0 (500.0) (1,000.0)


Other financing cash flows (1,100.2) (66.7) (87.3) (104.8)

Cash flow from financing (1,217.0) 1,933.3 (587.3) (1,104.8)

Total cash flow (271.3) 1,275.7 228.2 129.6 Note: Last actual year may include reported and estimated data.




We upgrade BYD to Neutral on supportive new EV policy in China; previous headwind of local

protectionism may ease

On September 17, the Ministry of Finance (MoF) published a new 2013-2015 electric vehicle (EV) policy with the following details: (1)

Geographically, new EV promotion will focus on select big cities (especially mega cities) in areas suffering from severe air pollution.

(2) Each select megacity or focus area should cumulatively achieve over 10k units sales volume of new energy car, while the target

is over 5k units for other cities/areas by 2015. (3) Subsidy scope includes EV and PHEV (plug-in hybrid electric vehicle) but not HEV

(hybrid electric vehicle). (4) The MoF will provide special funding to support construction of EV charging infrastructure in the

showcase cities.

We believe the new EV support policy may help ease local protectionism in EV promotion due to:

Subsidy from the central government will be directly granted to car makers vs. previously to local government first and

subsequently to car makers. We believe this could reduce the chance that local governments favor local car makers in the

granting of subsidy;

The new policy stipulates that the EV sales in each showcase city should include at least 30% EVs not locally produced.

Please refer to our previous report, China: Automobiles: New EV policy to ease local protectionism; target more realistic, dated

September 18, 2013.

Exhibit 65: New subsidy to increase visibility of EV growth EV subsidy, Rmb’000/vehicle by different millage range and length

Exhibit 66: New policy may ease EV local protectionism

Source: MoF.


80<R<150 150<R<250 250<R 50<R

EV car 35 50 60 ‐

PHEV car ‐ ‐ ‐ 35

6<L<8 8<L<10 10<L

EV Bus 300 400 500

PHEV Bus ‐ ‐ 250

Type of vehicle

Millage range (R, km)

Type of vehicle

Length of bus (L, meter)

Selective cities CV PVBeijing Foton Foton, ChanganShanghai SAIC (Shenwo) SAICChangchun FAW Group FAW GroupShenzhen Wuzhoulong, BYD BYDChongqing Hengtong ChanganHefei Ankai JianghuaiWuhan Dongfeng Yantsi Dongfeng Nissan



Exhibit 67: BYD SOTP: We add HK$18.58 valuation for electric vehicle business in light of higher visibility of government policy and strong volume outlook

Priced as of Sep 26, 2013.


Bear case Key assumptions Base case Key assumptions Bull case Key assumptions

1. ICE car/car assembly valuation 6.97 Assuming 10% EPS decrease in 2013E 7.78

Calculated from 2014E PB = 0.56X (using 2014E PB vs. avg. 2014-16E ROE industrial regresion line).

9.42 Assuming 20% EPS increase in 2013E

2. EV valuation 8.05

DCF, Assuming 5% OPM by 2020, implying 2014E P/Sales = 3.2X, higher than Tesla min valuation at 1.68X in past 2 years.

18.58

DCF, assuming 20% EV MS in China and 12% OPM by 2020, implying 2014E P/Sales = 7.4X, similar to Tesla valuation now at 7.04X.

21.67

DCF, Assuming 15% OPM by 2020, similar to Tesla OPM level, implying 2014E P/Sales = 9.2X, lower than Tesla max valuation at 10.66X.

3. Power battery 3.72

DCF: Terminal revenue growth 3.5%; EBITDA revenue gradually stable at 13.5%; Capital expenditure per Wh capacity 85% of international benchmark, WACC = 10.2%

7.44

DCF: Terminal revenue growth 4%;EBITDA revenue gradually stable at 16%; Capital expenditure per Wh capacity 80% of international benchmark; WACC = 10.2%

11.15

DCF: Terminal revenue growth 5%;EBITDA revenue gradually stable at 20%; Capital expenditure per Wh capacity 70% of international benchmark, WACC = 10.2%

4. Solar panel valuation (combined into handset battery in disclosure)

5. Handset components and assembly service 7.00 20% EPS decrease Vs. base case 8.75 10.06 15% higher EPS Vs. base case

5.1 BYDE 2.79 same as above 3.48 2013E P/B = 0.36X, 2013E P/E = 6.0X 4.01 same as above

5.2 Other handset components 0.87 same as above 1.08 2013E P/E 6.0X, same as BYDE 1.25 same as above

5.3 Handset battery and solar power 3.34 same as above 4.18 2013E P/E 6.0X, same as BYDE 4.81 same as above

6. MI/Financing costs (6.84) (7.39) (8.19)

6.1 MI - BYDE (0.98) 35% of BYDE value (1.22) 35% of BYDE value (1.40) 35% of BYDE value

6.2 other MI and financing costs (5.86) 5% less vs base case (6.17) Average 2013E PE of ICE car and BYDE (6.78) 10% extra vs base case

SUM - HKD 18.90 35.17 44.11

Potential upside/downside (%) -44.6% 3.1% 29.4%

BYD current price 34.10 HKD

Note: BYDE=BYD Electronics (0285.HK)



In light of favorable EV policy environment and improved visibility of future EV sales, we take into account HK$18.58

valuation of BYD’s EV business in our derivation of its SOTP-based 12-month target price

Previously, we did not include any valuation for the EV segment as we thought the EV valuation should be fully captured by

valuation of its battery and internal combustion engine (ICE) car business; we believed EV would proliferate naturally to all car

makers, once the battery technology has matured. Nevertheless, the recent strong share price performance of Tesla (TSLA, covered

by our US auto analyst Patrick Archambault; Neutral; US$182.33) indicates that the market is still evaluating the know-how and

future growth of EV (Tesla does not produce battery cell by itself). So, we take into account a DCF-based HK$18.58 valuation in our

derivation of BYD’s SOTP-based 12-month target price, based on following major assumptions: 1) BYD will capture 20% EV market

share in China by 2020E; 2) BYD’s EV business will deliver 12% OPM by 2020E.

Exhibit 68: BYD’s TP change is mainly attributed to addition of EV valuation

In HK$


13.00

35.17

0.51

18.58

1.96

2.36 -1.25

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Previous TP ICE car EV Power battery Handset

components

and assembly

service

MI/Financing

costs

New TP



Appendix: Global autos valuation comparisons

Exhibit 69: Valuation summary: Global auto companies

* Note: Prices as of market close on September 26, 2013. * denotes the stock is on our regional Conviction List.

Source: Datastream, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Valuation Summary - Auto ChinaTicker Company name Currency Rating Close Market cap EPS

9/26/2013 USD'mn

Growth %12-15 CAGR 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E

600104.SS SAIC CNY Buy 13.40 18,647 4% 7.5 6.9 6.6 6.3 1.3 1.1 1.0 0.9 18% 17% 15% 15% 4% 4% 5% 5% 40% 34% 24% 22%0489.HK Dongfeng HKD Neutral 11.76 13,068 6% 9.4 7.5 7.6 7.4 1.6 1.3 1.1 1.0 18% 18% 16% 14% 2% 2% 2% 2% 23% 20% 17% 16%2238.HK GAC HKD Buy 8.38 3,782 77% 30.2 15.8 9.3 6.7 1.1 1.3 1.1 1.0 4% 8% 13% 16% 0% 1% 2% 3% 9% 13% 15% 17%1114.HK Brilliance HKD Neutral 11.84 7,625 31% 14.5 12.7 10.4 9.1 3.3 3.7 2.9 2.3 27% 33% 31% 28% 0% 2% 2% 3% 36% 37% 28% 27%000625.SZ Changan (A) CNY Buy 10.11 6,940 70% 16.3 12.3 8.1 6.7 1.5 2.5 2.0 1.7 10% 23% 28% 27% 1% 1% 2% 4% 18% 22% 24% 25%200625.SZ Changan (B) HKD Neutral 11.45 6,204 70% 8.2 11.1 7.2 6.0 0.8 2.3 1.8 1.5 10% 23% 28% 27% 2% 1% 3% 4% 18% 22% 24% 25%2333.HK Great Wall (H) HKD Neutral 42.85 15,132 32% 7.6 11.9 9.1 7.9 2.0 3.7 2.9 2.3 30% 36% 36% 32% 4% 3% 3% 4% 44% 45% 43% 38%601633.SS Great Wall (A) CNY Neutral 48.89 22,482 32% 8.6 17.0 13.1 11.5 2.3 5.4 4.2 3.3 30% 36% 36% 32% 4% 2% 2% 3% 36% 37% 30% 38%0175.HK Geely HKD Buy* 3.96 2,985 24% 8.8 9.4 7.6 6.0 1.5 1.7 1.4 1.2 18% 20% 20% 21% 1% 1% 1% 1% 24% 26% 25% 26%1211.HK BYD HKD Neutral 34.10 9,016 202% 54.7 34.9 28.2 1.6 2.8 2.6 2.4 0% 5% 8% 9% 0% 0% 0% 0% 11% 8% 12% 12%600418.SS JAC CNY Buy 9.05 1,906 49% 14.9 12.3 8.5 7.2 1.2 1.7 1.5 1.4 8% 15% 19% 20% 2% 2% 4% 6% 20% 21% 22% 23%000800.SZ FAW Car CNY Neutral 13.21 3,513 241% 17.4 11.9 10.1 2.0 2.4 2.0 1.7 -9% 15% 19% 18% 0% 0% 0% 0% -1% 15% 17% 17%3808.HK Sinotruk HKD Sell 3.98 1,417 91% 84.1 19.8 13.5 10.0 0.6 0.5 0.4 0.4 1% 2% 3% 4% 0% 2% 2% 3% 7% 9% 6% 7%000338.SZ Weichai (A) CNY Neutral 19.37 6,328 20% 16.1 9.5 8.3 7.6 1.9 1.4 1.2 1.1 13% 15% 16% 15% 1% 2% 3% 3% 18% 21% 15% 15%2338.HK Weichai (H) HKD Neutral 30.75 7,929 20% 15.4 12.0 10.4 9.5 1.8 1.7 1.5 1.4 13% 15% 16% 15% 1% 2% 2% 3% 19% 22% 15% 15%

China Average 64% 18.6 15.4 11.1 9.4 1.6 2.2 1.9 1.6 13% 19% 20% 20% 1% 2% 2% 3% 21% 23% 21% 21%China Average (excl. FAW Car/BYD) 40% 18.6 12.2 9.2 7.9 1.6 2.2 1.8 1.5 15% 20% 21% 21% 2% 2% 3% 3% 24% 25% 22% 23%

10.2 2.0 Global peersTicker Company name Currency Rating Close Market cap EPS

9/26/2013 USD'mn


MRTI.BO Maruti Suzuki India INR Neutral 1,386 6,421 21% 20.4 16.9 16.7 13.8 2.2 2.5 2.3 2.0 11% 15% 14% 15% 1% 1% 1% 1% 13% 19% 16% 17%TAMO.BO Tata Motors INR Buy* 343 15,648 7% 4.6 8.3 7.7 6.1 1.8 2.3 2.0 1.5 55% 30% 31% 28% 2% 1% 0% 0% 10% 13% 19% 18%

India Average 14% 12.5 12.6 12.2 9.9 2.0 2.4 2.1 1.7 33% 22% 23% 22% 1% 1% 0% 1% 11% 16% 17% 17%005380.KS Hyundai Motor CompKRW Buy* 256,500 52,449 10% 6.1 6.6 5.6 5.0 1.2 1.1 0.9 0.8 21% 18% 18% 17% 1% 1% 1% 1% 20% 19% 19% 19%000270.KS Kia Motors KRW Neutral 66,400 24,523 5% 7.5 7.4 6.4 5.9 1.7 1.3 1.1 0.9 25% 20% 19% 17% 1% 1% 1% 1% 15% 15% 15% 15%

Korea Average 8% 6.8 7.0 6.0 5.5 1.4 1.2 1.0 0.9 23% 19% 18% 17% 1% 1% 1% 1% 18% 17% 17% 17%PEUP.PA Peugeot EUR Buy* 12.68 5,882 -178% 8.6 5.5 0.3 0.5 0.5 0.4 -14% -7% 5% 8% 0% 0% 0% 0% 3% 3% 6% 6%VOLVb.ST Volvo SEK Buy 100.50 33,243 25% 16.2 24.6 12.2 9.4 2.2 2.3 2.1 1.8 13% 10% 18% 20% 3% 3% 3% 4% 6% 9% 12% 13%SCVb.ST Scania SEK Sell 142.30 17,286 7% 15.0 17.7 16.6 14.1 2.8 3.0 2.8 2.6 19% 18% 18% 19% 4% 4% 4% 4% 10% 10% 10% 11%RENA.PA Renault EUR Sell 60.47 24,154 5% 4.1 8.6 6.8 5.9 0.4 0.7 0.7 0.6 6% 8% 9% 10% 5% 3% 3% 4% 6% 7% 7% 7%BMWG.DE BMW EUR Neutral 80.37 69,697 4% 8.2 10.2 9.7 9.3 1.4 1.6 1.4 1.3 18% 16% 15% 14% 4% 3% 4% 4% 12% 13% 12% 11%PSHG_p.DE Porsche (pref) EUR Neutral 65.43 24,309 -18% 1.8 6.1 5.1 4.7 0.5 0.6 0.6 0.5 30% 10% 11% 11% 0% 0% 0% 0% 16% 2% 2% 3%MANG.DE MAN SE EUR Neutral 87.85 17,444 68% 67.9 19.7 15.4 2.2 2.4 2.3 2.1 3% 1% 12% 14% 1% 3% 3% 3% 3% 4% 9% 10%FIA.MI Fiat SpA EUR Neutral 6.19 10,446 32% 8.4 16.4 8.5 5.5 0.5 0.8 0.7 0.6 7% 5% 9% 12% 0% 0% 0% 0% 10% 10% 11% 11%DAIGn.DE Daimler AG EUR Buy* 57.83 83,332 15% 7.6 18.9 9.7 7.3 1.0 1.3 1.2 1.1 13% 7% 13% 16% 6% 4% 4% 5% 11% 9% 10% 12%VOWG_p.DEVolkswagen (Pref) EUR Buy 175.90 105,188 -13% 3.4 8.2 6.8 6.3 0.9 0.9 0.8 0.8 29% 12% 13% 13% 3% 2% 4% 5% 9% 9% 9% 9%

Europe Average -5% 14.7 13.8 10.4 8.3 1.2 1.4 1.3 1.2 12% 8% 12% 14% 3% 2% 3% 3% 9% 8% 9% 9%7203.T Toyota Motor JPY Buy 6,510 208,901 92% 33.0 11.7 11.6 10.2 0.9 0.9 1.5 1.4 3% 8% 14% 14% 2% 3% 3% 3% 10% 14% 15% 16%7269.T Suzuki Motor JPY Buy 2,440 13,777 28% 18.0 12.8 12.7 12.2 1.0 0.9 1.1 1.0 6% 8% 9% 9% 1% 1% 1% 1% 9% 8% 9% 9%7201.T Nissan Motor JPY Buy* 1,016 42,992 14% 9.2 9.7 8.9 8.5 1.0 0.9 1.0 1.0 11% 10% 12% 12% 3% 3% 3% 4% 9% 8% 15% 15%7261.T Mazda Motor JPY Neutral 445 13,478 -194% 12.6 13.8 9.1 1.0 0.9 2.2 1.8 -24% 7% 18% 22% 0% 0% 0% 1% 0% 3% 7% 9%7202.T Isuzu Motors JPY Neutral 672 11,538 12% 6.8 8.1 9.3 8.9 1.5 1.5 1.8 1.6 25% 20% 21% 19% 2% 2% 2% 2% 9% 12% 13% 14%7267.T Honda Motor JPY Buy* 3,870 70,675 48% 23.3 13.9 11.9 10.2 1.1 1.0 1.3 1.2 5% 8% 11% 12% 2% 3% 2% 3% 9% 15% 14% 14%7205.T Hino Motors JPY Neutral 1,458 8,432 64% 16.2 8.0 12.0 11.5 1.4 1.7 3.0 2.5 9% 23% 27% 24% 2% 3% 2% 3% 7% 10% 11% 11%7262.T Daihatsu Motor JPY Neutral 2,000 8,635 13% 8.8 7.9 9.4 9.1 1.3 1.3 1.5 1.4 16% 17% 17% 16% 3% 4% 3% 3% 13% 12% 13% 12%7270.T Fuji Heavy IndustriesJPY Neutral 2,747 21,723 71% 10.9 5.5 11.4 11.2 0.9 1.1 2.9 2.4 9% 23% 28% 23% 2% 2% 2% 2% 5% 10% 14% 14%

Japan Average 16% 15.8 10.0 11.2 10.1 1.1 1.1 1.8 1.6 7% 14% 17% 17% 2% 2% 2% 2% 8% 10% 12% 13%F Ford Motor Compan USD Buy 17.19 67,608 17% 7.8 10.6 8.7 7.6 2.6 3.2 2.5 1.9 36% 35% 33% 30% 2% 2% 2% 2% 15% 10% 15% 14%GM General Motors ComUSD Buy* 37.18 51,160 19% 7.3 11.1 8.2 6.8 1.5 1.7 1.5 1.2 20% 17% 19% 19% 3% 1% 0% 0% 22% 17% 16% 18%

American Average 18% 7.5 10.9 8.4 7.2 2.1 2.4 2.0 1.6 28% 26% 26% 24% 2% 2% 1% 1% 18% 14% 15% 16%

P/E P/B ROE Dividend yield CROCI




Exhibit 69 cont'd: Valuation summary: Global auto component companies

Note: Prices as of market close on September 26, 2013. Reuters consensus used for NC stocks. NC=Not Covered; NA=Not Applicable. * denotes the stock is on our regional Conviction List.

Source: Datastream, Reuters, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Valuation Summary - Auto Parts ChinaTicker Company name Currency Rating Close Market cap EPS

9/26/2013 USD'mn

%12-15 CAGR 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E

0868.HK Xinyi HKD NC 5.18 2,531 13% 9.2 9.2 7.4 6.4 1.4 1.4 1.3 1.2 NA NA NA NA NA NA NA NA NA NA NA NA1039.HK Changfeng HKD NC 0.42 53 8% 0.6 0.6 0.5 0.5 0.1 0.1 0.1 0.1 NA NA NA NA NA NA NA NA NA NA NA NA0425.HK Minth HKD Neutral 16.08 1,979 17% 8.9 14.0 11.7 10.1 1.1 1.8 1.6 1.5 13% 14% 15% 15% 3% 2% 2% 3% 20% 10% 20% 20%1057.HK Shibao HKD NC 2.64 451 11% 3.4 3.4 2.7 2.5 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA1899.HK Xingda HKD Neutral 3.60 708 45% 20.2 11.0 9.0 7.5 0.8 0.9 0.8 0.8 4% 8% 9% 11% 5% 5% 5% 6% 9% 10% 11% 12%

H-share Average 19% 8.5 7.7 6.3 5.4 0.9 1.1 1.0 0.9 8% 11% 12% 13% 4% 4% 4% 4% 15% 10% 16% 16%600741.SS Huayu CNY Not rated 9.36 3,951 1% 7.9 7.7 7.6 7.7 1.3 1.1 1.0 0.9 17% 15% 14% 13% 4% 4% 4% 4% 24% 21% 19% 17%000581.SZ Weifu CNY NC 24.2 3,762 33% 18.9 13.7 9.9 8.0 1.9 1.7 1.5 1.3 NA NA NA NA NA NA NA NA NA NA NA NA600660.SS Fuyao CNY NC 7.75 2,620 13% 9.7 8.7 7.8 6.7 2.2 1.9 1.6 1.4 NA NA NA NA NA NA NA NA NA NA NA NA600482.SS Fengfan CNY NC 10.67 608 16% 60.2 48.9 40.7 38.7 3.8 3.6 3.3 3.2 NA NA NA NA NA NA NA NA NA NA NA NA002085.SZ Wanfeng CNY NC 14.96 546 10% 25.3 22.2 20.1 19.2 3.4 3.1 2.7 2.6 NA NA NA NA NA NA NA NA NA NA NA NA000559.SZ Wanxiang CNY NC 6.44 1,184 16% 32.6 25.0 22.2 21.1 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

A-share Average 15% 25.8 21.0 18.0 16.9 2.5 2.3 2.0 1.9 NA NA NA NA NA NA NA NA NA NA NA NA

Global peersTicker Company name Currency Rating Close Market cap EPS

9/26/2013 USD'mn

%12-15 CAGR 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E

0425.HK Minth HKD Neutral 16.08 1,979 17% 8.9 14.0 11.7 10.1 1.1 1.8 1.6 1.5 13% 14% 15% 15% 3% 2% 2% 3% 20% 10% 20% 20%1899.HK Xingda HKD Neutral 3.60 708 45% 20.2 11.0 9.0 7.5 0.8 0.9 0.8 0.8 4% 8% 9% 11% 5% 5% 5% 6% 9% 10% 11% 12%600741.SS Huayu CNY Not rated 9.36 3,951 1% 7.9 7.7 7.6 7.7 1.3 1.1 1.0 0.9 17% 15% 14% 13% 4% 4% 4% 4% 24% 21% 19% 17%

China Average 21% 12.3 10.9 9.5 8.4 1.1 1.3 1.2 1.1 11% 12% 13% 13% 4% 4% 4% 4% 18% 14% 17% 16%BOSH.BO Bosch India INR Neutral 8,754 4,408 10% 27.7 27.0 23.8 21.6 4.8 4.3 3.8 3.3 19% 17% 17% 16% 1% 1% 1% 1% 18% 18% 18% 18%

India Average 10% 27.7 27.0 23.8 21.6 4.8 4.3 3.8 3.3 19% 17% 17% 16% 1% 1% 1% 1% 18% 18% 18% 18%012330.KS Hyundai Mobis KRW Neutral 288,500 26,070 4% 7.9 8.2 7.6 6.9 1.7 1.4 1.2 1.0 23% 19% 17% 16% 1% 1% 1% 1% 17% 14% 10% 10%060980.KS Mando KRW Neutral 125,000 2,113 9% 17.9 11.5 10.9 10.9 1.9 1.4 1.2 1.1 11% 12% 12% 11% 1% 1% 1% 1% 12% 14% 13% 12%

Korea Average 7% 12.9 9.8 9.2 8.9 1.8 1.4 1.2 1.1 17% 15% 14% 13% 1% 1% 1% 1% 15% 14% 12% 11%ALV Autoliv Inc. USD Neutral 88.62 8,344 10% 11.8 15.7 14.0 12.9 1.2 1.6 1.4 1.3 14% 14% 14% 14% 3% 2% 3% 3% 11% 11% 12% 13%CONG.DE Continental EUR Neutral 125.40 33,878 8% 6.6 11.3 10.0 9.0 1.7 2.7 2.2 1.9 24% 22% 23% 22% 3% 2% 2% 3% 11% 13% 12% 13%ZILGn.DE Elringklinger EUR Sell 32.30 2,764 19% 16.2 20.6 17.1 14.0 2.3 3.0 2.7 2.3 14% 15% 17% 18% 2% 2% 2% 2% 9% 11% 11% 12%EPED.PA Faurecia EUR Buy* 21.58 3,229 53% 11.7 16.2 6.4 4.7 1.3 1.7 1.3 1.0 18% 17% 25% 27% 0% 0% 0% 2% 8% 9% 11% 12%GKN.L GKN GBP Neutral 349.00 9,153 9% 8.0 12.2 10.6 10.2 2.1 3.3 2.8 2.4 25% 28% 27% 24% 3% 2% 3% 3% 8% 9% 9% 9%LEOGn.DE Leoni EUR Buy 43.93 1,938 18% 9.2 12.2 8.9 7.7 1.2 1.7 1.5 1.3 20% 13% 19% 19% 5% 3% 4% 4% 12% 12% 13% 13%NRE1V.HE Nokian Renkaat EUR Neutral 37.62 6,724 6% 12.7 15.0 13.5 12.7 2.9 3.1 2.9 2.8 25% 22% 22% 22% 5% 5% 7% 7% 24% 21% 21% 21%PECI.MI Pirelli EUR Neutral 10.20 6,658 7% 10.3 14.8 11.1 10.2 1.7 1.9 1.7 1.5 18% 13% 16% 16% 4% 3% 3% 4% 10% 10% 10% 9%VLOF.PA Valeo EUR Neutral 62.84 6,493 14% 7.2 11.8 9.4 8.4 1.3 2.0 1.8 1.5 58% 18% 20% 20% 4% 3% 3% 3% 10% 10% 10% 10%

Europe Average 16% 10.4 14.4 11.2 10.0 1.7 2.3 2.0 1.8 24% 18% 20% 20% 3% 3% 3% 3% 12% 12% 12% 12%7259.T Aisin Seiki JPY Neutral 4,290 12,249 15% 13.4 9.6 16.0 14.2 1.0 0.9 1.3 1.2 8% 10% 9% 9% 2% 3% 2% 2% 9% 10% 9% 9%6902.T Denso JPY Neutral 4,735 38,666 44% 22.7 12.4 14.7 14.3 1.0 1.0 1.5 1.4 4% 8% 11% 10% 2% 2% 2% 2% 6% 8% 10% 10%

Japan Average 18% 43.3 15.6 24.3 16.8 1.4 1.4 1.4 1.4 4% 9% 6% 9% 1% 2% 2% 1% 11% 9% 7% 9%LEA Lear Corp. USD Buy 72.38 6,117 21% 7.6 12.6 8.9 7.4 1.1 2.2 2.1 1.5 18% 16% 23% 23% 1% 1% 1% 1% 39% 24% 27% 25%TOWR Tower International, Inc. USD Neutral 20.77 423 36% 9.1 10.5 8.6 7.7 3.1 12.6 5.3 3.2 43% 86% 90% 54% 0% 0% 0% 0% 17% 10% 13% 13%BWA BorgWarner Inc. USD Neutral 102.18 11,725 15% 14.5 18.5 15.7 13.6 2.8 3.6 3.0 2.6 22% 20% 21% 21% 0% 0% 1% 1% 15% 16% 18% 19%DAN Dana Holding Corp. USD Neutral 22.89 3,340 12% 8.0 12.6 10.7 9.4 1.6 2.6 2.3 2.0 15% 15% 16% 18% 3% 2% 2% 2% 9% 14% 14% 15%FDML Federal Mogul Corp. USD Neutral 16.52 1,634 48% 29.5 16.1 15.2 12.7 1.6 1.7 1.8 1.6 5% 13% 13% 13% 0% 0% 0% 0% 5% 7% 8% 8%JCI Johnson Controls, Inc. USD Neutral 42.93 29,360 12% 11.6 16.1 13.7 11.7 1.8 2.3 2.1 1.8 16% 15% 16% 17% 2% 2% 2% 2% 11% 9% 13% 14%MGA Magna International, Inc. USD Sell 84.00 19,370 16% 8.2 13.5 11.2 10.1 1.1 2.0 1.8 1.6 14% 15% 17% 17% 2% 2% 2% 2% 15% 14% 15% 14%TRW TRW Automotive Holding Corp USD Neutral 71.34 8,482 11% 7.1 10.7 9.0 8.4 1.6 2.4 1.9 1.6 24% 22% 22% 21% 0% 0% 0% 0% 14% 14% 16% 16%






Exhibit 70: Valuation summary: Global auto dealer companies

Notes: Prices as of market close on September 26, 2013. Reuters consensus used for NC stocks. NC=Not Covered; NA=Not Applicable.

Source: Datastream, Reuters, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Valuation Summary - Auto Parts ChinaTicker Company name Currency Rating Close Market cap EPS

9/26/2013 USD'mn


0881.HK Zhongsheng HKD Neutral 12.50 2,515 41% 24.4 16.5 11.4 8.9 2.4 2.2 1.9 1.6 10% 14% 18% 20% 1% 1% 2% 2% 22% 10% 14% 15%1728.HK Zhengtong HKD Buy 5.01 969 29% 17.6 9.9 8.1 6.7 1.6 1.2 1.1 0.9 9% 13% 14% 15% 0% 2% 2% 3% 16% 16% 13% 15%1293.HK Baoxin HKD Buy 7.22 2,355 46% 18.5 11.4 8.7 6.4 3.4 2.9 2.3 1.7 21% 29% 29% 31% 2% 1% 2% 2% 17% 24% 24% 28%3836.HK Harmony HKD Buy 6.04 852 41% 8.8 6.1 5.3 2.1 1.6 1.2 49% 39% 30% 26% 0% 0% 0% 25% 16% 18% 15%3669.HK Yongda HKD NC 7.38 1,409 19% 7.8 8.0 6.8 6.4 1.2 1.1 1.0 0.9 NA NA NA NA NA NA NA NA NA NA NA NA1828.HK Dah Chong Hong HKD NC 6.15 1,452 7% 6.5 6.7 5.7 5.4 1.0 0.9 0.8 0.8 NA NA NA NA NA NA NA NA NA NA NA NA

Off Shore Average 31% 15.0 10.2 7.8 6.5 1.9 1.8 1.4 1.2 22% 24% 23% 23% 1% 1% 1% 2% 20% 16% 17% 18%601258.SS Pangda CNY NC 5.31 2,276 218% NA 30.3 15.6 14.2 1.4 1.3 1.2 1.1 NA NA NA NA NA NA NA NA NA NA NA NA002607.SZ Yaxia CNY NC 6.35 238 23% 13.9 10.8 8.2 7.4 1.3 1.2 1.1 1.0 NA NA NA NA NA NA NA NA NA NA NA NA

On Shore Average 120% 13.9 20.6 11.9 10.8 1.4 1.3 1.1 1.0 NA NA NA NA NA NA NA NA NA NA NA NA

Global peersTicker Company name Currency Rating Close Market cap EPS

9/26/2013 USD'mn


ASII.JK Astra International IDR Neutral 6,400.00 22,559 8% 15.0 13.4 12.6 10.5 4.1 3.2 2.8 2.4 30% 25% 23% 25% 3% 3% 4% 4% 19% 17% 20% 17%2207.TW Hotai Motor TWD Sell 333.50 6,159 0% 14.4 25.2 24.7 24.2 3.6 5.5 5.1 4.8 26% 23% 22% 20% 5% 3% 3% 3% 12% 14% 14% 14%

AEJ Average 4% 14.7 19.3 18.7 17.3 3.8 4.4 4.0 3.6 28% 24% 23% 22% 4% 3% 3% 3% 15% 15% 17% 15%INCH.L Inchcape GBP NC 624.50 4,565 10% 16.4 14.9 13.5 12.3 2.0 1.8 1.7 1.6 NA NA NA NA NA NA NA NA NA NA NA NAPDG.L Pendragon GBP NC 327.70 1,554 8% 14.2 12.7 11.7 11.3 1.2 1.1 1.1 1.0 NA NA NA NA NA NA NA NA NA NA NA NALOOK,L Lookers GBP NC 122.50 742 9% 17.8 16.3 15.1 13.6 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Europe Average 9% 16.1 14.6 13.5 12.4 1.6 1.5 1.4 1.3 NA NA NA NA NA NA NA NA NA NA NA NA7599.T Gulliver International JPY NC 562 616 1% 1.3 2.1 1.5 1.2 NA 0.2 0.2 0.2 NA NA NA NA NA NA NA NA NA NA NA NA4732.T USS JPY NC 12,390 3,978 8% 21.5 18.3 17.8 17.2 2.8 2.6 2.5 2.5 NA NA NA NA NA NA NA NA NA NA NA NA9832.T Autobacs Seven JPY NC 1,422 1,355 3% 16.6 18.1 16.5 15.0 1.0 0.9 0.9 0.9 NA NA NA NA NA NA NA NA NA NA NA NA

Japan Average 4% 13.1 12.8 11.9 11.1 1.9 1.3 1.2 1.2 NA NA NA NA NA NA NA NA NA NA NA NASAH Sonic USD Neutral 23.54 1,289 13% 10.2 11.6 10.4 9.6 2.0 2.1 1.8 1.5 13% 15% 22% 20% 1% 0% 0% 0% 7% 6% 6% 6%GPI Group 1 USD Neutral 79.99 1,818 12% 12.3 14.8 13.7 12.5 1.4 1.9 1.6 1.5 13% 14% 14% 13% 1% 1% 1% 1% 9% 8% 8% 9%AN AutoNation USD Neutral 52.71 6,370 13% 15.0 17.6 15.5 14.2 2.8 3.1 2.7 2.3 18% 20% 19% 17% 0% 0% 0% 0% 9% 8% 8% 8%PAG Penske USD Sell 42.49 3,837 13% 11.4 16.0 14.3 13.1 1.8 2.4 2.1 1.8 17% 17% 16% 15% 2% 1% 2% 2% 8% 8% 7% 8%LAD Lithia Motors USD NC 67.13 1,924 10% 23.0 19.8 17.8 17.5 NA 3.4 2.9 2.5 NA NA NA NA NA NA NA NA NA NA NA NA






Financial advisory disclosure

Goldman Sachs is acting as a financial advisor in connection with an announced strategic matter involving the following company

or one of its affiliates: Huayu Automotive Systems Co Ltd.



Disclosure Appendix

Reg AC

We, Yipeng Yang and Yuqian Ding, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities.

We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

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Disclosures

Coverage group(s) of stocks by primary analyst(s)

Yipeng Yang: Asia Pacific Shipping, China Alternative Energy & Utilities, China Autos, China Transportation.

Asia Pacific Shipping: China COSCO Holdings (A), China COSCO Holdings (H), China International Marine Containers (A), China International Marine Containers (H), China Shipping Container Lines (A),

China Shipping Container Lines (H), China Shipping Development (A), China Shipping Development (H), Evergreen Marine, Hanjin Shipping, Neptune Orient Lines, Orient Overseas Int'l, Pacific Basin

Shipping, STX Pan Ocean - KRW, STX Pan Ocean - SGD, Sinotrans Shipping, U-Ming Marine, Wan Hai Lines, Yang Ming Marine.

China Alternative Energy & Utilities: Beijing Jingneng Clean Energy, CLP Holdings, China High Speed Transmission Equipment Group, China Longyuan Power, China Power International, China

Resources Power, China Yangtze Power, Datang Int'l Power Generation, Datang International Power Generation (A), Dongfang Electric Corporation Limited (A), Dongfang Electric Corporation Limited

(H), Guangdong Investment, Harbin Electric, Hong Kong & China Gas, Huadian Power International (A), Huadian Power International (H), Huaneng Power International (A), Huaneng Power International

(ADR), Huaneng Power International (H), Huaneng Renewables Corporation, Power Assets Holdings, Shanghai Electric Group, Xinjiang Goldwind Science & Technology (A), Xinjiang Goldwind Science

& Technology (H).

China Autos: Anhui Jianghuai Automobile Co., BYD Company, Baoxin Auto Group, Brilliance China Automotive Holdings, China Harmony Auto Holding Ltd, Chongqing Changan Auto (A), Chongqing

Changan Auto (B), Dongfeng Motor, FAW Car, Geely Automobile Holdings, Great Wall Motor Co., Great Wall Motor Co.(A), Guangzhou Automobile Group Co, Huayu Automotive Systems, Minth

Group, SAIC Motor, Sinotruk (Hong Kong), Weichai Power (A), Weichai Power (H), Xingda International, Zhengtong Auto Services Holdings, Zhongsheng Group Holdings.

China Transportation: AVIC Aircraft, AVIC Avionics, AviChina, Daqin Railway, Guangshen Railway (A), Guangshen Railway (H), Hafei Aviation, Hongdu Aviation, Xian Aero-Engine.

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