CITIC Securities Automotive Industry Report: Exports continue to drive industry prosperity, with profitability steadily increasing

According to the financial news app Zhitong Finance, CITIC Securities released a research report stating that the automotive industry's exports continue to reflect industry prosperity, with profitability continuing to improve. Passenger car sales are better than the same period last year, with a significant increase in exports contributing to the growth. Currently, it is still a good time to be bullish; commercial vehicles benefit from high export prosperity, and the stabilization and recovery of the macro economy may further boost the demand for heavy trucks, while bus exports continue to show strong growth. The decline in prices of auto parts raw materials offsets the pressure from annual declines, leading to year-on-year growth in revenue and non-GAAP net profit.

Market Review: Q1 Automotive Sector Continues to Show Positive Relative Returns, Commercial and Passenger Segments Outperform

In Q1 2024, the automotive sector (CITIC) achieved an absolute return of 0.38% and a relative return of 3.23%, outperforming the broader market. Specifically, the commercial and passenger vehicle segments had relative returns as high as +7.46% and +19.57%, respectively.

The outperformance of the sector in Q1 2024 was mainly due to: 1) Passenger vehicles benefiting from the "trade-in for new" stimulus policy expectations and better-than-expected export sales, with stocks such as SAIC-GM-Wuling and BYD performing well; 2) Commercial vehicles (heavy trucks/buses) seeing profit recovery driven by economic recovery, with outstanding stocks like Yutong and Weichai aligning with the "dividend" market style.

1) Passenger Vehicle Production, Sales, and Financial Situation

Passenger Vehicle Production and Sales: Sales Volume Better Than Same Period Last Year, Significant Increase in Exports

In Q1 2024: Wholesale volume was 5.587 million units, up 10.6% year-on-year but down 27.7% month-on-month, supported by export growth; retail sales were 4.829 million units, up 13.1% year-on-year but down 25.4% month-on-month, showing short-term improvement; insurance registrations were 4.934 million units, up 15.3% year-on-year but down 24.2% month-on-month; channel inventory decreased by 190,000 units, indicating an overall destocking phase. Overall, the industry performed better than the same period last year, with improvements in wholesale, retail, and insurance registration volumes year-on-year.

Passenger Vehicle Financial Data: Non-GAAP Profit Growth Significantly Higher Than Sales Volume, BYD's Market Share Continues to Rise

In Q1 2024, total revenue for passenger vehicles was 398 billion RMB, up 9.1% year-on-year but down 28.2% month-on-month; gross profit margin was 15.4%, up 2.1 percentage points year-on-year and 0.1 percentage points month-on-month; total non-GAAP net profit attributable to the parent company was 7.69 billion RMB, up 20.9% year-on-year. Non-GAAP net profit margin was 1.9%, up 0.19 percentage points year-on-year and down 0.14 percentage points month-on-month. Overall, the non-GAAP net profit growth rate for the passenger vehicle segment was the highest year-on-year, with individual vehicle profits showing differentiation. BYD's market share significantly increased to around 11.4% in Q1 2024, up by 4.90% and 6.21% year-on-year and month-on-month, respectively.

2) Commercial Vehicle Production, Sales, and Financial Situation

Commercial Vehicle Production and Sales: Q1 Wholesale Sales Up 10.1% Year-on-Year, Benefiting from High Export Prosperity

In Q1 2024, wholesale sales were 1.033 million units, up 10.1% year-on-year but down 5.5% month-on-month; of which exports and domestic sales were 214,000 units and 819,000 units, up 27.5% and 6.3% year-on-year, respectively, but down 3.1% and 6.1% month-on-month. Exports maintained resilience, contributing to nearly half of the incremental growth. In Q1 2024, national bus wholesale sales were 114,000 units, up 13.6% year-on-year but down 21.8% month-on-month In 24Q1, the national wholesale volume of trucks was 919,000 units, up 9.7% year-on-year but down 2.9% month-on-month.

Financial Data for Commercial Vehicles: Sector performance sees both year-on-year and month-on-month growth, with leading enterprises showing impressive profit growth

In 24Q1, the total revenue of commercial vehicles reached 130 billion RMB, up 10.7% year-on-year and 0.5% month-on-month. The gross profit margin was 15.9%, up 1.4 percentage points year-on-year but down 2.0 percentage points month-on-month. The total non-net profit attributable to the parent company was 4.2 billion RMB, up 80.2% year-on-year and 91.1% month-on-month. The non-net profit margin was 3.2%, up 1.2 percentage points year-on-year and 1.5 percentage points month-on-month. Overall, the revenue and sales volume growth of the passenger car sector remained relatively stable. Due to factors such as economies of scale and increased export growth boosting profits, the non-net profit attributable to the parent company grew much faster than revenue on a year-on-year basis.

3) Parts Sector: Decrease in raw material prices offsets annual pressure, leading to growth in revenue and non-net profit

In 24Q1, the total revenue of the parts sector was 384.1 billion RMB, up 5.8% year-on-year but down 10.4% month-on-month. The gross profit margin was 17.6%, up 1.68 percentage points year-on-year but down 0.07 percentage points month-on-month. The non-net profit attributable to the parent company was 18.2 billion RMB, up 64.3% year-on-year and 76.4% month-on-month. The net profit margin was 5.7%, up 1.61 percentage points year-on-year and 2.37 percentage points month-on-month. In Q1, the trend of raw material prices diverged, with steel and glass prices falling significantly, export costs initially rising and then falling, and the Chinese yuan maintaining a high level against the US dollar.

Positioning: Strong willingness to allocate to leading stocks in the automotive sector, with increased holdings in complete vehicles

In 24Q1, the proportion of the automotive industry in the top holdings was 3.46%, down 1.4 percentage points from 23Q4. The proportion of top holdings remains high, with a strong willingness to allocate to leading stocks in the automotive sector. BYD is the largest top holding, with a total market value of 12.476 billion RMB. Desay SV (4.938 billion RMB) and Top Group (4.855 billion RMB) have relatively high holdings, with increased holdings in Fuyao Glass (+24%), CFMoto (+29.5%), and Li Auto-W (+17.8%).

Investment Recommendations:

1. Passenger Cars: With the implementation of subsidies for replacing old vehicles with new ones, the wait-and-see demand is expected to gradually translate into sales. Strong exports in April, combined with subsidies of 10,000/7,000 RMB for new energy/fuel vehicles, are expected to drive domestic sales. The current period is still a window for long positions.

2. Commercial Vehicles: Stable macroeconomic recovery may further boost domestic demand for heavy trucks. Focus on opportunities for natural gas heavy trucks with low gas prices. Strong export of buses, combined with external demand recovery and increased market share, will drive high export growth.

3. Parts: Continue to focus on robotics, low-altitude economy, and first-quarter high-growth targets