Most listed Chinese auto makers powered to better-than-expected
profit this year on growing sales, and analysts forecast that they
will drive investors to higher profit next year.
Shanghai Automotive Co Ltd, the listed unit of China's biggest
car maker, Shanghai Automotive Industry Corp, reported its net
profit more than tripled to 3.8 billion yuan (US$513 million) for
the first three quarters of this year. Sales rocketed more than 21
times to 76 billion yuan.
Shanghai Auto's share price soared more than 170 percent from
8.3 yuan at the start of the year to 26.07 yuan at the close last
Friday.
Its shares reaped harvest from the car maker selling additional
shares to investors last year to expand its core business from auto
parts to car production by merging assets in its two joint ventures
with General Motors Corp and Volkswagen AG.
SAIC sold over 840,000 units in the first half.
Net profit at Beiqi Foton, China's largest light vehicle
producer, powered 92 percent to 285 million yuan from January to
September while sales rose 45 percent to 21 billion yuan during the
same period.
Sinotruk, China's largest heavy-duty truck assembler, estimated
profit for the whole year will jump by 150 percent to 200 percent
on high demand for heavy-duty trucks.
Last year Sinotruk made a net profit of 224 million yuan. Its
shares also climbed from 25.48 yuan on January 4 to 48.4 yuan last
Friday.
"In addition to the booming stock market, auto-related stocks
are favored because the profitability of car makers has improved
and assets have been optimized, ensuring more potential for future
growth," said Wang Canbing, an independent industrial analyst.
Auto-related stocks are projected to remain upbeat against
overall market performance because of a rosier outlook.
China replaced Japan as the world's second largest auto market
last year, trailing only the United States.
Vehicle sales in the first three quarters rose 24.4 percent to
6.45 million units from a year earlier. The forecast for the whole
year is 8.5 million units, with passengers car accounting for 6.2
million and commercial vehicles seen growing at the fastest
pace.
Auto exports also soared 64 percent to 413,500 units of complete
finished vehicles - including cars, buses and trucks - in the first
10 months of the year from a year earlier.
The fast-growing momentum in vehicle sales is seen to continue
to 2020 as rising income will spur auto consumption while exports
will increase, a report from CITIC Securities Co Ltd said.
"The booming economy boosts people's income and makes cars more
affordable for them," said Zheng Jun, an analyst at CITIC
Securities Research, adding improved road condition and low market
penetration will lay a solid foundation for future development.
CITIC Securities' report also said the cumulative sales growth
for China's auto industry will be 15 percent to 20 percent annually
over the next 10 years while profit at mainstream car makers will
expand 30 percent annually in the next five to 10 years.
This year, several car makers have actively sought opportunities
to list on the stock exchange as they aim to tap the bullish market
to fund future development.
Shares of FAW Car as well as FAW Xiali got a boost from market
speculation that they would be the platform for a back-door listing
of their parent company First Automotive Works Group, China's
second-largest car maker.
Others like Foton also attracted investors' attention as it will
partner Chrysler LLC to jointly develop commercial vehicles that
will sharpen its competitiveness in the rapidly growing
segment.
Compared with mainland bourses, car makers listed on the Hong
Kong stock market, however, paint a different picture as overseas
investors are concerned over declining prices and looming
overcapacity.
Rapid expansion
Sinotruk (Hong Kong) Ltd, China's largest maker of heavy trucks,
plunged 16 percent to close at HK$10.86 (US$1.39) on its first day
of trading despite its initial offer being oversubscribed by
institutional and individual investors.
Looking ahead to next year, state-owned car makers are likely to
expand rapidly as the Chinese government is promoting mergers and
acquisitions to create a nationwide auto giant in the face of
global competition from rivals.
Despite a positive blueprint in terms of sales, profits and
exports, the mainland's maturing auto market also faces challenges,
including declining car prices, high fuel prices, and possible
overcapacity that may slow down sales and dent car makers'
profits.
But Li Mengtao, an auto analyst at Guojin Securities Co Ltd,
said the impact could be limited with improved efficiency of car
makers and their faster pace in launching new models.
On the other hand, there are also risks for car makers to roll
out Chinese-branded models due to their perceived lower
technological expertise and weak brand awareness.
"Competition in the mid-to-low car segment, with smaller car
size and low prices, will be more intense that will result in
falling profit," Guojin Securities's Li said.
(Shanghai Daily December 24, 2007)
