[20081120] Comment on Automobile Sales in October-20081120 Shanghai Securities

Demand for Passenger Vehicles Improves
—Comment on Automobile Sales in October
Main Viewpoints:
Demand in automobile market continues improving in October
After experiencing the gloomy days in July and August, market demand of automobile achieved further improvement in October on the basis of September with a year-on-year growth of 3.4%, seeing increase for two consecutive months. We think the main reason is that international price of crude oil remains at low and passenger vehicle market gradually recovers under such circumstance.
Demand for passenger vehicles improves significantly
Sales of passenger vehicles rose 8.4% year on year in October, five percentage points higher than the average level in the industry. The main reason of this great improvement in the market of passenger vehicles  is the influence caused by the price rise of product oil in June has already faded away and the international oil price kept declining, which gradually magnifies the expectation that the price of domestic product oil might drop. In addition, comparing with commercial vehicles, passenger vehicles are relatively less affected by the slide of economic prosperity as durable consumables.  
Demand for commercial vehicles is still at low ebb
The decline of trucks sales in October is five percentage points higher than that of September. Demand remains gloomy. The decline of sales of buses saw some improvement comparing with that in September but the accumulated growth rate from January to October is still remarkably lower than industrial average level. The fall in the market of commercial vehicles is more serious and demand is at low ebb without any clear evident for improvement. 
Tianjin FAW Xiali Automobile takes the lead
Tianjin FAW Xiali Automobile saw the best market performance in October. Company’s small-displacement vehicles are more popular. Meanwhile, the sales volume of Corolla produced by Tianjin FAW-Toyota maintains high growth. As the sales of Besturn, the sedan of FAW Car already reached high at the end of last year, so it is difficult to break through the sales volume depending on existing vehicles. Two new cars that will go on the market at the end of this year and the beginning of next year will hopefully make further improvement to the sales volume. Sales volume of heavy truck companies such as CNHTC Jinan Truck Appliance kept sliding due to the weak demand. 
Investment Suggestion:
Rating: Neutral rating to automobile and component industry for next 12 months.
Focus on companies with valuation advantage. We recommend FAW Cars whose new cars will go on the market, which could help to increase sales volume significantly. At the same time, we suggest investors pay attention to heavy truck companies such as Weichai Power, CNHTC Jinan Truck Appliance and Beiqi Futian Automobile whose gross profit margins are expected to improve.