SAIC MOTOR(600104)：STABLE EARNINGS SHOULD SUSTAIN HIGH DIVIDEND YIELD; INITIATING WITH BUY

Deutsche Bank Markets Research Rating Buy Asia China Automobiles & Components Company SAIC Motor Date 24 September 2015 Initiation of Coverage Stable earnings should sustain high dividend yield; initiating with Buy Reuters Bloomberg Exchange Ticker 600104.SS 600104 CH SHH 600104 Forecasts And Ratios Year End Dec 31 2013A 2014A 2015E 2016E 2017E Sales (CNYm) 562,367.6 626,244.0 654,394.5 710,706.1 770,226.2 EBITDA (CNYm) 22,653.7 21,667.8 16,690.0 19,271.4 21,967.4 Reported NPAT (CNYm) 24,803.6 27,973.4 27,563.8 30,103.0 33,017.8 DB EPS FD (CNY) 2.07 2.35 2.50 2.73 2.99 DB EPS growth (%) 10.3 13.8 6.4 9.2 9.7 PER (x) 6.5 6.6 6.6 6.1 5.5 EV/EBITDA (x) 2.6 2.6 3.8 2.9 2.1 Yield (net) (%) 8.9 8.4 7.5 8.2 9.0 Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Buy on consistent earnings and dividend track record, not strong growth ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. Price at 24 Sep 2015 (CNY) 16.60 Price target - 12mth (CNY) 20.50 52-week range (CNY) 28.26 - 14.12 Shanghai Composite 3,117 Vincent Ha, CFA Research Analyst (+852) 2203 6247 vincent.ha@db.com Fei Sun, CFA Research Associate (+852) 2203 6130 fei.sun@db.com Price/price relative 81216202428329/123/139/133/149/143/15SAIC MotorShanghai Composite (Rebased) Performance (%) 1m 3m 12m Absolute 7.8 -29.3 -9.2 Shanghai Composite -2.9 -33.5 32.9 Source: Deutsche Bank SAIC Motor is China’s largest vehicle manufacturer in terms of sales volume. Despite the recent sales slowdown, we think the company will continue to deliver stable sales volume and earnings growth on: 1) further new launches from Shanghai Volkswagen and SAIC General Motors to defend market leadership; and 2) improving sales from local brands, especially Baojun, which should support SAIC's consistently high dividend payout. We initiate coverage with a Buy rating and an RMB20.5 target price. Near-term JV sales woe on lack of strong new models, but earnings still stable Almost all of SAIC Motor’s earnings are related to the JV brands, i.e. Shanghai Volkswagen (SVW), SAIC General Motors (SGM) and SAIC GM Wuling (SGMW). However, at 8M15, SVW and SGM recorded 3% and 7% YoY wholesale volume declines, respectively, on weakening aging model sales. That said, SVW reported a YoY earnings decline of just 1% in 1H15 and SGM reported earnings growth of 4% for the period, demonstrating management’s ability to optimise mix and control costs to wade through the sales slowdown. We do not expect the sales decline to last − providing support to profitability While we do not expect SVW and SGM to reverse the weak YoY sales trend through the rest of FY15, we still forecast mild volume growth in FY16-17, on the back of more new model launches. We also envision continual strength in the just launched SGMW Baojun 560 SUV, the fourth best-selling SUV in China in August. We think these developments will help SAIC Motor to resume 9-10% earnings growth in FY16-17, thus supporting future dividend payouts. Even if the recent Volkswagen diesel car scandal in the US were to end up leading to sales and earnings downside at SVW, our bear case forecast still implies a high FY16E dividend yield of 6.3% for SAIC Motor. Target price set at 7.5x FY16E P/E; key risk is further JV market share losses We value SAIC Motor at 7.5x FY16E P/E, which is marginally below its 10-year average of 8x. We believe our target multiple is justified, given a 9% FY15-17E two-year EPS CAGR. Major downside risks are weak reception of new JV models and failure to cut losses in the company’s own Roewe/MG brands. 24 September 2015 Automobiles & Components SAIC Motor Page 2 Deutsche Bank AG/Hong Kong Model updated:23 September 2015 Running the numbers Asia China Automobiles & Components SAIC Motor Reuters: 600104.SS Bloomberg: 600104 CH Buy Price (24 Sep 15) CNY 16.60 Target Price CNY 20.50 52 Week range CNY 14.12 - 28.26 Market Cap (m) CNYm 183,024 USDm 28,671 Company Profile SAIC Motor Corporation Limited (SAIC) was founded in 1997 and is the largest Chinese auto group in terms of 1H14 sales volume.