[ET Net News Agency, 13 June 2018] HSBC Global Research cut its target price for
Guangzhou Automobile Group (GAC)(02238) to HK$17 from HK$18.57, and retained its "buy"
rating.
The research house said GAC has five auto manufacturing JVs, with Honda, Toyota, Hino,
FCA and Mitsubishi. All JVs are owned under a 50/50 JV structure. It thinks GAC's
electrification and R&D technology is ahead of its JV partners.
GAC has a weighted average duration of remaining JV contracts of 14 years. This is above
the bottom end of the range of the remaining contract years (ranging from 10-47 years).
GAC's contract closest to expiry is that with Honda, which 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. It thus thinks that GAC has a lower risk
given the market segment exposure of the Japanese and Italian/American brands that are in
the premium market rather than luxury.
HSBC revised down its FY2018-19 revenue estimates, factoring in slower growth based on
1Q 2018 actuals. It increased its gross profit margin estimates based on FY2017; however,
this is offset by higher SG&A resulting in a lowering of our EBIT estimates. It lowered
its adjusted 2018 NPAT estimates by 2% as a result. (KL)