China: Automobiles - jrj.com.cnpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2014/2/26/ade... · February 26, 2014 China: Automobiles Goldman Sachs Global Investment Research 3 We expect luxury

February 26, 2014

China: Automobiles

Equity Research

Remain positive on luxury dealers despite new car GP cut; Buy Zhengtong/Baoxin/Harmony

Luxury sector to outpace broader market

We expect luxury car sector growth (12%-15%) to

outpace that of the overall car market (9%-10.5%)

in 2014-16, given: 1) Upper/upper middle class

expansion and shift in consumption pattern; 2)

higher affordability on lower ASP and increased

auto financing penetration; 3) rising supply due to

capacity boost and more products to be localized;

and 4) dealer network extending to lower-tier cities.

Entry-level models remain the sweet spot

In 2013, China’s entry-level luxury models

accounted for 56% of the total luxury market vs.

the global average of 64%. We believe this entry-

level luxury mix would continue to increase in

2014-16, driven by robust new product cycles and

higher affordability resulting from lower ASPs.

Prefer dealers on robust aftersales growth

We expect the luxury car fleet to grow faster than

new luxury car sales due to low scrappage rates.

Hence, we believe dealer revenue/GP from the

aftermarket business would grow faster than that

from new car sales, and prefer luxury dealers vs.

OEMs on the former’s higher aftermarket exposure.

We revise earnings estimates/target prices

We adjust 2013E-15E EPS for our China auto

dealer coverage by -15% to +4% in light of our

revised assumptions on new car sales, the

aftermarket segment and other value-added

businesses. In general, we lower the gross profit

(GP) contribution from new car sales for dealers

given lower volumes, ASPs and GPMs (on slowing

sector growth/mix decline/fierce competition/slow

new store expansion), partly offset by stronger

aftersales growth. Accordingly, we update our 12-

month P/B-ROE based target prices by -8% to +3%.

Buy Zhengtong/Baoxin/Harmony

We continue to like Zhengtong/Baoxin/Harmony

for their high exposure to the luxury segment as

well as attractive valuations (2014E average P/E of

7.3X vs. H-share auto coverage of 9.2X).

Valuation summary – luxury segment

Source: Datastream, Gao Hua Securities Research.

CHINA LUXURY OEM/DEALER COVERAGE SUMMARY


RELATED RESEARCH

China: Automobiles: Distributors: Strong earnings growth

outlook, valuations attractive; Buy Zhengtong (upgrade),

Baoxin, July 18, 2013

Yipeng Yang +86(10)6627-3189 [email protected] Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies

covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Yuqian Ding +86(10)6627-3327 [email protected] Beijing Gao Hua Securities Company Limited

The Goldman Sachs Group, Inc. Global Investment Research

2/21/2014 12 Month PotentialTicker Company Name Currency Rating Close TP up/downside3836.HK Harmony HKD Buy 5.45 7.65 40.4%1728.HK Zhengtong HKD Buy 4.45 5.98 34.4%1293.HK Baoxin HKD Buy 6.48 8.27 27.7%0881.HK Zhongsheng HKD Neutral 11.20 11.16 -0.4%1114.HK Brilliance HKD Neutral 12.24 11.62 -5.1%

Valuation SummaryTicker Company

nameRating

2014E 2015E 2014E 2015E1293.HK Baoxin Buy 8.5 6.4 2.1 1.6 1728.HK Zhengtong Buy 7.2 6.0 0.9 0.8 3836.HK Harmony Buy 6.3 5.0 1.5 1.2 0881.HK Zhongsheng Neutral 10.5 7.9 1.6 1.4 1114.HK Brilliance Neutral 11.3 9.8 3.1 2.5

Average 8.8 7.0 1.8 1.5

P/E P/B

February 26, 2014 China: Automobiles

Goldman Sachs Global Investment Research 2

Table of contents

We expect luxury segment to outpace overall market in 2014-16 3

We favor luxury dealers on their strong aftermarket growth 8

P/B-ROE still our preferred framework; Zhengtong/Baoxin/Harmony seem undervalued 11

Disclosure Appendix 20

The prices in the body of this report are based on the market close of February 21, 2014, unless otherwise mentioned.

Exhibit 1: Valuation summary: China luxury OEM/dealer coverage

Note: Prices as of market close on February 21, 2014.


Valuation Summary -luxury car segment 2/21/2014 12 Month 12 Month PotentialTicker Company Name Currency Rating Close TP TP-old up/downside Methodology Key risks3836.HK Harmony HKD Buy 5.45 7.65 8.36 40.4% PB-ROE: H Share Weaker price/margin erosion of luxury and super luxury new car sales; weaker aftermarket sales1728.HK Zhengtong HKD Buy 4.45 5.98 6.41 34.4% PB-ROE: H Share Lower price/volume of luxury car, esp. BMW, JLR and Volvo.1293.HK Baoxin HKD Buy 6.48 8.27 8.97 27.7% PB-ROE: H Share Price/margin erosion of new car sales; potential restriction from BMW on new car sales post NCGA acquisition0881.HK Zhongsheng HKD Neutral 11.20 11.16 10.88 -0.4% PB-ROE: H Share Higher/lower price/volume of luxury car; Japanese brands recovery1114.HK Brilliance HKD Neutral 12.24 11.62 11.62 -5.1% PB-ROE: H Share Higher/lower vol./price; higher/lower electric vehicle R&D expenditure



We expect luxury segment to outpace overall market in 2014-16

China’s luxury car sector recorded a stronger-than-expected sales volume growth of 22% in FY13. We maintain our 2014-16 China

luxury car sector sales volume growth estimates of 15%/15%/12% – faster than our overall car market growth estimates of

10.5%/10%/9%.

Exhibit 2: We forecast 2014-16 luxury sector growth of 15%/15%/12% Luxury sales volume in ‘000 units, yoy growth rate in %

Exhibit 3: We estimate China’s luxury car sector volume to grow at a pace

faster than that of the overall car market Overall car market and luxury sector yoy sales volume growth in %

Source: Global Insight, Gao Hua Securities Research.

Source: Global Insight, Gao Hua Securities Research.

YoY growth forecast (in %) 2011 2012 2013 2014E 2015E 2016ELuxury car market (new) 31.3% 22.5% 22.0% 15.0% 15.0% 12.0%Luxury car market (old) 31.3% 22.5% 18.0% 15.0% 15.0% NAVar. (New vs. old) 4.0% 0.0% 0.0% NA

24 43 53 97 97 111 169 241 302 432

741 973

1,191 1,453

1,671 1,922

2,153

81.7%

22.2%

83.8%

-0.6%

15.0%

52.0%42.7%

25.1%

42.9%71.6%

31.3% 22.5% 22.0%15.0%15.0%

12.0%

-300%

-250%

-200%

-150%

-100%

-50%

0%

50%

100%

0

500

1000

1500

2000

2500

3000

3500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

Luxury sales volume (in '000 units) Growth rate (YoY) (RHS)

24.1%

32.5%

22.4%

7.4%

51.1%

35.4%

8.7% 7.5%

18.3%

10.5% 10.0% 9.0%

15.0%

52.0%

42.7%

25.1%

42.9%

71.6%

31.3%

22.5% 22.0%

15.0% 15.0%12.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

Overall passenger car yoy growth rate Luxury car yoy growth rate



2013 recorded stronger-than-expected volume growth; Germany’s ‘Big 3’ remain dominant

Despite a slowdown in 1H13 due to the anti-corruption campaign promoted by the central government, the luxury car market still

recorded a decent growth in 2013 of 22% yoy, which is higher than our 18% estimate.

We see higher volume growth in 2H13 than 1H13, as suggested by the monthly volume trend of Germany’s ‘Big 3’, namely Audi,

BMW and Mercedes-Benz (see Exhibit 5). Germany’s ‘Big 3’ remain dominant in the segment with a combined market share of 74%,

albeit slightly lower than 2012’s 76%. Brands such as JLR/Cadillac/Volvo/Infiniti outperformed on the back of strong product cycles

and a speed up in localization.

Exhibit 4: Cadillac/Infiniti/Volvo led luxury growth while JLR led super luxury

growth; Germany’s ‘Big 3’ slightly lost share to peers in 2013 Sales volume in units, yoy growth rate in %

Exhibit 5: Higher volume growth in 2H13 than 1H13 for Germany’s ‘Big 3’

Sales volume in unit, yoy growth rate in %

Source: Company data.

Source: Company data.

2012 2013 YoYSuper LuxuryMaserati 924 2,369 156%Aston Martin 227 297 31%Jaguar + LR 73,347 95,237 30%Porsche 31,206 36,892 18%Ferrari 507 583 15%Rolls‐Royce 1,194 1,325 11%Bentley 2,253 2,191 ‐3%Lamborghini 320 267 ‐17%Maybach 38 11 ‐71%Sub‐total 110,016 139,172 27%

LuxuryAcura 2,297 4,600 100%Cadillac 30,010 50,005 67%Infiniti 11,109 17,108 54%Volvo 42,031 61,146 45%Mini 23,282 28,613 23%Audi 405,838 495,835 22%BMW 303,266 362,100 19%Lexus 64,000 74,000 16%Lincoln 608 695 14%Mercedes‐Benz + Smart 212,060 235,644 11%Saab ‐ ‐ NASub‐total 1,094,501 1,329,746 21%

Luxury + Super luxury total 1,204,517 1,468,918 22%Germany 3 921,164 1,093,579 19%As % of total luxury 76% 74%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

Jan-

2013

Feb-

2013

Mar

-201

3

Apr-2

013

May

-201

3

Jun-

2013

Jul-2

013

Aug-

2013

Sep-

2013

Oct

-201

3

Nov

-201

3

Dec

-201

3

Mercedes BMW Audi Total YoY Change (RHS)



We believe the luxury car market can sustain a growth rate higher than that of the overall car

market in 2014-16 due to four major reasons:

1) Expansion of upper/upper middle class and consumption pattern leaning towards individuality

Based on BME company data, China has the fourth highest number of high net worth individuals (net worth over US$1mn) in the

world in 2011. Also, the premium-relevant households (the upper/upper middle class) would triple in 2012-2025 (see Exhibit 6). We

expect this further expansion of the upper/upper middle class to boost the secular growth of the luxury car market in China. We

believe the long-term growth outlook of HNWI (or upper class) as well as the upper middle class in China is the fundamental driver

of the secular growth of the country’s luxury car sector.

Along with wealth accumulation, we also find that consumer pattern/clientele has been evolving over time. For example, the typical

buyers of the Audi previously were mainly government officials and senior managers (see Exhibit 7). At present, Audi’s consumer

profile has widened and is more diversified (i.e., more private (non-government)/women/younger buyers).

Exhibit 6: We believe further expansion of premium-relevant upper/upper

middle class would boost secular growth of China’s luxury car market Number in mn people, 2012 and 2025

Exhibit 7: More individuality in luxury consumption; Audi is a good example

Source: BMW company data, IHS Global.

Source: Audi company data.

2) Higher affordability on lower ASP due to increasing entry-luxury mix and higher penetration of auto financing

The entry-level luxury segment (defined as cars not bigger than the D segment, i.e., BMW 3/Audi A4/Mercedes C Class) has been

growing faster than the overall luxury segment over the past 10 years. In 2013, China’s entry-level mix represented 56% of the total

luxury car market, still lower than the global average of 64%. We believe this entry-level mix will continue to increase in 2014-16,

driven by strong localization of product pipelines and increasing affordability from lower ASP after localization.

105

21323

107

24

73

11

31

0

90

180

270

360

450

2012 2025E

Lower middle class (20-40k USD) Middle class (40-60k USD)

Upper middle class (60-100k USD) Upper class (>100k USD)

Around 46mn. premium-relevant households

15 mn. premium-relevant households

Government customersSenior managers

over 90% private buyers

2/3 families

1/3 women

age: mid-thirties

over 1/3 are first-time buyer

Previous consumer profile Current consumer profile



Exhibit 8: Analysis of China’s entry-level luxury cars vs. other markets shows

under-penetration and growth opportunity 2013 status quo

Exhibit 9: China luxury car market new model launch (local-made) plans

Locally-assembled entry-level luxury new model line up

Source: Global Insight.

Source: ChinaAutoMarket.

Exhibit 10: China entry-level luxury cars gained weight significantly

China entry-level luxury and others as % of total, 2000-2013

Exhibit 11: Global entry luxury mix has also expanded in the past 10 years

Global entry luxury and others as % of total, 2000-2013



56%64%

88% 87%78% 76% 71% 67%

61%55% 55% 52%

38%

0%

20%

40%

60%

80%

100%C

hina

Wor

ld A

vera

ge

Spa

in

Fran

ce

Uni

ted

Kin

gdom

Ger

man

y

Japa

n

Indi

a

Mal

aysi

a

Thai

land

Taiw

an

Uni

ted

Sta

tes

Sou

th K

orea

Entry luxury % of total luxury

Brand Model Type Body type Expected timeBMW Zinoro 1E New model EV 2013.Q4

FWD sedan New model Sedan 20151 Series New model Sedan TBDX3 New mode SUV TBD

Audi A3 NB New model Sedan 2014.Q1A3 HB New model Sedan 2014.Q2A4 New generation Sedan 2015

Mercedes Benz C-Class New generation Sedan 2014.Q3GLA New model SUV 2014.H2

Infiniti Q50L New model Sedan 2014QX50L New model SUV 2014

Lexus Mid-size sedan New model Sedan 2016Lincoln Mid-size sedan New model Sedan 2015/16Acura SUV-X New model SUV 2016Cadilac ATS New model Sedan 2014.H1

LTS New model Sedan 2015Volvo XC60 New model SUV 2014.12

0% 4% 5%17% 23% 17% 23% 23% 24% 30%

40% 47% 49%56%

100%96% 95%83% 77% 83% 77% 77% 76% 70%

60% 53% 51% 44%

0%10%20%30%40%50%60%70%80%90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Entry luxury Others

46% 52% 52% 50% 50% 53% 53% 54% 59% 61% 60% 61% 62% 64%

54% 48% 48% 50% 50% 47% 47% 46% 41% 39% 40% 39% 38% 36%

0%10%20%30%40%50%60%70%80%90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Entry luxury Others



Moreover, we see increasing market acceptance for auto financing. We estimate the auto finance penetration for luxury brands has

expanded to 25%-35% in 2013 from 15%-25% in 2011 (see Exhibit 12). This higher acceptance may be linked to the increasing

consumer bases of the luxury sector to more private/women/younger buyers, who are typically more open to consumer credit.

3) Increasing supply from capacity expansion and new product localization plans

Besides Germany’s ‘Big 3’, other brands such as Volvo, Cadillac, Infiniti, Lexus, Acura, Lincoln and JLR have also started to build

their localization capacity. We expect the overall luxury segment capacity to expand at a CAGR of 42% in 2013-16E (see Exhibit 14).

Also, we expect more new luxury models to be localized (see Exhibit 13), which may increase the choice of luxury car buyers and

hence potentially inspire more sales in the luxury sector. In addition, the 25% import tariff savings from localization of more luxury

products may help lower the ASP and increase the affordability of potential buyers.

4) Extended sales network

We believe more dealership expansions, especially in lower tier cities, could also support the overall luxury volume growth (see

Exhibit 15).

Exhibit 12: Auto finance penetration is higher in the luxury segment

Auto finance penetration in %

Exhibit 13: We expect more local production models to be launched in 2014-

16 Length (mm), entry price (Rmb), and retail volume (bubble size) by model, 2013

Note: The star indicates new models in and after 2014, the position is the estimated

price and length, and size doesn’t represent volume.

Source: Harmony company data, Gao Hua Securities Research.

Source: Cheshi.com, Company data, Gao Hua Securities Research.

c. 15-25%

c. 25-35%

0%

5%

10%

15%

20%

25%

30%

35%

Luxury brand (2011) Luxury brand (2013E)

Auto finance penetration

200,000

250,000

300,000

350,000

400,000

450,000

500,000

4,100 4,300 4,500 4,700 4,900 5,100 5,300 5,500

Price (in RMB)

Length (in mm)

Sedan - NB

Segment C Segment D Segment E

Audi A6L

Audi A4L

Cadillac XTS

Volvo S80L

MB E-class

MB C-class

BMW 3 Series

BMW 5 Series

Crown

BMW FWD

Audi A3 NB

Volvo S60L

Lexus ES

Cadillac ATS

Cadillac LTS

Existing model New model

Tesla model S



Exhibit 14: We see strong luxury capacity CAGR resulting from acceleration

of localization Capacity in ‘000 units, 2009-2016E

Exhibit 15: Germany’s ‘Big 3’ plan to increase dealership in 2014-16

Dealership counts for Audi/BMW/Mercedes

Source: Company data, Gao Hua Securities Research.


We favor luxury dealers on their strong aftermarket growth

We see secular growth in the aftermarket business for dealers

The aftermarket segment usually grows in line with the total car fleet number. We expect the growth of China’s luxury car fleet to

outpace new luxury car sales growth given the high base comparison for new car sales and the low scrappage in recent years (as

the average car age is young). In addition, along with the aging of China’s luxury car fleet, we expect growth of the aftermarket in

monetary terms to outpace growth in the car fleet as maintenance costs tend to increase once a car reaches four to five years old.

Considering these factors, we expect the luxury aftermarket segment to post sales CAGR of more than 25% over the next three years.

We favor luxury dealers over luxury OEMs given the former’s higher exposure to the secular growth of the aftermarket business.

210345 420

605

805

1380

1720

2290

0

600

1200

1800

2400

3000

2009 2010 2011 2012 2013 2014E 2015E 2016E

Brilliance - BMW FAW-Audi Beijing Benz Volvo Cadillac Infiniti Lexus Acura Lincoln Chery-JLR

CAGR at 42%

410 496

615

998

1202

14201540

1650

-

500

1,000

1,500

2,000

2009 2010 2011 2012 2013 2014E 2015E 2016E

Audi BMW + Mini Mercedes-Benz

CAGR at 11%



Exhibit 16: Dealers enjoy higher GPM from luxury new car sales

GH China dealer coverage, gross profit margin in %, 2010-2016E

Exhibit 17: The listed dealers are focusing on increasing their luxury mix

Luxury new car sales mix, as % of total, 2010-2016E



Exhibit 18: We expect luxury car fleet growth to outpace new car sales

growth China luxury sector new car sales volume and fleet volume growth, 2008-2015E

Exhibit 19: We expect aftersales revenue growth to outpace new car sales

revenue growth in our coverage Our coverage new car sales revenue growth vs. aftersale service revenue, 2010-

2016E



7.7%

9.1%

6.8% 6.5% 6.3% 6.2% 6.1%

3.4%4.2%

1.8% 1.8% 1.8% 1.8% 1.9%

0.0%

3.0%

6.0%

9.0%

12.0%

2010

2011

2012

2013

E

2014

E

2015

E

2016

E

Luxury new car sales GPM Mid-to-high end new car sales GPM

16.6%

23.1%

30.8%34.5% 34.5% 35.4%34.9%

53.3%

65.0%69.6%

72.9%75.6%

50.4%

60.8%

69.8%

81.1% 83.5%85.6%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013E 2014E 2015E

Zhongsheng Zhengtong Baoxin Harmony

25.1%

42.9%

71.6%

31.3% 22.0% 18.0%15.0% 15.0%

42.0%

39.8%34.8% 30.6%

27.1%24.4%

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

90.0%

2008

2009

2010

2011

2012

2013

2014

E

2015

E

China luxury car sales growth China luxury car fleet growth

69%73%

41%

23%14% 11% 10%

58% 67% 54%45%

32%26%

19%

0.0%

30.0%

60.0%

90.0%

120.0%

2010

2011

2012

2013

2014

E

2015

E

2016

E

Our China dealer coverage new car sales revenue growth

Our China dealer coverage after sales service revenue growth



Margin contribution from new car sales for dealers may be under medium-term pressure

In general, we forecast dealer new car sales gross profit to post slower growth on lower-than-expected volume/ASP/GPM, mainly

due to the following reasons: 1) Slowdown in luxury demand from peak of 71.6% in 2010 to mid-to-low teen growth in the coming

three years (although we expect luxury demand to grow stronger than the overall market); 2) high supply growth in terms of both

capacity and numbers of new models to be launched; 3) ASP in the luxury sector is declining as a result of mix shift towards entry-

level luxury models as products with higher prices usually command higher GPMs; 4) luxury OEMs are expanding their dealer

network which may fuel the competition among different dealers and lead to higher incentive/lower GPM of new car sales; and 5)

certain listed dealers such as Harmony have announced plans to refocus on maintenance-only stores and postpone 4S (sales, spare

parts, service, survey) store expansion plan.

We believe the GPM of new car sales may be the biggest single risk factor when forecasting the earnings of dealers. We see

pricing/GPM as stable in the near term for our China auto dealer coverage as a result of moderate sales target set by OEMs and the

current dealer inventory at a normalized level of about 1.5 months for most of the luxury brands. Nevertheless, any deceleration in

demand growth could potentially lead to dealer stock increase and price erosion, which in turn may hurt dealer new car sales

margin given the strong bargaining power of OEMs (OEMs may not fully compensate for dealer incentives).

Summary of earnings drivers of luxury car makers and dealers in 2014-16

In Exhibit 20, we summarize the key earnings drivers of luxury car makers and luxury car dealers in 2014-16, since the luxury sector

players, especially the luxury dealers are exposed to the same industrial trends.

Exhibit 20: Earnings drivers of luxury car makers and dealers

Source: Gao Hua Securities Research.

Players Positive drivers Negative drivers1. Luxury demand outpacing total car market as a result of surge in entry luxury segment;

1. Potential ASP/GPM decrease as a result of mix decrease;

2. Increasing model localization (replacing imports);

2. Higher local R&D cost;

3. Increasing localization of key components (e.g., engine);

3. GPM might normalize in long‐run as result of fierce competition (e.g., more 2nd tier luxury brands will localize their production in China);

4. Costs saving from economy of scale;5. Potential launching of China specific models (e.g., JV's local brands);6. Capacity increase;1. Listed dealers favored by OEMs when granting new store authorization;

1. Potential new car sales volume decrease of existing stores: OEM might open stores at a speed faster than volume growth;

2. Engagement with multiple luxury brands to avoid product cycle fluctuation of any single brand;

2. longer pay‐back from the newly opened stores;

3. Strength in management/finance/human resources;

3. New car sales GPM might decrease due to product mix decrease and fierce competition;

4. Strong growth in aftersales business and other value‐added services; Aftersales market is growing at a faster pace vs. new car sales market due to hiking number and aging luxury car fleet;

4. 4S stores' aftersales GPM might decrease in long‐run as owners of aging cars are more price sensitive and multi‐brands stores might compete at a lower price level;

5. New business model of "multi‐brands maintenance only stores";

5. Legal constraints in some core value‐added services: e.g., used car;

Luxury OEMs (Brilliance BMW as an example)

Luxury dealers, including: Zhongsheng/Zhengtong/Baoxin/Harmony



P/B-ROE still our preferred framework; Zhengtong/Baoxin/Harmony seem undervalued

We continue to use 2014E P/B vs. 2014E-16E average ROE as our valuation methodology because of its consistently high correlation

with share price movements over time (current R-squared at 0.8135 for H shares). Our P/B-ROE valuation framework suggests

Zhengtong, Baoxin and Harmony may be undervalued among H-share auto dealers, while Zhongsheng appears fairly valued. We

also keep our 10% premium on Baoxin due to its sustainable top-quartile ROE profile.

Exhibit 21: H-share P/B-ROE regression indicates Zhengtong, Baoxin and Harmony are undervalued 2014E P/B vs. 2014E-16E average ROE

Note: Reuters consensus EPS and BPS for Qingling, GH estimates for the rest.

Source: Datastream, Reuters, Gao Hua Securities Research.

R² = 0.8135

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0% 5% 10% 15% 20% 25% 30% 35%

Dongfeng

GAC

Geely

Sinotruk

Great Wall (H)

Weichai (H)

Brilliance

Minth

Qingling

Baoxin

Zhengtong

Zhongsheng

Xingda

BYD

Harmony



Valuation summary: Global auto dealers and H-share auto coverage

Exhibit 22: Valuation summary: Global auto dealers

Note: * denotes stock is on our regional Conviction List. Prices as of market close on February 21, 2014. NC = Not Covered; NC estimates are from Reuters/Bloomberg.

Source: Datastream, Reuters, Bloomberg, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Valuation Summary - Auto Parts ChinaTicker Company name Currency Rating Close Market cap EPS

2/21/2014 USD'mn

Growth %12-15 CAGR 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2012 2013E 2014E 2015E

0881.HK Zhongsheng HKD Neutral 11.20 2,253 41% 14.8 10.1 7.9 2.0 1.7 1.5 14% 18% 20% 1% 2% 3% 22% 10% 14% 15%1728.HK Zhengtong HKD Buy 4.45 861 31% 8.4 6.8 5.6 1.0 0.9 0.8 13% 14% 15% 2% 3% 4% 16% 16% 13% 15%1293.HK Baoxin HKD Buy 6.48 2,113 46% 10.2 7.7 5.7 2.6 2.0 1.6 29% 29% 31% 1% 2% 3% 17% 24% 24% 28%3836.HK Harmony HKD Buy 6.06 766 41% 7.8 5.4 4.7 1.9 1.4 1.1 39% 30% 26% 0% 0% 0% 25% 16% 18% 15%3669.HK Yongda HKD NC 7.38 1,409 19% 8.0 6.8 6.4 1.1 1.0 0.9 NA NA NA NA NA NA NA NA NA NA1828.HK Dah Chong Hong HKD NC 6.15 1,452 7% 6.7 5.6 5.3 0.9 0.8 0.8 NA NA NA NA NA NA NA NA NA NA

Off Shore Average 31% 9.3 7.1 6.0 1.6 1.3 1.1 24% 23% 23% 1% 2% 2% 20% 16% 17% 18%601258.SS Pangda CNY NC 5.31 2,276 218% 30.3 15.6 14.2 1.3 1.2 1.1 NA NA NA NA NA NA NA NA NA NA002607.SZ Yaxia CNY NC 6.35 238 23% 10.8 8.2 7.4 1.2 1.1 1.0 NA NA NA NA NA NA NA NA NA NA

On Shore Average 120% 20.6 11.9 10.8 1.3 1.1 1.0 NA NA NA NA NA NA NA NA NA NA

Global peersTicker Company name Currency Rating Close Market cap EPS

2/21/2014 USD'mn

Growth %12-15 CAGR 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2012 2013E 2014E 2015E

ASII.JK Astra International IDR Neutral 6,975.00 23,905 8% 14.9 14.6 11.5 3.5 3.1 2.6 25% 22% 25% 3% 3% 4% 19% 16% 18% 16%2207.TW Hotai Motor TWD Sell 365.00 6,582 2% 26.9 25.6 25.1 6.0 5.6 5.2 23% 23% 21% 2% 3% 3% 12% 14% 14% 14%

AEJ Average 5% 20.9 20.1 18.3 4.8 4.3 3.9 24% 23% 23% 3% 3% 3% 15% 15% 16% 15%INCH.L Inchcape GBP NC 624.50 4,565 10% 14.9 13.5 12.3 1.8 1.7 1.6 NA NA NA NA NA NA NA NA NA NAPDG.L Pendragon GBP NC 327.70 1,554 8% 12.7 11.7 11.3 1.1 1.1 1.0 NA NA NA NA NA NA NA NA NA NALOOK,L Lookers GBP NC 122.50 742 9% 16.3 15.1 13.6 NA NA NA NA NA NA NA NA NA NA NA NA NA

Europe Average 9% 14.6 13.5 12.4 1.5 1.4 1.3 NA NA NA NA NA NA NA NA NA NA7599.T Gulliver International JPY NC 562 616 1% 2.1 1.5 1.2 0.2 0.2 0.2 NA NA NA NA NA NA NA NA NA NA4732.T USS JPY NC 12,390 3,978 8% 18.3 17.8 17.2 2.6 2.5 2.5 NA NA NA NA NA NA NA NA NA NA9832.T Autobacs Seven JPY NC 1,422 1,355 3% 18.1 16.5 15.0 0.9 0.9 0.9 NA NA NA NA NA NA NA NA NA NA

Japan Average 4% 12.8 11.9 11.1 1.3 1.2 1.2 NA NA NA NA NA NA NA NA NA NASAH Sonic USD Neutral 22.89 1,254 9% 11.3 11.2 10.5 2.0 1.7 1.5 15% 17% 14% 0% 0% 0% 7% 7% 6% 7%GPI Group 1 USD Neutral 63.42 1,441 12% 13.5 10.8 9.9 1.6 1.4 1.3 13% 14% 14% 1% 1% 1% 9% 8% 8% 8%AN AutoNation USD Neutral 51.08 6,173 14% 15.7 15.1 13.5 2.8 2.7 2.3 20% 19% 18% 0% 0% 0% 9% 8% 8% 8%PAG Penske USD Sell 42.09 3,801 15% 13.1 13.2 12.1 2.1 2.0 1.8 18% 17% 16% 2% 2% 2% 8% 6% 8% 7%LAD Lithia Motors USD NC 67.13 1,924 10% 19.8 17.8 17.5 3.4 2.9 2.5 NA NA NA NA NA NA NA NA NA NA

American Average 12% 14.7 13.6 12.7 2.4 2.2 1.9 16% 17% 15% 1% 1% 1% 8% 7% 7% 8%

P/E P/B ROE Dividend yield CROCI




Exhibit 23: Valuation summary: Global auto companies

Note: * denotes stock is on our regional Conviction List. Prices as of market close on February 21, 2014.

Source: Datastream, Reuters, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Valuation Summary - Auto ChinaTicker Company name Currency Rating Close Market cap EPS

2/21/2014 USD'mn

Growth %12-15E CAGR 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

600104.SS SAIC CNY Buy 13.56 18,983 8% 6.5 6.1 5.7 1.1 1.0 0.9 18% 17% 16% 5% 5% 5% 31% 26% 24%0489.HK Dongfeng HKD Neutral 10.30 11,443 6% 6.5 6.6 6.4 1.1 1.0 0.9 18% 16% 14% 2% 2% 3% 20% 18% 16%2238.HK GAC HKD Buy 7.26 3,276 82% 12.0 7.4 5.3 1.1 1.0 0.8 9% 14% 17% 1% 2% 3% 12% 15% 16%1114.HK Brilliance HKD Neutral 12.24 7,881 29% 14.0 11.3 9.8 3.8 3.1 2.5 31% 30% 28% 2% 2% 3% 36% 28% 27%000625.SZ Changan (A) CNY Buy 10.41 7,189 69% 13.6 8.6 7.0 2.6 2.1 1.7 21% 27% 27% 1% 2% 4% 22% 23% 24%200625.SZ Changan (B) HKD Neutral 14.43 7,817 69% 14.9 9.4 7.6 2.9 2.3 1.9 21% 27% 27% 1% 2% 3% 22% 23% 24%2333.HK Great Wall (H) HKD Neutral 35.30 12,463 28% 10.2 8.0 7.0 3.1 2.4 2.0 34% 34% 31% 3% 4% 4% 44% 42% 38%601633.SS Great Wall (A) CNY Neutral 35.34 16,349 28% 12.9 10.2 8.9 3.9 3.1 2.5 34% 34% 31% 2% 3% 3% 36% 29% 39%0175.HK Geely HKD Buy* 3.01 2,269 22% 7.6 6.6 4.9 1.3 1.1 0.9 18% 18% 20% 1% 1% 2% 25% 24% 26%1211.HK BYD HKD Neutral 42.95 11,353 195% 136.9 52.9 38.1 3.6 3.4 3.1 3% 7% 9% 0% 0% 0% 11% 11% 11%600418.SS JAC CNY Neutral 8.70 1,843 37% 12.1 9.6 8.7 1.7 1.5 1.4 15% 17% 16% 2% 4% 5% 21% 20% 17%000800.SZ FAW Car CNY Neutral 11.41 3,053 238% 19.0 10.8 9.3 2.2 1.8 1.5 12% 18% 18% 0% 0% 0% 11% 16% 16%3808.HK Sinotruk HKD Sell 3.99 1,420 91% 19.8 13.4 10.0 0.5 0.4 0.4 2% 3% 4% 2% 2% 3% 9% 6% 7%000338.SZ Weichai (A) CNY Neutral 17.71 5,820 11% 9.2 9.5 8.7 1.3 1.2 1.0 15% 13% 13% 2% 3% 3% 22% 14% 13%2338.HK Weichai (H) HKD Sell 29.85 7,695 11% 12.4 12.4 11.5 1.7 1.5 1.4 15% 13% 13% 2% 2% 2% 22% 14% 13%

China Average 62% 20.5 12.2 9.9 2.1 1.8 1.5 18% 19% 19% 2% 2% 3% 23% 21% 21%China Average (excl. FAW Car/BYD) 38% 11.7 9.2 7.8 2.0 1.7 1.4 19% 20% 20% 2% 3% 3% 25% 22% 22%

Global peersTicker Company name Currency Rating Close Market cap EPS

2/21/2014 USD'mn

Growth %12-15E CAGR 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

MRTI.BO Maruti Suzuki India INR Neutral 1,675 7,772 21% 16.9 17.9 16.5 2.2 2.4 2.1 14% 14% 14% 1% 1% 1% 25% 15% 14%TAMO.BO Tata Motors INR Buy* 396 18,080 7% 8.3 7.3 7.1 2.3 2.3 1.7 30% 37% 28% 1% 1% 0% 14% 23% 21%

India Average 14% 12.6 12.6 11.8 2.2 2.3 1.9 22% 26% 21% 1% 1% 0% 19% 19% 18%005380.KS Hyundai Motor Co KRW Buy 228,000 46,841 6% 6.0 5.5 5.0 1.0 0.8 0.7 18% 16% 16% 1% 1% 1% 16% 15% 15%000270.KS Kia Motors KRW Neutral 53,500 19,852 -1% 5.7 5.9 5.7 1.1 0.9 0.8 20% 16% 15% 1% 1% 1% 15% 13% 13%

Korea Average 3% 5.8 5.7 5.3 1.0 0.9 0.8 19% 16% 15% 1% 1% 1% 15% 14% 14%PEUP.PA Peugeot EUR Buy* 13.04 6,143 -180% 15.1 5.1 0.6 0.6 0.5 -11% 4% 10% 0% 0% 0% 2% 5% 6%VOLVb.ST Volvo SEK Neutral 94.20 30,627 13% 53.3 26.6 11.9 2.5 2.5 2.2 4% 9% 19% 3% 3% 3% 6% 8% 10%SCVb.ST Scania SEK Not Rated 147.50 17,836 5% 17.6 19.0 15.5 2.9 2.9 2.7 17% 16% 18% 3% 3% 4% 10% 10% 11%RENA.PA Renault EUR Neutral 74.07 30,036 0% 10.8 10.1 8.4 1.0 0.9 0.8 8% 8% 10% 2% 3% 4% 6% 7% 8%BMWG.DE BMW EUR Buy 85.22 74,999 3% 10.7 10.7 10.1 1.6 1.5 1.4 16% 15% 14% 3% 3% 4% 14% 12% 11%PSHG_p.DE Porsche (pref) EUR Neutral 80.08 30,203 -18% 7.5 6.2 5.7 0.7 0.7 0.6 10% 11% 11% 0% 0% 0% 3% 2% 2%MANG.DE MAN SE EUR Neutral 93.35 18,817 61% 26.9 18.7 2.7 2.7 2.6 -1% 10% 14% 3% 3% 3% 1% 8% 9%DAIGn.DE Daimler AG EUR Buy* 67.13 98,201 16% 18.1 11.2 8.5 1.5 1.4 1.2 9% 13% 15% 3% 3% 4% 10% 11% 12%VOWG_p.DE Volkswagen (Pref) EUR Not Rated 201.00 121,178 -16% 10.0 8.9 8.2 1.1 1.0 0.9 12% 12% 12% 2% 3% 3% 9% 9% 9%

Europe Average -13% 18.3 15.0 10.2 1.6 1.6 1.4 7% 11% 14% 2% 2% 3% 7% 8% 9%7203.T Toyota Motor JPY Buy* 5,924 183,361 96% 11.7 9.6 8.8 0.9 1.4 1.2 8% 15% 15% 3% 3% 3% 14% 18% 18%7269.T Suzuki Motor JPY Neutral 2,676 14,574 30% 12.8 13.3 12.8 0.9 1.2 1.1 8% 9% 9% 1% 1% 1% 8% 9% 9%7201.T Nissan Motor JPY Neutral 918 37,469 6% 9.7 10.9 9.5 0.9 1.0 1.0 10% 9% 10% 3% 3% 3% 8% 13% 14%7261.T Mazda Motor JPY Neutral 492 14,374 -202% 12.6 13.0 8.0 0.9 2.4 1.9 7% 21% 27% 0% 0% 1% 3% 8% 11%7202.T Isuzu Motors JPY Buy 629 10,417 11% 8.1 8.5 8.5 1.5 1.7 1.5 20% 21% 18% 2% 2% 2% 12% 14% 14%7267.T Honda Motor JPY Buy* 3,680 64,824 49% 13.9 11.4 9.5 1.0 1.2 1.1 8% 11% 12% 3% 2% 3% 15% 14% 14%7205.T Hino Motors JPY Neutral 1,528 8,524 71% 8.0 11.0 10.6 1.4 2.7 2.3 20% 27% 23% 3% 3% 3% 10% 12% 12%7262.T Daihatsu Motor JPY Neutral 1,632 6,797 4% 7.9 8.5 9.4 1.3 1.2 1.1 17% 15% 13% 4% 3% 3% 12% 12% 11%7270.T Fuji Heavy Industries JPY Neutral 2,769 21,122 87% 5.5 9.1 8.6 1.1 2.7 2.2 23% 34% 28% 2% 2% 3% 10% 17% 17%

Japan Average 17% 10.0 10.6 9.5 1.1 1.7 1.5 14% 18% 17% 2% 2% 2% 10% 13% 13%F Ford Motor Co USD Buy 15.16 59,791 15% 9.5 10.9 7.2 3.2 2.6 2.0 38% 27% 33% 3% 3% 3% 12% 12% 15%GM General Motors Co USD Buy* 36.69 52,687 17% 10.5 9.2 7.0 1.4 1.4 1.2 16% 16% 19% 4% 3% 4% 22% 18% 21%

American Average 16% 10.0 10.0 7.1 2.3 2.0 1.6 27% 22% 26% 3% 3% 3% 17% 15% 18%





Adjusting earnings estimates and target prices across our China auto dealer coverage

Zhengtong: We expect: 1) The company to maintain a moderate but sustainable new store expansion of 15% per year, focusing

on high growth brands like JLR/Volvo/Audi/Porsche/BMW; 2) new luxury car sales revenue to post a c.10% 2014E-16E CAGR as a

result of c.15% volume growth, partly offset by ASP decline; 3) rapid growth in aftersales revenue at over 20% per year; and 4)

continued improvement in the cashflow situation (we estimate positive free cashflow in 2014-16). Taking into account the ASP

decline, we reduce our 2013E-15E EPS by 5%/5%/5%. Accordingly, we cut our 12-month P/B-ROE based target price to HK$5.98

(from HK$6.41). Implying 34% upside potential, our new target price is based on 2014E P/B of 1.3X, reflecting 14.6% 2014E-16E

average ROE (previously 1.4X and 14.9%). We believe Zhengtong’s current valuation is attractive at 7.7X 2014E P/E and 1.0X

2014E P/B vs. H-share sector average (excluding BYD) at 9.2X/1.5X. As such, we maintain our Buy rating.

Baoxin: We lower our 2013E-15E EPS by 13%/9%/10% mainly due to: 1) Slower-than-expected growth in gross margin as a

result of slow ramp-up of sales and weak GPM from new stores; (2) since Baoxin’s acquisition of Yanjun in 2012, profitability of

the latter has improved resulting from the integration of operations and strict cost control. Nevertheless, we see slower cost

savings from Yanjun; and 3) higher financing costs as major cost savings from new offshore loans with lower rates may take

effect from late-2013E, slower than our previous estimate. Baoxin is now focusing on expanding aftersales capacity for its

existing stores, especially for the matured stores acquired from Yanjun, which have been suffering from maintenance capacity

constraints. We expect the company to register rapid growth in aftersales revenue and other value added service revenue (e.g.,

commission income on insurance, auto financing and used car). Factoring in our earnings estimate revisions, we lower our 12-

month P/B-ROE based target price to HK$8.27 (from HK$8.97), implying 28% upside potential. Our new target price is based on

2014E P/B of 2.5X, reflecting 28.2% 2014E-16E average ROE (previously 2.6X and 29.2%). We believe Baoxin’s current valuation

is attractive at 8.8X 2014E P/E vs. H-share sector average (excluding BYD) at 9.2X. Hence, we maintain our Buy rating.

Harmony: During its analyst briefing in 2H13, the company stated its switch in strategic focus from obtaining authorization and

building more 4S stores to building multi-brands maintenance-only stores. As such, we believe there could be downside risks to

our revenue growth estimates from new car sales as a result of slower new 4S store expansion, partly offset by stronger

aftersales revenue contributed from multi-brands maintenance-only stores. As of end-2013, the company had established more

than 10 maintenance-only stores and is planning to rapidly roll out the network nationwide in the coming years. As

maintenance-only stores are primarily targeting cars whose warranty has expired and accident cars referred by insurance

companies, we estimate the price to be 10%-15% lower and GPM about 5 percentage points lower vs. the same service in 4S

stores. As a result, we lower our 2013E-15E EPS by 15%/13%/5%. Consequently, we cut our 12-month P/B-ROE based target

price to HK$7.65 (from HK$8.36). Implying 40% upside potential, our new target price is based on 2014E P/B of 2.2X, reflecting

25.6% 2014E-16E average ROE (previously 2.3X and 26.3%). We believe Harmony’s current valuation is attractive at 6.3X 2014E

P/E – one of the lowest among H-share auto peers – and 1.5X 2014E P/B vs. H-share sector average (excluding BYD) at 9.2X/1.5X.

Therefore, we maintain our Buy rating.



Zhongsheng: We maintain our Neutral rating, and adjust our 2013E-15E EPS by +4%/-3%/+1% mainly due to: 1) Stronger-than-

expected aftersales revenue due to rapid growth of its car alteration business and the recovery of its Japanese brands

maintenance business; 2) stronger long-term growth through speed-up of new store expansion with a stronger balance sheet

following the announced completion of a 20% new share issuance to a strategic investor on January 24, 2014; 3) reduction in

financing costs post new share issuance; and partly offset by 4) dilution resulting from new share issuance. Factoring in our

earnings estimate revisions, we raise our 12-month P/B-ROE based target price to HK$11.16 (from HK$10.88). Our new target

price is based on 2014E P/B of 1.6X, reflecting 18.3% 2014E-16E average ROE (previously 1.7X and 19.3%).

Exhibit 24: Summary of revisions to our earnings estimates

Source: Gao Hua Securities Research.

EPS change summary (Rmb)

New Old Diff. New Old Diff. New Old Diff.0881.HK Zhongsheng 0.63 0.60 4% 0.84 0.87 ‐3% 1.12 1.11 1%1293.HK Baoxin 0.44 0.51 ‐13% 0.60 0.66 ‐9% 0.80 0.89 ‐10%1728.HK Zhengtong 0.40 0.42 ‐5% 0.48 0.51 ‐5% 0.59 0.62 ‐5%3836.HK Harmony 0.46 0.54 ‐15% 0.68 0.78 ‐13% 0.85 0.90 ‐5%1114.HK Brilliance 0.69 0.69 0% 0.85 0.85 0% 0.98 0.98 0%

2013E 2014E 2015E



Zhengtong (1728.HK): Summary financials

Profit model (Rmb mn) 12/12 12/13E 12/14E 12/15E Balance sheet (Rmb mn) 12/12 12/13E 12/14E 12/15E

Total revenue 27,649.4 29,080.6 32,296.6 35,496.0 Cash & equivalents 1,202.8 2,534.8 1,919.9 1,795.8

Cost of goods sold (24,834.6) (26,011.7) (28,713.4) (31,405.5) Accounts receivable 375.7 478.0 530.9 583.5

SG&A (1,421.7) (1,424.9) (1,685.9) (1,923.9) Inventory 3,269.6 3,206.9 3,540.0 3,871.9

R&D -- -- -- -- Other current assets 3,988.0 3,788.7 3,998.2 3,998.2

Other operating profit/(expense) 203.5 262.5 299.6 347.0 Total current assets 8,836.0 10,008.5 9,989.1 10,249.5

EBITDA 1,596.6 1,906.5 2,196.9 2,513.6 Net PP&E 1,645.6 2,255.3 2,819.8 3,296.8

Depreciation & amortization (363.0) (301.4) (349.1) (389.3) Net intangibles 5,999.7 5,888.6 5,777.5 5,666.4

EBIT 1,233.7 1,605.0 1,847.8 2,124.3 Total investments 141.0 154.8 168.6 182.4

Interest income 16.4 17.1 36.1 27.3 Other long-term assets 319.8 328.1 346.3 363.4

Interest expense (403.9) (390.5) (377.3) (322.9) Total assets 16,942.2 18,635.3 19,101.3 19,758.4

Income/(loss) from uncons. subs. 19.4 13.8 13.8 13.8

Others 49.6 30.0 20.0 20.0 Accounts payable 3,536.7 3,278.2 3,618.7 3,958.0

Pretax profits 915.1 1,275.4 1,540.4 1,862.5 Short-term debt 3,694.1 2,694.1 1,894.1 1,094.1

Income tax (281.5) (362.9) (439.1) (531.8) Other current liabilities 767.7 944.0 981.1 1,026.2

Minorities (29.1) (31.0) (34.5) (38.1) Total current liabilities 7,998.5 6,916.3 6,493.8 6,078.3

Long-term debt 1,204.9 3,255.1 3,255.1 3,255.1

Net income pre-preferred dividends 604.5 881.6 1,066.8 1,292.6 Other long-term liabilities 938.3 927.2 927.7 928.2

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 2,143.1 4,182.3 4,182.8 4,183.3

Net income (pre-exceptionals) 604.5 881.6 1,066.8 1,292.6 Total liabilities 10,141.6 11,098.6 10,676.6 10,261.5

Post-tax exceptionals 0.0 0.0 0.0 0.0

Net income 604.5 881.6 1,066.8 1,292.6 Preferred shares 0.0 0.0 0.0 0.0

Total common equity 6,708.7 7,414.0 8,267.4 9,301.5

EPS (basic, pre-except) (Rmb) 0.27 0.40 0.48 0.59 Minority interest 91.8 122.8 157.3 195.4

EPS (basic, post-except) (Rmb) 0.27 0.40 0.48 0.59

EPS (diluted, post-except) (Rmb) 0.27 0.40 0.48 0.58 Total liabilities & equity 16,942.2 18,635.3 19,101.3 19,758.4

DPS (Rmb) 0.00 0.08 0.10 0.12

Dividend payout ratio (%) 0.0 20.0 20.0 20.0 BVPS (Rmb) 3.04 3.36 3.74 4.21

Free cash flow yield (%) (2.6) 3.6 4.6 11.3

Growth & margins (%) 12/12 12/13E 12/14E 12/15E Ratios 12/12 12/13E 12/14E 12/15E

Sales growth 91.4 5.2 11.1 9.9 CROCI (%) 16.4 15.5 12.5 15.0

EBITDA growth 78.7 19.4 15.2 14.4 ROE (%) 9.4 12.5 13.6 14.7

EBIT growth 51.0 30.1 15.1 15.0 ROA (%) 3.7 5.0 5.7 6.7

Net income growth 15.3 45.8 21.0 21.2 ROACE (%) 9.0 11.0 11.9 13.0

EPS growth 8.6 45.8 21.0 21.2 Inventory days 47.9 45.4 42.9 43.1

Gross margin 10.2 10.6 11.1 11.5 Receivables days 4.5 5.4 5.7 5.7

EBITDA margin 5.8 6.6 6.8 7.1 Payable days 52.0 47.8 43.8 44.0

EBIT margin 4.5 5.5 5.7 6.0 Net debt/equity (%) 54.4 45.3 38.3 26.9

Interest cover - EBIT (X) 3.2 4.3 5.4 7.2

Cash flow statement (Rmb mn) 12/12 12/13E 12/14E 12/15E Valuation 12/12 12/13E 12/14E 12/15E

Net income pre-preferred dividends 604.5 881.6 1,066.8 1,292.6

D&A add-back 363.0 301.4 349.1 389.3 P/E (analyst) (X) 17.6 8.7 7.2 6.0

Minorities interests add-back 29.1 31.0 34.5 38.1 P/B (X) 1.6 1.0 0.9 0.8

Net (inc)/dec working capital (430.9) (298.3) (45.5) (45.2) EV/EBITDA (X) 9.1 5.9 5.0 4.2

Other operating cash flow 256.6 166.1 (240.9) (30.4) EV/GCI (X) 1.3 0.9 0.8 0.7

Cash flow from operations 822.3 1,081.8 1,164.0 1,644.4 Dividend yield (%) 0.0 2.3 2.8 3.4

Capital expenditures (1,101.1) (800.0) (802.5) (755.1)

Acquisitions 0.0 0.0 0.0 0.0

Divestitures 224.8 0.0 0.0 0.0

Others 24.1 0.0 0.0 0.0

Cash flow from investments (852.2) (800.0) (802.5) (755.1)

Dividends paid (common & pref) 0.0 0.0 (176.3) (213.4)

Inc/(dec) in debt 678.6 1,050.2 (800.0) (800.0)

Common stock issuance (repurchase) 0.0 0.0 0.0 0.0

Other financing cash flows (542.6) 0.0 0.0 0.0

Cash flow from financing 135.9 1,050.2 (976.3) (1,013.4)

Total cash flow 106.0 1,332.0 (614.9) (124.1) Note: Last actual year may include reported and estimated data.

Source: Company data, Goldman Sachs Research estimates.



Baoxin (1293.HK): Summary financials



Cost of goods sold (16,382.2) (28,221.1) (32,418.1) (37,748.1) Accounts receivable 1,395.1 864.6 498.4 583.0

SG&A (721.8) (1,514.8) (1,691.7) (1,936.5) Inventory 2,174.7 3,247.4 3,730.3 4,343.6



EBITDA 1,195.6 2,169.6 2,743.2 3,472.0 Net PP&E 2,720.3 3,615.9 4,268.2 4,880.6

Depreciation & amortization (127.8) (270.9) (318.6) (377.1) Net intangibles 1,060.2 1,007.2 954.2 901.2






Pretax profits 917.9 1,481.2 2,044.4 2,731.2 Short-term debt 5,757.8 6,557.8 6,207.8 5,307.8

Income tax (190.9) (355.5) (511.1) (682.8) Other current liabilities 1,046.7 1,005.3 1,066.0 1,142.6


Long-term debt 1,145.4 1,145.4 1,145.4 1,145.4

Net income pre-preferred dividends 715.8 1,106.3 1,510.7 2,021.7 Other long-term liabilities 269.3 282.8 296.9 311.8


Net income (pre-exceptionals) 715.8 1,106.3 1,510.7 2,021.7 Total liabilities 12,635.1 13,553.0 13,956.3 14,009.3


Net income 715.8 1,106.3 1,510.7 2,021.7 Preferred shares 0.0 0.0 0.0 0.0





DPS (Rmb) 0.08 0.07 0.09 0.12


Free cash flow yield (%) (9.5) (3.7) 8.8 9.8




EBIT growth 14.1 77.8 27.7 27.6 ROA (%) 5.9 6.3 7.8 9.6








Net income pre-preferred dividends 715.8 1,106.3 1,510.7 2,021.7



Net (inc)/dec working capital 129.6 (396.4) 561.7 163.6 EV/EBITDA (X) 14.6 8.3 6.2 4.6

Other operating cash flow (905.2) (374.8) (362.8) (388.0) EV/GCI (X) 2.1 1.8 1.6 1.4

Cash flow from operations 79.2 625.5 2,050.8 2,201.0 Dividend yield (%) 1.6 1.3 1.8 2.4

Capital expenditures (1,337.5) (1,098.7) (905.6) (925.3)

Acquisitions (645.0) 0.0 0.0 0.0


Others (1.0) (51.6) (50.8) (51.7)

Cash flow from investments (1,983.5) (1,150.3) (956.4) (977.0)

Dividends paid (common & pref) 0.0 (207.3) (165.9) (226.6)

Inc/(dec) in debt 2,651.0 800.0 (350.0) (900.0)

Common stock issuance (repurchase) 0.0 0.0 0.0 0.0

Other financing cash flows (962.6) 9.2 10.7 12.6

Cash flow from financing 1,688.4 601.9 (505.2) (1,114.0)

Total cash flow (215.9) 77.1 589.2 110.1 Note: Last actual year may include reported and estimated data.




Harmony (3836.HK): Summary financials


Total revenue 5,656.7 8,468.2 11,509.8 13,947.8 Cash & equivalents 342.7 1,672.8 1,440.5 1,504.4

Cost of goods sold (4,955.2) (7,398.9) (9,841.2) (11,775.5) Accounts receivable 59.1 88.5 120.3 145.8

SG&A (308.6) (482.7) (753.9) (1,018.2) Inventory 710.6 1,277.1 1,752.5 2,161.5



EBITDA 459.4 781.3 1,179.4 1,488.8 Net PP&E 1,149.9 1,726.3 2,325.2 2,860.9

Depreciation & amortization (38.1) (62.4) (97.6) (137.0) Net intangibles 1.1 0.3 (0.5) (1.2)

EBIT 421.3 718.9 1,081.8 1,351.8 Total investments 6.2 6.2 6.2 6.2




Others 161.8 94.1 23.0 18.0 Accounts payable 818.1 1,378.4 1,833.4 2,193.8

Pretax profits 475.3 687.6 992.5 1,245.8 Short-term debt 1,777.8 2,277.8 2,277.8 2,477.8

Income tax (124.6) (180.2) (248.1) (311.4) Other current liabilities 882.3 374.3 508.7 616.4

Minorities 0.1 0.2 0.2 0.3 Total current liabilities 3,478.2 4,030.5 4,619.9 5,288.0

Long-term debt 290.0 290.0 290.0 290.0

Net income pre-preferred dividends 350.8 507.6 744.6 934.6 Other long-term liabilities 4.9 9.3 9.3 9.3

Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 294.9 299.3 299.3 299.3

Net income (pre-exceptionals) 350.8 507.6 744.6 934.6 Total liabilities 3,773.1 4,329.7 4,919.2 5,587.3


Net income 350.8 507.6 744.6 934.6 Preferred shares 0.0 0.0 0.0 0.0

Total common equity 588.8 2,347.6 3,092.2 4,026.8




DPS (Rmb) 0.00 0.00 0.00 0.00


Free cash flow yield (%) -- (9.2) (5.3) (3.3)




EBIT growth 41.6 70.7 50.5 25.0 ROA (%) 9.7 9.2 10.1 10.5








Net income pre-preferred dividends 350.8 507.6 744.6 934.6

D&A add-back 38.1 62.4 97.6 137.0 P/E (analyst) (X) NM 9.2 6.3 5.0

Minorities interests add-back (0.1) (0.2) (0.2) (0.3) P/B (X) NM 2.0 1.5 1.2

Net (inc)/dec working capital (323.5) (35.6) (52.3) (74.1) EV/EBITDA (X) -- 7.2 5.0 4.0

Other operating cash flow 25.7 (329.9) (343.4) (482.3) EV/GCI (X) -- 1.7 1.3 1.1

Cash flow from operations 91.0 204.3 446.4 515.0 Dividend yield (%) NM 0.0 0.0 0.0

Capital expenditures (877.8) (638.0) (695.8) (671.9)



Others (339.4) 0.0 0.0 0.0

Cash flow from investments (1,202.1) (638.0) (695.8) (671.9)

Dividends paid (common & pref) 0.0 0.0 0.0 0.0

Inc/(dec) in debt 1,208.2 500.0 0.0 200.0

Common stock issuance (repurchase) 0.0 1,251.2 0.0 0.0

Other financing cash flows 66.2 12.5 17.1 20.8

Cash flow from financing 1,274.4 1,763.8 17.1 220.8

Total cash flow 163.3 1,330.1 (232.3) 63.8 Note: Last actual year may include reported and estimated data.




Zhongsheng (0881.HK): Summary financials



Cost of goods sold (45,271.3) (51,164.6) (59,330.5) (65,175.9) Accounts receivable 578.2 780.5 908.2 1,003.2

SG&A (2,790.0) (3,221.9) (3,715.7) (4,104.4) Inventory 6,346.7 6,308.0 7,314.7 8,035.4


Other operating profit/(expense) 624.1 767.5 992.5 1,169.5 Total current assets 18,856.9 19,261.6 21,112.0 22,437.9

EBITDA 2,611.1 3,359.6 4,244.1 5,121.7 Net PP&E 5,040.0 6,668.2 8,031.2 9,314.1

Depreciation & amortization (493.1) (609.2) (694.3) (774.5) Net intangibles 4,505.1 4,312.7 4,120.3 3,927.9


Interest income 40.5 37.0 58.0 45.0 Other long-term assets 3,043.1 3,253.8 3,519.9 3,704.0

Interest expense (1,032.1) (1,051.3) (1,051.3) (1,020.0) Total assets 31,494.9 33,551.5 36,843.9 39,449.6



Pretax profits 1,156.6 1,766.3 2,586.8 3,402.5 Short-term debt 14,373.7 15,373.7 14,373.7 14,373.7

Income tax (291.0) (440.9) (645.7) (849.4) Other current liabilities 1,810.2 1,896.2 2,014.8 2,133.7


Long-term debt 1,946.7 1,946.7 1,946.7 1,946.7

Net income pre-preferred dividends 750.5 1,193.3 1,786.2 2,380.8 Other long-term liabilities 778.6 779.1 779.6 780.1


Net income (pre-exceptionals) 750.5 1,193.3 1,786.2 2,380.8 Total liabilities 22,665.0 23,640.3 23,341.0 23,876.8


Net income 750.5 1,193.3 1,786.2 2,380.8 Preferred shares 0.0 0.0 0.0 0.0


EPS (basic, pre-except) (Rmb) 0.39 0.63 0.84 1.12 Minority interest 1,291.2 1,417.8 1,566.3 1,731.5



DPS (Rmb) 0.08 0.13 0.17 0.22


Free cash flow yield (%) (8.7) (6.4) (0.3) 4.3



EBITDA growth (15.2) 28.7 26.3 20.7 ROE (%) 10.3 14.9 17.5 18.5

EBIT growth (22.1) 29.9 29.1 22.5 ROA (%) 2.5 3.7 5.1 6.2

Net income growth (47.0) 59.0 49.7 33.3 ROACE (%) 8.9 9.4 11.0 12.6

EPS growth (47.0) 59.0 34.0 33.3 Inventory days 51.3 45.1 41.9 43.0






Net income pre-preferred dividends 750.5 1,193.3 1,786.2 2,380.8



Net (inc)/dec working capital (2,526.7) (274.8) (552.7) (399.3) EV/EBITDA (X) 12.2 9.4 7.6 6.2

Other operating cash flow 1,282.5 (782.3) (270.9) (188.9) EV/GCI (X) 1.6 1.4 1.3 1.2

Cash flow from operations 114.4 877.4 1,811.8 2,739.5 Dividend yield (%) 0.8 1.4 1.9 2.5

Capital expenditures (1,819.8) (2,045.0) (1,865.0) (1,865.0)



Others (1,220.5) 0.0 0.0 0.0

Cash flow from investments (3,040.3) (2,045.0) (1,865.0) (1,865.0)

Dividends paid (common & pref) (247.9) (152.7) (238.7) (357.2)

Inc/(dec) in debt 3,945.3 1,000.0 (1,000.0) 0.0

Common stock issuance (repurchase) 0.0 0.0 2,014.2 0.0

Other financing cash flows (1,162.5) (5.4) (6.4) (7.1)

Cash flow from financing 2,534.9 841.9 769.2 (364.3)

Total cash flow (391.0) (325.7) 716.0 510.2 Note: Last actual year may include reported and estimated data.




Disclosure Appendix

Reg AC

We, Yipeng Yang and Yuqian Ding, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities.

We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth,

returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage

universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,

ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month

volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make

comparisons between companies in different sectors and markets.

GS SUSTAIN

GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well

positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on

quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the

environmental, social and governance issues facing their industry).

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Yipeng Yang: China Alternative Energy & Utilities, China Autos, China Transportation.

China Alternative Energy & Utilities: Beijing Jingneng Clean Energy, CLP Holdings, China High Speed Transmission Equipment Group, China Longyuan Power, China Power International, China

Resources Power, China Yangtze Power, Datang Int'l Power Generation, Datang International Power Generation (A), Dongfang Electric Corporation Limited (A), Dongfang Electric Corporation Limited

(H), Guangdong Investment, Harbin Electric, Hong Kong & China Gas, Huadian Power International (A), Huadian Power International (H), Huaneng Power International (A), Huaneng Power International

(ADR), Huaneng Power International (H), Huaneng Renewables Corporation, Power Assets Holdings, Shanghai Electric Group, Xinjiang Goldwind Science & Technology (A), Xinjiang Goldwind Science

& Technology (H).

China Autos: Anhui Jianghuai Automobile Co., BYD Company, Baoxin Auto Group, Brilliance China Automotive Holdings, China Harmony Auto Holding Ltd, Chongqing Changan Auto (A), Chongqing

Changan Auto (B), Dongfeng Motor, FAW Car, Geely Automobile Holdings, Great Wall Motor Co., Great Wall Motor Co.(A), Guangzhou Automobile Group Co, Huayu Automotive Systems, Minth

Group, SAIC Motor, Sinotruk (Hong Kong), Weichai Power (A), Weichai Power (H), Xingda International, Zhengtong Auto Services Holdings, Zhongsheng Group Holdings.

China Transportation: AVIC Aircraft, AVIC Avionics, AviChina, Daqin Railway, Guangshen Railway (A), Guangshen Railway (H), Hafei Aviation, Hongdu Aviation, Xian Aero-Engine.

Company-specific regulatory disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of

Goldman Sachs and referred to in this research.

Goldman Sachs has received compensation for investment banking services in the past 12 months: Brilliance China Automotive Holdings (HK$12.04) and China Harmony Auto Holding Ltd (HK$5.49)

Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Baoxin Auto Group (HK$6.49), Brilliance China Automotive Holdings

(HK$12.04), China Harmony Auto Holding Ltd (HK$5.49), Zhengtong Auto Services Holdings (HK$4.45) and Zhongsheng Group Holdings (HK$10.94)

Goldman Sachs had an investment banking services client relationship during the past 12 months with: Baoxin Auto Group (HK$6.49), Brilliance China Automotive Holdings (HK$12.04) and China

Harmony Auto Holding Ltd (HK$5.49)

Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: China Harmony Auto Holding Ltd (HK$5.49)

Goldman Sachs makes a market in the securities or derivatives thereof: Brilliance China Automotive Holdings (HK$12.04)



Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

Global 32% 54% 14% 53% 45% 36%

As of January 1, 2014, Goldman Sachs Global Investment Research had investment ratings on 3,637 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment

Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage

groups and views and related definitions' below.

Price target and rating history chart(s)

Baoxin Auto Group (1293.HK)

8.97

7.32

6.777.21

8.469.21

6.08

2.003.004.005.006.007.008.009.00

10.00

8,000

9,000

10,000

11,000

12,000

13,000

14,000Goldman Sachs rating and stock price target history

Stock Price Currency : Hong Kong Dollar

Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2013.

The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.

Rating

Price target

Price target at removal

Covered by Yipeng Yang,as of Oct 3, 2012

Not covered by current analyst

Hang Seng China Ent. Index

Inde

x Pr

ice

Stoc

k Pr

ice Oct 3

FB

M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2011 2012 2013

Zhengtong Auto Services Holdings (1728.HK)

6.41

6.15.22

4.86

5.066.82

4.84

2.00

4.00

6.00

8.00

10.00

12.00

8,000

9,000

10,000

11,000

12,000

13,000





Rating

Price target





Inde

x Pr

ice

Stoc

k Pr

ice Oct 3 Jul 17

NF

BM A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

2011 2012 2013

China Harmony Auto Holding Ltd (3836.HK)

8.36

8.087.64

8.06

4.00

5.00

6.00

7.00

8.00

9.00

8,000

9,000

10,000

11,000

12,000

13,000





Rating

Price target


Covered by Yipeng Yang,as of Jul 17, 2013



Inde

x Pr

ice

Stoc

k Pr

ice Jul 17

FB


Zhongsheng Group Holdings (0881.HK)

10.888.64

8.719.64

10.1311.15

9.15

5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

8,000

9,000

10,000

11,000

12,000

13,000





Rating

Price target





Inde

x Pr

ice

Stoc

k Pr

ice Oct 3

FN


Brilliance China Automotive Holdings (1114.HK)

11.8910.02

9.21

10.1811.25

9.538.98

8.638.66

9.969.68

7.67

5.00

7.00

9.00

11.00

13.00

15.00

8,000

9,000

10,000

11,000

12,000

13,000





Rating

Price target


Covered by Yipeng Yang,as of Dec 15, 2011



Inde

x Pr

ice

Stoc

k Pr

ice Dec 15 May 24 Jan 17

NA N BF

NM A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

2011 2012 2013



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