[ET Net News Agency, 13 June 2018] HSBC Global Research chopped its target price for
Brilliance China Automotive (01114) to HK$15.6 from HK$23.5, and downgraded its rating to
"hold" from "buy".
The research house said Brilliance has two JVs: BBA, the 50/50 JV between Brilliance
and BMW, and its Jinbei JV that is 51% owned by Brilliance and 49% owned by Renault.
Brilliance has an average weighted remaining duration on JV contracts of 10 years. This
is at the low end of the range of between 10 years and 47 years. The company's most
profitable JV, Brilliance-BMW, contributed 100% to JV profits in 2017. The Brilliance-BMW
JV contract expires in 2028.
HSBC thinks that luxury car makers are more likely to consider leaving their JVs given
their well-established brand names in China. Hence, it would be easier for BMW to
establish a wholly owned foreign entity (WOFE) in China than for mass market brands.
HSBC revised its forecasts for BMW's contribution over the coming few years, creating a
more detailed forecast based on model cycle, and weighted by vehicle segment ASPs. This
has resulted in +/-5% change in its FY2018-20 earnings forecasts for Brilliance. (KL)