Recently, together with our customers, we organized an industrial tour and visited four companies covering four major industrial sub-industries. They are Zoomlion Heavy Industry Science and Technology (1157 HK/ unrated, construction machinery), Zhuzhou CRRC Times Electric (3898 HK/ unrated, rail transit equipment / IGBT), Dongfeng Motor (489 HK/ unrated, automobile) and Jingshan Light Machinery (000821 CH/ unrated, photovoltaic equipment). Through the on-the-spot investigation of the company, we have a more in-depth understanding of the industrial industry and various sub-sectors. Dongfeng Group of the automobile industry (489 HK/ unrated) is the third stop of our industrial survey.

The brand of Dongfeng Group will speed up the launch of the new energy market, and the independent brands will focus on Lantu and Mengshi. Dongfeng Group said that the joint venture brand is currently facing greater sales pressure, but will speed up the transformation of new energy to meet market challenges. Independent brands will rely on Lantu and Mengshi brands to distribute the new energy vehicle market upward. The company said the dividend payout would remain stable.

Due to the great pressure on the brand, the launch of new energy will be accelerated. Sales of Dongfeng joint venture (Honda / Nissan) fell sharply in the first half of the year compared with the same period last year, falling by 32.8% and 28.0% respectively. Looking forward to the second half of the year, Dongfeng said that through the June data, it can be seen that there is a trend of gradual stabilization. Nissan, in particular, returned to sales of nearly 70,000 units in June. At the same time, Nissan has a number of new energy / electric models on the market. For example, the sales of Qijun's e-POWER are brighter than the fuel version. In addition, Nissan's Qichen brand will use Dongfeng technology and platforms to launch more new energy models, such as the Dongfeng Nissan Qichen V DD-i super hybrid, and its most direct competitor will be the equivalent BYD Song Pro DM-i champion.

Honda, for its part, will also quickly introduce i-MMD hybrid system models. From a supply point of view, the joint venture brand will release more new energy models with different market positioning to cope with market competition and make up for the shortage of new energy vehicles.

Independent brands will focus on supporting Lantu and Mengshi in the upward layout of the new energy vehicle market. Dongfeng's current independent brand layout covers low, medium and high-end. Lantu locates high-end new energy sources, similar to the BBA in fuel vehicles. The mainstream market in the price range below 300000 includes three brands: Fengshen, Qichen and vogue.

In addition, there are Dongfeng Nano to fill the gap of Dongfeng in the field of small pure electricity. Mengshi has the niche positioning of the highest-end luxury cross-country in Dongfeng's independent brand. Lantu will speed up the channel market, with about 250 stores at the end of last year, and plans to have nearly 400 stores to cover prefecture-level cities by the end of this year. Dongfeng will invest more resources in brand awareness and marketing, and actively make use of mobile Internet precision marketing. The volume of Lantu increased by 118.5% to 15031 yen in the first half of the year compared with the same period last year.

The dividend ratio is likely to remain stable. Dongfeng said that the company intends to maintain a stable dividend ratio, and the parent company also has a demand for dividends, so the board of directors believes that the dividend ratio may be maintained. The company's dividend / dividend ratio per share (deducting the 2021 special dividend) over the past five years has averaged HK $0.31 / ~ 20%. Based on the company's average dividend per share of HK $0.31 over the past five years, the current price is equivalent to 8.4% of the dividend yield.

Revelation: we believe that the Dongfeng joint venture brand is still facing pressure from its own brands, and the PHEV models of its own brands have achieved the same price of gas and electricity since the beginning of this year, which poses a lot of pressure on Japanese models that are also positioned in the mainstream mass market. In the fourth quarter, most vehicle manufacturers are likely to further increase discounts and promotions in order to achieve their sales targets. In terms of independent brands, Lantu speeds up the channel layout to cover prefecture-level cities, which should help to promote sales growth. In addition, we believe that a stable dividend ratio will help to support share prices.