Comprehensive Analysis of China’s Automobile Sector: Insights from UOB Kay Hian

Date: November 29, 2024

Broker: UOB Kay Hian

Overview

In the fast-evolving automotive landscape of China, UOB Kay Hian provides a detailed sector update focusing on major players like BYD, Geely, Fuyao Glass, Desay SV, and others. The analysis encompasses market trends, company-specific strategies, and investment recommendations, offering a nuanced perspective for investors.

BYD Company (1211 HK)

BYD is at a crossroads as it seeks a 10% price cut from its suppliers, a move that has stirred controversy. While some suppliers resist, citing survival threats, others like Tuopu, which derives a notable percentage of its revenue from BYD, acknowledge annual price negotiations as industry norms. However, Tuopu warns of strategic business withdrawal if margins fall below targets. BYD aims to reduce costs further, leveraging its suppliers’ thin margins. Despite potential challenges, BYD’s insurance registrations have surged, indicating robust market performance. Recommendations for BYD remain at a “HOLD” with a target price of HK\$275.00.

Geely Automobile (175 HK)

Geely continues to shine in the Chinese auto sector, with its Zeekr brand witnessing a substantial increase in insurance registrations. The company’s strategic focus on launching new models and expanding production lines is expected to drive future sales. Chairman Li Shufu’s recent acquisition of shares signals confidence in the company’s growth trajectory. UOB Kay Hian recommends buying Geely stock with a target price of HK\$23.00.

Fuyao Glass (3606 HK)

Fuyao Glass stands resilient amid potential market disruptions, particularly from Mexico’s supply chain policy changes. With a strong presence in the US market through local plants, Fuyao Glass is less vulnerable compared to peers. The company continues to be a top pick for UOB Kay Hian, with a “BUY” recommendation and a target price of HK\$68.00.

Desay SV (002920 CH)

Desay SV is another notable player with limited revenue exposure to BYD, demonstrating its diverse clientele and strong bargaining power. The company’s market position remains strong, with UOB Kay Hian recommending a “BUY” with a target price of Rmb190.00. Desay SV’s strategic focus continues to bolster its market presence, making it a preferred choice among investors.

Nexteer (1316 HK)

Nexteer faces significant challenges due to its heavy exposure to the US market, particularly amidst Mexico’s new supply chain policies. The company’s high revenue dependency on North American sales poses risks, leading to a “SELL” recommendation from UOB Kay Hian, with a target price of HK\$2.00.

Minth (425 HK)

Minth, while negotiating with BYD over the proposed price cuts, remains strategically positioned with a diversified revenue stream. The company is recommended as a “BUY” with a target price of HK\$39.50, emphasizing its resilience and adaptability in the evolving market.

Ningbo Tuopu (601689 CH)

Tuopu stands out with a significant portion of its revenue tied to Tesla, showcasing its strong market position despite industry challenges. The company is recommended as a “BUY” with a target price of Rmb65.00, reflecting its strategic partnerships and growth potential.

Joyson Electronics (600699 CH)

Joyson Electronics, with substantial revenue tied to Tesla, remains a key player in the automotive parts market. UOB Kay Hian recommends a “BUY,” emphasizing the company’s robust market position and growth prospects.

XPeng (9868 HK)

XPeng is navigating a challenging landscape with competitive pressures and sales flattening. Despite a rise in insurance registrations, the company is not expected to turn profitable in the near term. UOB Kay Hian maintains a “SELL” recommendation with a target price of HK\$35.00.

Tesla’s Strategic Moves

Tesla’s recent price cuts in China aim to meet annual sales targets, potentially benefiting Chinese suppliers like Tuopu and Xusheng. These strategic discounts are part of Tesla’s broader efforts to boost sales amidst competitive market dynamics.

Conclusion

UOB Kay Hian maintains a “MARKET WEIGHT” stance on China’s auto sector, with a preference for OEMs over parts manufacturers and dealers. Geely, Fuyao Glass, and Desay SV emerge as top picks, highlighting their strategic market positions and growth potential.