CICC: The three major automotive stocks worth investment in 2011

Investment tips:

We believe that valuations of automobile stocks have fully reflected the policy shift and slowdown in the industry. In 2011, the auto industry has three main investment lines: 1. Stable performance and cross-cycle growth story of parts and components, such as the A-share silver bullion shares (002126.CH), Huayu Automotive (600741. CH), Fuyao Glass (600660. CH), FAW Fuwei (600742. CH), Hong Kong Stock Exchange's Minth Group (425. HK) and Xinyi Glass (868.HK ); 2. The long-term growth story of auto dealers driven by growth in holdings, such as A shares of Zhongda Group (600704. CH) and Hong Kong stocks of Zhongsheng Holdings (881. HK) and DCH (1828. HK); Market expectations are pessimistic and industry leaders with more resilient fundamentals rebound, including A shares of Shanghai Automotive (600104. CH), Weichai Power (000338. CH), Yutong Bus (600066. CH), China National Heavy Duty Truck (000951. CH. ), Dongfeng Motor (600,006. CH) and Jiangling Motors (000550. CH) and Hong Kong shares of Dongfeng Group (489. HK), Weichai Power (2338. HK) and Great Wall Motor (2333. HK).

The stable combination of our A shares is recommended by Huayu Automobile, Fuyao Glass, FAW Fuwei, Yutong Bus, Zhongda Group and Jiangling Motors. The aggressive portfolio is recommended by Yinlun, Weichai Power, Shanghai Automotive, Dongfeng Motor, and China Heavy Industries. The stable portfolio of Auto and Hong Kong stocks is recommended by Zhongsheng Holdings, Daccheong, Great Wall Motors, and Minth Group. The aggressive portfolio is recommended by Dongfeng Group, Weichai Power and Xinyi Glass.

Analysis of the reasons: The policy shifts to neutrality, and the industry has returned to normal growth. It is expected that the growth rate of China's auto industry will maintain a growth rate of 15% in the next few years. Passenger car and heavy truck sales will still increase by 16% and 14% year-on-year in 2011. The growth rates in 2012 will be 15% and 10% respectively. . Poor economic development, wealth effects, and consumption upgrade factors in the eastern, central and western regions are the main drivers of demand growth in the steady development of passenger vehicles. Fixed asset investment and logistics will become the main driving force for heavy truck demand.

Beijing restrictions do not have the basis for large-scale implementation. In the short term, China's transportation infrastructure will not become an obstacle to the growth of automobiles. The governance of traffic congestion in cities should be based on traffic grooming. Beijing's per capita motor vehicle ownership and road vehicle carrying capacity are at an abnormally high level, and their purchase restrictions are individual.

The valuation has already reflected the policy shift and the slowdown of the industry growth. The valuation center of the A-share auto stocks is 11.1x 2011 PER, which is in the middle to low end of the historical valuation range. Hong Kong stocks leading companies, such as Dongfeng Group, Great Wall Motors and Weichai Power, have a PER of only about 9 times in 2011. Considering the potential of 15% of the industry's growth center and leading companies to achieve faster performance growth through rational business strategies, the current valuation has long-term investment value.

Parts companies are expected to produce cross-cycle growth varieties. Leading parts and components companies are expected to achieve valuation recovery through steady performance growth; while small and medium-sized parts companies will achieve cross-cycle growth through diversified development in construction machinery and rail transportation.

The bus industry has benefited from stable economic growth and urbanization. In the first-tier cities to stimulate the development of public transport, the large and medium-sized passenger industry will achieve sales growth of 14% in 2011, while the product price will increase steadily. Mid- to high-end light passengers benefit from the development of business transportation needs of small and medium-sized enterprises and the rise of online shopping, which will increase the demand for logistics in the city. Sales volume will continue to grow rapidly in the next five years, and market share will increase steadily.

Car dealers are expected to achieve "stock-driven growth." At the end of 2010, there is still 5 to 6 times more space for China's auto ownership. The increase in holdings will drive the after-sales service of car dealers and the development of used car transactions. It is expected that the growth rate of China's automobile dealership industry will reach approximately 19.4% in the next 10 years.

Risk Warning: Automobile sales due to macroeconomic downside risks are lower than expected, and vehicle price cuts brought about by the decline in capacity utilization.