Guotai Junan: Strengthened policy expectations open up valuation repair for passenger cars.

Guotai Junan released a research report stating that the pre-Spring Festival promotions of new energy vehicle brands and fuel brands since December 2023 have disturbed the sales structure. The bank predicts that passenger car sales structure will gradually return to normal starting in March. At the same time, with a relatively low base, it is expected that the performance of component companies in Q1 2024 will continue to see high year-on-year growth. The State Council has reviewed and approved the "Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-ins for New Ones", actively promoting the trade-in of consumer goods such as cars and home appliances, which is expected to accelerate the release of passenger car renewal demand, leading the sector to a new round of valuation recovery rally. Guotai Junan's main points are as follows: 1. Policy expectations are strengthening, leading to a valuation recovery in the passenger car sector. Since 2024, the passenger car sector has experienced significant adjustments due to risk aversion and trading structure impacts. With the return of market risk appetite, growth-oriented segments in the passenger car sector such as Siasun Robot & Automation and intelligent driving will gradually recover. As the trade-in policy in the automotive sector continues, concerns about passenger car terminal demand will gradually ease, leading to a valuation recovery rally in the sector. 2. Since 2021, the passenger car sector has shown a characteristic of initially suppressing and then rising, with policy support playing a significant role in driving the market. Since 2021, the passenger car sector has typically faced pressure in Q1. On one hand, there are fluctuations in passenger car sales before and after Chinese New Year, leading to relatively pessimistic market expectations for the overall sales volume for the year. On the other hand, promotions after Chinese New Year can raise concerns about competitive landscape and annual price negotiations, triggering worries about the profit potential of component companies. As terminal sales gradually recover and the penetration rate of new energy vehicles continues to increase in the later stages of Q2, market pessimism will gradually be corrected, leading to a valuation recovery rally in the sector. The stimulus policies for the passenger car sector starting in Q2 2022 have had a significant impact on boosting valuations, with full vehicles performing better than components. 3. With strengthened policies in 2024, the sector is expected to usher in a new round of valuation recovery. The disruptions in sales structure caused by pre-Spring Festival promotions of new energy vehicle brands and fuel brands since December 2023 are expected to gradually return to normal from March onwards. At the same time, with a relatively low base, component companies' performance in Q1 2024 is expected to continue to see high year-on-year growth. The State Council's approval of the "Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-ins for New Ones" is expected to accelerate the release of passenger car renewal demand, leading to a new round of valuation recovery rally in the sector. Risk warning: The risk of further escalation in price wars, and the risk of terminal demand falling below expectations.