In August, sales of the auto industry fell by 3.8% year-on-year, and the downward trend narrowed by 0.2 percentage points from July. Follow-up ushered in the golden nine silver and ten sales season, the industry's sales growth is expected to continue to narrow, the prosperity is expected to gradually pick up. Due to the impact of sales shifts caused by the early completion of the target by the end of last year, the industry's sales growth in December is expected to turn positive. Looking at the industry's sales trend in the whole year, it will gradually decline after reaching a stage high in April, reaching the bottom in July and August, and the follow-up is expected to rebound. The annual sales trend may be “N” shaped, which is in line with our expectations in the medium-term strategy report. .

 

Industry fundamentals to warm up + promote consumption policy to benefit the car market, industry valuation is expected to be quickly repaired

 

On September 20, the central government issued the "Several Opinions on Improving the Mechanism of Promoting Consumption and Further Stimulating the Consumption Potential of Residents". The opinions pointed out: (1) Promote the optimization and upgrading of automobile consumption, encourage and guide rural residents to increase automobile consumption, and the rural market is expected Become a new growth point in car sales. (2) Strengthen the construction of urban parking lots and new energy vehicle charging facilities to solve the worries of consumers. We believe that the automotive industry is expected to benefit substantially from this policy of promoting consumption. In the context of the gradual improvement of the fundamentals of the industry, the promotion of consumption policies will be stimulated, and the industry valuation is expected to be quickly repaired. Vehicles and parts companies are expected to benefit.

 

Tax reform is about to be implemented, and the stimulus for automobile consumption is expected to exceed expectations.

 

This round of tax reform will be officially implemented in October. According to our previous report, the monthly income of the residents with a monthly income of 14,000 yuan after deducting the three insurances and one gold will increase by at least 930 yuan under the new tax policy. Residents' income levels and purchasing power will help to unleash new car purchases and redemption needs, boosting auto market growth and industry valuations.

 

Growth component companies and new product cycle vehicle companies ushered in layout moments

 

Since the automobile industry's business climate has gradually declined since 2017, the profit growth rate has slowed down. The industry's overall valuation PE (TTM) has dropped from 20 times in the beginning of 2017 to the current 15 times. The current industry valuation is already in the bottom range. The valuation of the sub-sections of the parts and components has been going down all the way, from 35 times at the beginning of 2017 to the current 16 times. We believe that with the opening of the FAW Volkswagen product cycle, the upstream supporting parts companies will have higher performance growth in the next three years. At the time of the current low valuation + industry boom recovery, we have already welcomed the layout opportunities, recommending Ningbo Huaxiang, FAW Fuwei, Fuao shares, and Xingyu shares. In terms of vehicle, the new product cycle is expected to resonate with the industry's prosperity and benefit from the industry's valuation recovery + high performance. The whole vehicle company is the first to promote SAIC and BYD, and the valuation of other auto stocks is also expected to be repaired.

 

Risk warning: The implementation of the policy was not as good as expected, and the industry's economic recovery was less than expected.