FAW Xiali's main business loss, the main source of profit is FAW Toyota, the investment focus is that the Japanese recovery is better than expected and benefit from the listing of FAW Group as a whole, while Toyota's main hybrid model Prius is sold in FAW Toyota, we expect the company's 13-and 14-year EPS to be 0.15,0.25 yuan, the overall trend of the company is upward, and the valuation is on the low side under the expectation of Japanese car improvement and hybrid subsidies. Upgrade the rating to "highly recommended-A".
FAW Xiali investment focuses on the recovery of the Japanese system and the overall listing. At present, FAW Xiali mainly produces A0-level Xiali and Wei series products. Due to the slow aging of models and weak competitiveness of products, the company has been in a state of loss. After deducting investment income, the profit of the company in 2012 is-1.31 billion yuan.
The main profit of the company comes from holding 30% of FAW Toyota. In 2012, FAW Toyota earned 60.3 billion yuan and contributed 1.29 billion yuan to investment income. At the same time, the major shareholder FAW Group holds 47.7% of the shares of the company, FAW Group as a whole is more likely to absorb and merge FAW Xiali, and the revaluation of the company's assets can have a better value-added.
Losses in this part are expected to bottom out and pick up. In 2012, the profit and loss of the company's main business reached 1.31 billion yuan, the highest in history. The company's new model, Xiali N7, has been on the market this year, and plans to launch Xiali N5 replacement car and export model V2. This year, the company's R & D expenditure has been significantly reduced compared with the same period last year. The Q1 business lost 290 million yuan this year, compared with 350 million yuan in the same period last year. We expect the loss to decline this year.
FAW Toyota recovered well, benefiting from the depreciation of the yen. FAW Toyota's Q3 and Q4 sales fell 21% and 48% respectively last year, while Q1 fell only 8% this year, showing a good recovery. FAW Toyota has new models this year: new RAV4 and revamped Ruizhi will be launched in July, new Wechi and independent brand Dear; will be launched in September, Carola replacement models will be launched in the first half of next year, the launch of new models will strongly promote the recovery of sales.
FAW Toyota still needs to import some core parts, and the depreciation of the yen will reduce import costs and enhance the competitiveness of products. FAW Toyota's sales fell last year but profits rose 5%. It is expected that FAW Toyota will still be able to increase its profits under the favorable circumstances of the depreciation of the yen and the rebound of sales.
Investment advice and risk tips. The company has benefited from the recovery of the Japanese system, the increased launch of new Toyota products and the listing of FAW Group as a whole, while the main business is expected to bottom out and pick up this year, with an overall trend upward. We estimate that the 13-year and 14-year EPS of the company will be 0.16,0.25RMB respectively. Among them, FAW Toyota is expected to make a profit of 5 billion yuan in 2013, and 30% of its shares are estimated to have a market capitalization of 15 billion yuan according to 10 times PE. Under the current share price, the market capitalization of FAW Xiali is only 8.6 billion yuan. Under the circumstances of hybrid subsidies and overall listing expectations, the company's share price is undervalued and upgraded to "highly recommended-A". The risk is that the recovery of Japanese cars is blocked and the listing time of FAW as a whole is uncertain.