Haitong: Promoting the prosperity of the automobile industry by exchanging old for new, AI driven autonomous driving technology will be implemented.

Haitong released a research report stating that the valuation of the overall market in the first half of 2024 is hovering around the median. Against this backdrop, the valuation performance of the automotive sector as a whole is poor, but there is still differentiation. After the median volatility in the dealer sector, Q2 saw a significant rise, while the other sectors all exhibited median volatility. When comparing various industry sectors horizontally, the valuation level of the automotive sector in the first half of the year remains at a relatively high level, mainly due to the strong production and sales of automobiles lifting the overall valuation level of the sector. Currently, the policy of replacing old vehicles with new ones has a certain support effect on the prosperity of the automotive industry. After the end of the price war in the passenger vehicle industry, sales volume and profitability are expected to gradually recover; the recovery in the commercial vehicle industry is driven by exports, and there is still internal repair momentum in the domestic economy. Key points from Haitong are as follows: - Domestic automotive sales in the first half of 2024 reached 14.05 million units, up by 6.1% year-on-year, with the performance of passenger vehicles on par with the overall automotive industry. - According to data from the National Bureau of Statistics, the automotive manufacturing industry achieved a total operating income of 4.7672 trillion yuan in the first half of 2024, an increase of 6.1% year-on-year, and a total profit of 237.7 billion yuan, up by 9.2% year-on-year. The industry sales profit margin (total profit/total operating income) is 5.0%, and the three expense ratio totals about 5.4%. Compared with the same period in 2023, the sales net profit margin has slightly increased, which we judge to be mainly due to the subsidy policy driving up sales volume, but the ongoing price war in the industry continues to disrupt profitability. - The replacement of old vehicles with new ones in Q2 of 2024 boosted the prosperity of the industry, but the profitability of the passenger vehicle sector was affected by the price war. - Overall, the profitability of the vehicle sector in Q2 of 2024 is not bad, indicating that the impact of the price war has eased. The replacement of old vehicles with new ones has boosted the industry's prosperity, and large models driving smart driving are beginning to drive corporate operations. Haitong recommends Li Auto, Inc. Sponsored ADR Class A (02015), BYD Company Limited (01211), LEAPMOTOR (09863), and pays attention to Tesla, Inc. (TSLA.US), and XPeng, Inc. ADR Sponsored Class A (09868). - In the parts sector, the main focus is on industrial upgrading and prosperity growth. Recommendations include Bethel Automotive Safety Systems (603596.SH), NEXTEER (01316), Ningbo Tuopu Group (601689.SH), Shanghai Baolong Automotive Corporation (603197.SH) for industrial upgrading, and Anhui Zhongding Sealing Parts (000887.SZ), Foryou Corporation (002906.SZ), and Huayu Automotive Systems (600741.SH) for prosperity growth. Others recommended are Shanghai Hajime Advanced Material Technology (301000.SZ), Sichuan Chuanhuan Technology (300547.SZ), and Rayhoo Motor Dies (002997.SZ). - In the commercial vehicle sector, recommendations include Sinotruk Jinan Truck (000951.SZ), CIMC Vehicles (301039.SZ), Weichai Power (000338.SZ), and Yutong Bus Co., Ltd. (600066.SH) for opportunities in both domestic recovery and overseas growth. Risk warnings: Risks of lower-than-expected vehicle sales; risks of significant fluctuations in raw material prices; risks of significant fluctuations in exchange rates.