东京汽车公司股份有限公司 Motor:3Q17a small miss w
8% 3Q16 net profit YoY growth on decent sales at both local brands and JVs.
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.
Deutsche Bank view – stable earnings growth and attractive yield in the price.
Going forward, we expect SAIC Motor's 4Q17 sales momentum to be sustainedwith year-end sales rush and further product mix improvement. However, wethink that extra promotional efforts will be needed to push sales amid intensifyingcompetition. All in all, we envision a stable earnings growth trajectory for thecompany, which should support its generous dividend payout. We maintain Holdon SAIC Motor because we think the current valuation is fair.
We raise our FY17-19 revenue forecasts marginally, by 3.7-5.2%, on higher salesvolume estimates, but trim our FY17-19 net profit forecasts 0.3-2.1% mainlyon lower consolidated EBIT margin assumptions. We value SAIC Motor at 9.5xFY18E P/E (from 9x FY18E given recent auto rector re-rating), which is above thecompany's historical trading average and close to the industry's long-term P/Eaverage. This is justified, in our view, as we expect SAIC Motor to achieve a threeyearnet profit CAGR of 7% in FY16-19. On a P/BV basis, we believe the company'simplied FY18E target P/BV of 1.5x is justified, considering its 16-17% sustainableROE.
Key downside risks include: 1) a weak reception for its new models from variousSAIC brands; 2) pricing pressure amid industry competition; and 3) worsethan-expected local brand profitability. Key upside risks include: 1) better-than- expected sales volume and pricing; and 2) better-than-expected local brandprofitability.