Leading domestic car companies, implementing institutional reforms to unleash innovative vitality: SAIC Motor Group is the largest car company in domestic production and sales. Its business covers the fields of vehicles, parts, automobile service trade, finance, etc. Among them, the vehicle and parts business accounts for about 70%/20% of revenue. The Group's passenger car business includes SAIC Volkswagen, SAIC-GM, SAIC-GM-Wuling, and SAIC passenger cars. The parts business includes Huayu Automobile, Zero-Beam Technology, and Jethydrogen Technology. The company actively promotes institutional reform and responds to the future development trend of the industry through investment layout in key technical directions, reform of personnel appointment assessment mechanisms, and promotion of the spin-off and listing of science and technology innovation companies.
Equity+model iteration stabilizes the foundation: the company's fuel vehicle business is mainly concentrated on joint venture brands. SAIC Volkswagen and SAIC-GM's fuel vehicle market share in the first 11 months of 2023 was about 6.0%/6.0% (-1.9pcts/-1.0pcts year on year). We judge that with the general trend of intelligent electrification, joint venture models represented by Passat, Cruzer, and GL8 may still be able to stabilize the sales base in the short term through equity + product iteration, but most fuel vehicle models have already entered the middle to late stages of the cycle, and it is expected that traditional fuel vehicles will maintain a downward trend.
Joint venture new energy transformation is determined, and independent high-end performance is worth looking forward to: 1) Joint venture brand: New energy transformation has obvious situations such as oil to electricity and insufficient upward product synergy. Through the ID series, a breakthrough was achieved in short-term sales volume in exchange for price. In the long term, it is necessary to boost joint venture sales through localized development collaboration and platform system construction between the two brands. 2) Independent brand: The company has formed a Roewe (mainstream) +Feifan (high-end) +Zhiji (luxury) brand matrix. We believe that the company has the ability to create explosive models. The problem of newly launched model positioning+product power has been fully solved, and we are optimistic about the trend of new models under the company's own brands. Among them, the market performance of Feifan+ Zhiji may be the key to increasing the company's valuation.
Overseas brand potential is expected to strengthen: MG is a key brand under SAIC Motor that undertakes overseas strategic layout. MG's export sales volume increased 48.2% year-on-year to 567,000 vehicles in the first 11 months of 2023, and the overseas development momentum is booming. We believe that 1) The reason for MG's leading performance in overseas markets is, on the one hand, that the MG brand has both a brand base and cost performance ratio overseas. On the other hand, the company's overseas layout is relatively perfect. It has a total of 642 distributors in Europe and other regions, and factories in Thailand and India have also been put into operation and supply overseas. 2) The new Cyberster all-electric coupe has appeared in the European market. As a major model of MG's return to sports cars, combined with classic British design and new electrification technology, it is expected to become the key for MG to further expand overseas markets.
Give an “gain” rating: The company's current performance and valuation are at the bottom, and there is plenty of room for marginal improvement. In the medium to long term, we are optimistic that SAIC Motor will rely on its advantages in terms of brand+resources to achieve flexible valuation after the implementation of the joint venture electric transformation and implementation + independent new product cycle. We expect 2023-2025E's net profit to be about 131.7/149.3/18.24 billion yuan, respectively (year-on-year growth rate -18.3%/+13.4%/+22.1%), and EPS of about 1.13/1.28/1.56 yuan, respectively. Covered for the first time, a “gain” rating was given.
Risk warning: The electrification transformation of joint venture brands falls short of expectations; sales of new products from high-end independent brands fall short of expectations; overseas risks for MG brands; competition in the automotive industry intensifies risks.