Auto &Auto Parts:NEV conference takeaways,ST policies < invisible giant

New credit policy, replacement of fuel vehicles kicking off

    Guest said CAFC/NEV credit policy was already approved by various parties involved with no significant changes and to belaunchedsoon. The schedule of replacing fuel vehicles just started, not as early as the market expected.

    NEV market growing fast and facilities to catch up Guest expects 2017E

    NEV sales to be 800k units while 2018/19/20E to hit 1.15mn/1.60mn/2.00mn units.

    Given the NEA’s announcement of charging facilities constructionplan, the supporting facilities would be able to catch up. NEV andtraditional auto market landscapes to converge but battery market to polarize Guest expects the NEV market to gradually converge with the competitive landscape of traditional auto market. Own brand NEVs will dominate the markets in 2nd/3rd/4th and lower tier cities. JV brand will invest in even more new models from 2H19, leading the first-tier cities with greater advantage. The battery market will also be polarized as the weaker companies fade out.

    FY sales volume to grow 3-5%, SUVand luxury outstanding Guest expects annual sales volume to grow 3-5%, in whichKorean autos drop while German brands maintain uptrend.SUV growth was strong with the most outstanding from own brands. Luxury auto growth was fast overall.

    Our view: ST trading opportunities, LT pickinvisiblegiant

    We expect STpolicy stimulus on the NEV industry chain, bringing trading opportunities. Upstream earnings cycle is quite certain while downstream will take longer time. We are LTpositive on Geely (175) as the market has yet to realize its NEV potential: 1) 8M17 no.1 NEV market share (18%); 2) 2018all new models to havefully compatible engines(fuel/hybrid/electric); 3) sharing NEV technology with Volvo(the world’s first to cease production of fuel cars in 2019); 4) Volvo/Lynk/Geely to have synergies in high/mid/lowmarkets; and 5) deployingfor passenger/commercialNEVs with integrated NEV manufacturing/downstream operation. Other NEV beneficiaries: 1) automaker BYD (1211 HK, NR); 2) electric charger supplier Titans Energy (2188 HK, NR); and 3) battery supplier Tianneng Power (819 HK, NR).