SAIC Motor:3Q17a small miss with higher selling cost and flat JVs’earnings growth

47% YoY 3Q17net profit decline on margin contraction, despite flattish
salesChang’an Auto released its 3Q17results earlier today. The company’s
3Q17net revenue increased 1.5% YoY to RMB17.3bn despite an 11.1% YoY
drop inlocal brand vehicle sales volume to 286k units, probably due to
increasing SUVsales mix, in our view. However, Chang’an’s 3Q17gross
profit margin eroded by10.6ppt YoY, probably due to fierce competition,
in our view, offset the 6.7pptYoY drop in the SG&A ratio. In addition,
there was an 27.2% YoY earningscontribution decline from its
JVs/associates, driven by a 14.4% YoY sales volumedrop at Chang’an Ford,
probably due to an aging product portfolio, in our view.Altogether,
Chang’an’s 3Q17net profit fell by 47.1% YoY to RMB2.4bn. On a 9M17basis,
Changan’s net profit of RMB5.8bn was down 24.9% YoY and accounted for64%
of our original FY17earnings forecasts of RMB9.0bn. Therefore, we
considerthe results a miss to our expectations.

Chang’an Auto released its 1H17 results after market close on 30 August.
Thecompany’s 1H17 net revenue decreased 6.2% YoY to RMB32.1bn, on 0.2%
YoYdecline in Chang’an brand sales volume to 729k units. 1H17 gross
profit margindeteriorated by 2.4ppt YoY, probably due to fierce market
competitions amongstlocal brands and consequent price promotions, in our
view. Meanwhile, therewas a 26.4% YoY earnings contribution decline from
its JVs/associates, causedby 11.9% YoY sales volume drop at Chang’an
Ford JV, probably due to agingproduct portfolio and exhaustion of
small-engine car demand after cutback intax incentive, in our view. Yet
helped by an increase in government subsidies,Chang’an’s 1H17 net profit
only fell by 15.9% YoY to RMB4.6bn.

8% 3Q16 net profit YoY growth on decent sales at both local brands and
JVs.

    Deutsche Bank view – competitive pressure makes us more downbeat

    With the originally popular products’ sales going downhill and a
lack of new ‘killer’products in sight, especially at the major earnings
contributor Chang’an Ford, wedoubt if Chang’an can stage a strong
earnings rebound in upcoming quarters.

    SAIC Motor released 3Q17 results after the market close on 30
October. Thecompany’s 3Q17 gross revenue grew 17.4% YoY to RMB211.6bn,
on the backof 11.3% growth in vehicle sales volume during the period,
probably due toproduct mix improvement. Meanwhile, SAIC Motor’s 3Q17
gross profit rose26.1% YoY to RMB29.7bn with 1.0ppt YoY gross profit
margin improvement,possibly also due to better sales mix. Yet with a
46.7% higher selling expenseYoY and flat profit contribution from its
JVs (despite 9.7% and 7.7% YoY salesvolume growth at SAIC Volkswagen and
SAIC GM, respectively), 3Q17 net profitincreased only 8.1% YoY to
RMB8.7bn. On a 9M17 basis, SAIC Motor’s net profitof RMB24.6bn was up
6.7% YoY, accounting for 70% of DB’s FY17 forecastand 68% of Bloomberg’s
full-year FY17 forecast. We consider the results slightlybelow
expectations as nine months’ net profit accounted for 71-72% of
full-yearnet profits in the past two years.

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