saic motor corp ltd - research-doc.credit-suisse.com

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22 August 2014

Asia Pacific/China

Equity Research

Automobile Manufacturers

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) INITIATION

Best value OEM with decent growth

■ Initiate with OUTPERFORM and Rmb24.50 TP (43% potential upside).

SAIC Motor is the largest auto group in China, with 24% market share in 1H14.

Its JVs with GM and VW contribute 97% to the group's total profit. Besides its

decent earnings growth (15% CAGR in 2014-16), we regard SAIC as the best

value stock on: (1) cheap valuation: 6.6x/ 5.6x 2014/15E P/E and 1.2x P/B; (2)

strong balance sheet: net cash accounts for 40% market cap; (3) high dividend

yield at 7.6%—the highest in the China auto universe.

■ Aggressive new models to drive up sales and margins. After 2013's weak

new product debuts (only 4 new models), SAIC entered a strong model cycle in

2014 with 10/12/13 new models lined up for 2014/15/16, especially in high-

margin/high-growth segments, i.e., SUVs, luxury brands and large sedans. In

particular, Shanghai GM will add ≥ 4 new models each year, with 3 SUVs (Trax,

Envision, SRX) and 4 large sedans (ATS, P-lux, Malibu, Lacrosse) in 2014-16.

■ Fuel-saving leader to benefit from release of list of new fuel-efficient car

models eligible for subsidy. The long-awaited list of Rmb3,000/unit fuel-

efficient car models eligible for subsidy is likely to be released in 2H14 after

fuel saving criteria was raised by 4-6% in 4Q13 by the Chinese gov’t. SAIC

should benefit from this, thanks to advanced technology: turbo engine and

double clutch transmission (DCT) across the board—GM, VW and Roewe/MG.

■ Valuation: Our Rmb24.50 target price is based on 8x 2015E EPS (9.4x 2014E

EPS), in line with HK-listed peers, justified by upcoming SH-HK Stock Connect.

■ Risks: Downside risks include a potential anti-monopoly investigation, which

could hurt margin, and a potential increase in losses at its local brands

operation (Roewe and MG brand PV).

Share price performance

80

100

120

140

160

10

15

20

Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

SHANGHAI SE COMPOSITE INDEX which closed at 2230.46

on 21/08/14

On 21/08/14 the spot exchange rate was Rmb6.15/US$1

Performance over 1M 3M 12M Absolute (%) 3.4 16.6 30.6 — Relative (%) -4.1 6.9 23.0 —

Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Revenue (Rmb mn) 565,807.0 655,141.7 739,472.8 813,656.8 EBITDA (Rmb mn) 23,872.4 28,131.7 37,282.6 47,455.3 EBIT (Rmb mn) 18,894.8 22,485.4 30,863.9 40,212.4 Net profit (Rmb mn) 24,803.6 28,757.2 33,709.8 37,860.3 EPS (CS adj.) (Rmb) 2.25 2.61 3.06 3.43 Change from previous EPS (%) n.a. Consensus EPS (Rmb) n.a. 2.52 2.82 3.01 EPS growth (%) 19.5 15.9 17.2 12.3 P/E (x) 7.6 6.6 5.6 5.0 Dividend yield (%) 7.0 7.6 8.9 10.0 EV/EBITDA (x) 5.5 4.3 2.8 1.6 P/B (x) 1.4 1.2 1.1 1.0 ROE (%) 19.1 19.8 21.0 21.2 Net debt/equity (%) net cash net cash net cash net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORM* Price (21 Aug 14, Rmb) 17.10 Target price (Rmb) 24.50¹ Upside/downside (%) 43.3 Mkt cap (Rmb mn) 188,537 (US$ 30,641) Enterprise value (Rmb mn) 120,157 Number of shares (mn) 11,025.57 Free float (%) 18.9 52-week price range 17.7 - 12.3 ADTO - 6M (US$ mn) 57.2

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

Research Analysts

Bin Wang

852 2101 6702

[email protected]

Mark Mao

852 2101 6710

[email protected]

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 2

Focus charts Figure 1: GM & VW JVs' new model #, share amid globals Figure 2: SAIC net profit breakdown by operation

4 6 8 10

28

36

46

48

14%

17% 17%

21%

0%

5%

10%

15%

20%

25%

-

10

20

30

40

50

60

70

2013 2014E 2015E 2016E

model #

GM + VW model # Total Global brand model #GM + VW as % of total global

51% 50% 52% 49% 49%

46% 39% 39% 40% 38%

7%7% 6% 6% 7%

-13% -14% -12% -8% -6%

9%8% 9% 9% 8%

1% 10% 5% 4% 4%

2012 2013 2014e 2015e 2016e

others Huayu (60.1%)

SAIC-Motor (100% stake) SAIC-GM-Wuling (50.1% stake)

SAIC-GM (50% stake) SAIC-VW (50% stake)

Source: Global insight, Company data, Credit Suisse estimates Source: Credit Suisse estimates

Figure 3: SAIC net profit breakdown by model (2015 E) Figure 4: SAIC earnings growth forecast

Tiguan, 18%

Passat, 14%

Lavida, 9%

Cruze, 6%Envision, 4%GL8, 4%

Excelle GT / XT, 4%

Excelle, 3%

Regal, 3%

Others, 35%

16

20 21

25

29

34

38 23%

3%

20%

16%17%

12%

0%

5%

10%

15%

20%

25%

-

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014e 2015e 2016e

Rmb Bn

Thou

sand

s

Earnings YoY

Source: Global insight, Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 5: SAIC sales volume growth Figure 6: SAIC blend ASP growth

3.64.0

4.5

5.15.8

6.6

7.2

11%12%

14% 15%

12% 10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014e 2015e 2016e

million unit

Mill

ions

Total volume YoY

87,959

90,950

92,548

94,099

95,614 96,272 96,293

3%

2% 2%2%

1%

0%

0%

1%

1%

2%

2%

3%

3%

4%

4%

82,000

84,000

86,000

88,000

90,000

92,000

94,000

96,000

98,000

2010 2011 2012 2013 2014e 2015e 2016e

Rmb

ASP (Rmb) YoY

Source: Global insight, Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 3

Best value OEM with decent growth Initiate with OUTPERFORM and Rmb24.50 TP

We initiate on SAIC Motor with an OUTPERFORM rating and Rmb24.50 target price

(implying 43% potential upside). SAIC is the largest auto group in China with 24% market

share in 1H14. Its JVs with GM and VW contribute 97% to the group's total profit. Besides

its decent earnings growth (15% CAGR in 2014-16), we regard SAIC as the best value

stock because of: (1) cheap valuation: 6.6x/5.6x 2014/15E P/E and 1.2x P/B; (2) strong

balance sheet: net cash accounts for 40% market cap; (2) high dividend yield at 7.6%—

the highest in the China auto universe.

Aggressive new models to drive up sales and

margins

After 2013's weak new products debut (only four new models), SAIC entered a strong

model cycle in 2014 with 10/12/13 new models lined up for 2014/15/6, especially in the

high margin/high growth segments, i.e., SUVs, luxury brands and large sedans.

Luxury – Cadillac ATS L (Aug 14), P-Lux (4Q15) and SRX (1Q 16)

SUV – Chevy Trax (Apr 14), Buick Envision (Sep 14), MG CS (Oct 14), Baojun SUV

(3Q 15), VW Cross blue (3Q16) and new Skoda SUV (4Q16)

Large sedan– new Chevy Malibu (3Q15), new Skoda SuperB (3Q15), new VW Passat

(4Q15), new Buick LaCross (1Q16) and VW E-sedan (1Q16)

Fuel-saving leader to benefit from release of list of

new fuel-efficient car models eligible for subsidy

The long-awaited list of Rmb3,000/unit fuel-efficient car models eligible for subsidy is likely

to be released in 2H14, after fuel saving criteria was raised by 4-6% in 4Q13 by the

Chinese gov’t. SAIC should benefit from the list release, thanks to advanced technology:

turbo engine and double clutch transmission (DCT) across the board—GM, VW and

Roewe/MG.

Valuation

Our Rmb24.50 target price is based on 8x 2015E EPS (9.4x 2014E EPS), in line with HK-

listed peers, justified by upcoming SH-HK Stock Connect.

Risks

Downside risks include the potential anti-monopoly investigation, which could hurt margin,

and a potential increase in losses at its local brands operation (Roewe and MG brand PV).

Upside risk is more models eligible for fuel-efficient cars subsidy could boost sales volume.

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 4

SAIC Motor Corp Ltd 600104.SS / 600104 CH Price (21 Aug 14): Rmb17.10, Rating: OUTPERFORM, Target Price: Rmb24.50, Analyst: Bin Wang

Target price scenario

Scenario TP %Up/Dwn Assumptions

Upside Central Case 24.50 43.27 Downside

Key earnings drivers 12/13A 12/14E 12/15E 12/16E

Sales volume 5,088,937

5,834,215

6,556,210

7,218,710 — — — —

— — — — — — — — — — — —

Income statement (Rmb mn) 12/13A 12/14E 12/15E 12/16E

Sales revenue 565,807 655,142 739,473 813,657 Cost of goods sold 491,712 567,295 634,724 692,061 SG&A 53,075 62,238 70,250 77,297 Other operating exp./(inc.) (2,852) (2,524) (2,783) (3,157) EBITDA 23,872 28,132 37,283 47,455 Depreciation & amortisation 4,978 5,646 6,419 7,243 EBIT 18,895 22,485 30,864 40,212 Net interest expense/(inc.) (266) (711) (822) (1,049) Non-operating inc./(exp.) (3,125) (3,000) (3,000) (3,000) Associates/JV 25,456 27,911 31,624 34,836 Recurring PBT 41,493 48,108 60,310 73,097 Exceptionals/extraordinaries — — — — Taxes 5,909 6,059 8,606 11,478 Profit after tax 35,584 42,049 51,705 61,618 Other after tax income — — — — Minority interests 10,780 13,292 17,995 23,758 Preferred dividends — — — — Reported net profit 24,804 28,757 33,710 37,860 Analyst adjustments — — — — Net profit (Credit Suisse) 24,804 28,757 33,710 37,860

Cash flow (Rmb mn) 12/13A 12/14E 12/15E 12/16E

EBIT 18,895 22,485 30,864 40,212 Net interest 266 711 822 1,049 Tax paid (5,909) (6,059) (8,606) (11,478) Working capital 1,767 2,073 1,160 619 Other cash & non-cash items 5,584 4,832 4,673 6,240 Operating cash flow 20,603 24,042 28,913 36,642 Capex (15,659) (12,155) (12,155) (12,155) Free cash flow to the firm 4,943 11,887 16,758 24,487 Disposals of fixed assets 415.1 — — — Acquisitions — — — — Divestments — — — — Associate investments — — — — Other investment/(outflows) 37,954 12,940 15,040 16,856 Investing cash flow 22,710 785 2,885 4,701 Equity raised — — — — Dividends paid (13,339) (13,231) (14,379) (16,855) Net borrowings 16,286 1,500 1,500 1,500 Other financing cash flow (18,629) — — — Financing cash flow (15,682) (11,731) (12,879) (15,355) Total cash flow 27,630 13,096 18,919 25,988 Adjustments (150.6) — — — Net change in cash 27,480 13,096 18,919 25,988

Balance sheet (Rmb mn) 12/13A 12/14E 12/15E 12/16E

Cash & cash equivalents 74,278 87,374 106,293 132,281 Current receivables 52,029 60,244 67,999 74,820 Inventories 30,915 35,667 39,906 43,511 Other current assets 74,963 80,023 84,799 89,001 Current assets 232,184 263,307 298,997 339,613 Property, plant & equip. 38,131 43,874 48,786 52,816 Investments 59,526 71,829 85,733 101,019 Intangibles 5,711 5,759 5,535 5,038 Other non-current assets 38,089 38,089 38,089 38,089 Total assets 373,641 422,859 477,140 536,575 Accounts payable 65,469 75,533 84,510 92,145 Short-term debt 11,230 11,914 12,598 13,282 Current provisions — — — — Other current liabilities 109,641 119,669 128,622 136,235 Current liabilities 186,340 207,116 225,730 241,662 Long-term debt 6,264 7,080 7,896 8,712 Non-current provisions 5,296 5,296 5,296 5,296 Other non-current liab. 14,009 14,009 14,009 14,009 Total liabilities 211,909 233,501 252,931 269,678 Shareholders' equity 137,757 152,092 168,947 187,877 Minority interests 23,975 37,266 55,261 79,019 Total liabilities & equity 373,641 422,859 477,140 536,575

Per share data 12/13A 12/14E 12/15E 12/16E

Shares (wtd avg.) (mn) 11,026 11,026 11,026 11,026 EPS (Credit Suisse) (Rmb)

2.25 2.61 3.06 3.43 DPS (Rmb) 1.20 1.30 1.53 1.72 BVPS (Rmb) 12.5 13.8 15.3 17.0 Operating CFPS (Rmb) 1.87 2.18 2.62 3.32

Key ratios and valuation

12/13A 12/14E 12/15E 12/16E

Growth(%) Sales revenue 17.6 15.8 12.9 10.0 EBIT (29.7) 19.0 37.3 30.3 Net profit 19.5 15.9 17.2 12.3 EPS 19.5 15.9 17.2 12.3 Margins (%)

EBITDA 4.22 4.29 5.04 5.83 EBIT 3.34 3.43 4.17 4.94 Pre-tax profit 7.33 7.34 8.16 8.98 Net profit 4.38 4.39 4.56 4.65 Valuation metrics (x) P/E 7.60 6.56 5.59 4.98 P/B 1.37 1.24 1.12 1.00 Dividend yield (%) 7.0 7.6 8.9 10.0 P/CF 9.2 7.8 6.5 5.1 EV/sales 0.23 0.18 0.14 0.10 EV/EBITDA 5.52 4.27 2.76 1.65 EV/EBIT 6.97 5.34 3.33 1.95 ROE analysis (%) ROE 19.1 19.8 21.0 21.2 ROIC 14.6 17.4 20.4 23.0 Asset turnover (x) 1.51 1.55 1.55 1.52 Interest burden (x) 2.20 2.14 1.95 1.82 Tax burden (x) 0.86 0.87 0.86 0.84 Financial leverage (x) 2.31 2.23 2.13 2.01 Credit ratios Net debt/equity (%) (35.1) (36.1) (38.3) (41.3) Net debt/EBITDA (x) (2.38) (2.43) (2.30) (2.32) Interest cover (x) (70.9) (31.6) (37.5) (38.3)

Source: Company data, Thomson Reuters, Credit Suisse estimates.

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014

12MF P/E multiple

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2009 2010 2011 2012 2013 2014

12MF P/B multiple

Source: IBES

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 5

Initiate with OUTPERFORM and Rmb24.50 TP We initiate on SAIC Motor with an OUTPERFORM rating and Rmb24.50 target price

(implying 43% potential upside). SAIC is the largest auto group in China with 24% market

share in 1H14. Its JVs with GM and VW contribute 97% to the group's total profit. Besides

its decent earnings growth (15% CAGR in 2014-16), we regard SAIC as the best value

stock because of: (1) cheap valuation: 6.6x/5.6x 2014/15E P/E and 1.2x P/B; (2) strong

balance sheet: net cash accounts for 40% market cap; (3) high dividend yield at 7.6%—

the highest in China auto universe. Our Rmb24.5 target price is based on 8x 2015E EPS

(9.4x 2014E EPS), implying 43% upside. The valuation is in line with HK-listed auto peers,

justified by upcoming SH-HK Stock Connect.

Figure 7: Market share by Chinese auto group (1H2014) Figure 8: SAIC net profit breakdown by operation

SAIC, 24%

Dongfeng, 16%

FAW, 13%

Chang'an, 11%

Beijing Auto, 10%

GAC, 4%

Brilliance, 3%

Great Wall, 3%

JAC, 2%

Others, 12%

51% 50% 52% 49% 49%

46% 39% 39% 40% 38%

7%7% 6% 6% 7%

-13% -14% -12% -8% -6%

9%8% 9% 9% 8%

1% 10% 5% 4% 4%

2012 2013 2014e 2015e 2016e

others Huayu (60.1%)

SAIC-Motor (100% stake) SAIC-GM-Wuling (50.1% stake)

SAIC-GM (50% stake) SAIC-VW (50% stake) Source: China Auto Market, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 9: SAIC net cash growth outlook Figure 10: China auto stocks' forward P/E comparison

4%

-13%

57%

18%

23%27%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

-

20

40

60

80

100

120

140

2010 2011 2012 2013 2014e 2015e 2016e

Rmb Bn

Tho

usan

ds

Net cash YoY

5

6

7

8

9

10

11

12

13

14

15

SAIC Dongfeng GAC Great Wall Geely Brilliance

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 6

Aggressive new models to drive up sales and margins Our belief in SAIC's growth stems from its product competitiveness as new models are

typically associated with market share gains/better profitability. After 2013's weak new

products debut (only four new models), SAIC entered a strong model cycle in 2014 with

10/12/13 new models in 2014/15/16, especially in the high margin/high growth segments,

i.e., SUVs, luxury brands and large sedans.

Luxury – Cadillac ATS L (Aug 14), P-Lux (4Q 15) and SRX (1Q 16)

SUV – Chevy Trax (Apr 14), Buick Envision (Sep 14), MG CS (Oct 14), Baojun SUV

(3Q 15), VW Cross blue (3Q16) and new Skoda SUV (4Q16)

Large sedan– new Chevrolet Malibu (3Q15), new Skoda SuperB (3Q15), new VW

Passat (4Q15), new Buick LaCross (1Q16) and VW E-sedan (1Q16)

Figure 11: SAIC net profit breakdown by model (2015 E) Figure 12: GM & VW JVs' new model #, share amid global

Tiguan, 18%

Passat, 14%

Lavida, 9%

Cruze, 6%Envision, 4%GL8, 4%

Excelle GT / XT, 4%

Excelle, 3%

Regal, 3%

Others, 35%

4 6 8 10

28

36

46

48

14%

17% 17%

21%

0%

5%

10%

15%

20%

25%

-

10

20

30

40

50

60

70

2013 2014E 2015E 2016E

model #

GM + VW model # Total Global brand model #GM + VW as % of total global

Source: Credit Suisse estimates Source: Global insight, Company data, Credit Suisse estimates

Figure 13: SAIC group new model plan for 2013-16

Model # Small (A0) Medium (A) Large (B) Luxury (C) SUV MPV

2013 4

Shanghai GM 1 XTS

Shanghai VW 3 Skoda Rapid / new Santana Yeti

2014 10

Shanghai GM 4 New Cruze (Aug) ATS L (Aug) Trax (Apr) / Envision (Oct)

Shanghai VW 2 New Octavia (May) / A plus (Dec)

Shanghai Motor 2 MG5 GT (Sep) MG CS (Oct)

Shanghai GM Wuling 2 610 (Mar) 730 (Aug)

2015 12

Shanghai GM 5 New Sail (1Q) Excelle GT (1Q) / Verano (3Q) New Malibu (4Q) P-lux (4Q)

Shanghai VW 3 New Fabia (2Q) New SuperB (3Q) / Passat (4Q)

Shanghai Motor 1 MG3 sedan (3Q)

Shanghai GM Wuling 3 B-Sedan (4Q) C-SUV (3Q) Wuling MPV (4Q)

2016 13

Shanghai GM 6 New Aveo (4Q) Cruze L (1Q) / C-value (3Q) LaCrosse (1Q) SRX (1Q) New GL8 (2Q)

Shanghai VW 4 E-Sedan (1Q) Cross Blue (3Q) / Skoda SUV (4Q) New Touran (4Q)

Shanghai Motor 2 New 550 (3Q) / MG6 (4Q)

Shanghai GM Wuling 1 New 630 (3Q) Source: Company data, Global insight , Credit Suisse estimates

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 7

Bullish on SUV and luxury segment's secular growth

We are bullish on the China SUV and luxury brand segment, and expect 32% CAGR and

23% CAGR in 2014-15, respectively. This substantial market share shift stems from low

penetration and rising replacement demand.

1. Huge potential from the current low penetration rate: We believe the luxury and

SUV segments should enjoy market-share gains in China given that their penetration

lags other developed countries', such as the US. In 2013, China's luxury and SUV

shares were 8.6% and 18.3%, well below 13.4% and 32.9% in the US.

2. Upgrade-replacement push: Our belief in the secular growth story of China's luxury

and SUV segments is derived from a low replacement demand proportion—only 23%

in 2013, well below mature markets’ 75-90%. People generally upgrade their vehicle

type (from sedan to versatile SUV) and vehicle brands (from mass-brand to luxury

brand) while replacing cars in China. This is a trend that has been seen in the US,

with the luxury/SUV market share increasing from 5% to 14% (luxury) and from 2% to

33% (SUV) in a continuous 30-year upcycle. We expect auto replacement demand to

spike in 2014/15, driven by 2009/10’s 47%/34% YoY total PV sales surge, given the

average new car usage time is 4.8 years.

Figure 14: China SUV market penetration vs US Figure 15: China luxury brands' market penetration vs USA

27.3% 27.7%29.4%

27.5%29.2%

31.5%32.4%

30.9%

32.9%

6.2% 5.6%6.7%

7.9% 7.9%

11.8%13.0%

14.7%

18.3%

21.1%

23.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e

USA SUV penetration China SUV penetration

11.6% 11.9% 12.2% 12.0% 11.9%12.5% 12.5% 12.7%

13.4%

3.6% 3.8%4.5%

5.2% 4.8%

6.1%

7.6%8.4% 8.6%

9.2%9.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e

USA luxury penetration China luxury penetration Source: China auto market, Wards Auto, Credit Suisse estimates Source: China auto market, Wards Auto, Credit Suisse estimates

Figure 16: Demand percentage vs global peers Figure 17: China used-car average age

91% 92%

77% 77% 74% 74% 76%

50%

25%17%

6% 5%

9% 8%23% 23% 26% 26% 24%

50%

75%83%

94% 95%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014e2015e2016e India Korea USA Japan UK German

1st Time Demand Replacement Demand

China Global Peers

2009 2010 2011

<1 year 4.5% 3.2% 3.3%

1-2 year 11.4% 10.3% 11.6%

2-3 year 15.7% 13.1% 14.6%

3-4 year 14.6% 15.3% 14.0%

4-5 year 14.1% 14.2% 14.1%

5-6 year 11.6% 12.6% 12.4%

6-7 year 11.1% 10.0% 9.6%

7-8 year 6.8% 9.2% 7.3%

8-9 year 3.4% 5.4% 5.8%

9-10 year 2.1% 2.6% 3.2%

>10 year 4.8% 4.1% 4.1%

Average age 4.6 4.8 4.8

Source: China auto market, Wards Auto, Credit Suisse estimates Source: iautos.cn

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 8

Strong new SUV and luxury model pipeline ahead

Buoyed by the sales jump of both SUV and luxury brands (46% and 37% CAGR since

2009, respectively), most automakers, including SAIC, have adopted aggressive strategies

to penetrate into these two high-growth/high-margin markets.

For SUV, SAIC plans to launch three new SUV models in 2014 (Chevrolet Trax in

April, Buick Envision in September, MG CS in October), one SUV in 2015 (Baojun

SUV) and three more new SUVs in 2016 (Cadillac SRX in 1Q, VW Crossblue in 3Q,

new Skoda SUV in 4Q).

For luxury brand, it plans to launch one Cadillac brand model each year: long

wheelbase ATS L sedan in Aug-2014, P-Lux large sedan in 4Q15 and SRX SUV in 1Q16.

SAIC's rapidly expanding SUV/luxury brands product portfolio is likely to deliver positive

surprises in terms of both top-line and margin expansion, in our view.

Figure 18: SAIC's total SUV model sales outlook Figure 19: SAIC's SUV model # and sales as % of total

89%

58%

49%

62%

50%

21%

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2010 2011 2012 2013 2014E 2015E 2016E

Unit

SAIC SUV sales volume YoY growth

1 2

1

3

1

3

1 2

4

5

8 9

12

2%

3%

5%

6%

9%

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-

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2010 2011 2012 2013 2014E 2015E 2016E

SUV model #

SUV model # add Total SUV model #SUV as % of total sales


Figure 20: SAIC's total luxury model sales outlook Figure 21: SAIC's luxury model # and sales as % of total

70%

35%

0%

187%

99%

26%43%

-50%

0%

50%

100%

150%

200%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

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2010 2011 2012 2013 2014E 2015E 2016E

Unit

Cadillac sales volume YoY growth

1 1 1 1 1 1 1

2

3

4

0.1%0.2% 0.2%

0.4%

0.7%

0.8%

1.0%

0.0%

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-

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4

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10

2010 2011 2012 2013 2014E 2015E 2016E

Luxurymodel #

luxury model # add Total luxury model #Cadillac as % of total sales


22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 9

Fuel-saving leader to benefit from release of list of new fuel-efficient car models eligible for subsidy The long-awaited list of Rmb3,000/unit fuel-efficient car models eligible for subsidy is likely

to be released in 2H14, after fuel saving criteria was raised by 4%-6% in 4Q13 by the

Chinese gov’t. Historically, fuel-efficient car subsidy has substantially boosted small car

sales (< 1.6L). To be eligible for a Rmb3,000/unit subsidy, car models need to meet three

requirements (after raising fuel saving criteria twice—in October 2011 and October 2013):

Engine size below 1.6L

Fuel consumption around 34% below current regulations

Compliant with Euro 5 mission standards

This policy encourages auto makers to adopt more fuel-saving technologies, such as

Turbo engine, Start-Stop, Gasoline Direct Injection (GDI), Hybrid and vehicle weight

reduction. As a fuel-saving technology leader, SAIC should benefit thanks to its advanced

power-train technology—turbo engine with GDI and double clutch transmission (DCT)

across the board, covering GM JVs, VW JV and local brands of Roewe & MG.

Shanghai GM – 1.2T, 1.4T, 1.5T, 1.6T engine series, for Encore, Trax, Cruze, Excelle

Shanghai VW – 1.0T, 1.2T, 1.4T engine series, for Polo, Santana, Lavida, Passat,

Touran, Tiguan, Fabia, Octavia, SuperB, Yeti, etc.

Roewe & MG - 1.0 T, 1.4T, 1.5T for MG3, MG5, Roewe 350

SAIC was the biggest beneficiary among global brands during the last round of efficient

car subsidy programme, with 9 models eligible or 43% of total global brands' models. We

expected a similar situation in the upcoming new batch of fuel-efficient car models eligible

for subsidy, thereby helping SAIC's share gains.

Figure 22: List of fuel-efficient car models eligible for subsidy (last round)

Model # Mini (A00) Small (A0) Medium (A) Large (B) SUV MPV

Global

Shanghai VW 6 Polo Lavida / Octavia Passat / SuperB Touran

Shanghai GM 3 Aveo / Sail Excelle

FAW VW 4 Sagitar / Bora / Golf Magotan

Beijing Hyundai 1 Elantra Landong

Chang'an Ford 1 Focus

Chang'an Mazda 1 Mazda 3

Chang'an Suzuki 2 Alto SX4

DF Nissan 3 Sunny / Tiida / Sylphy

Local

SAIC Motor 1 MG3

SAIC-GM-Wuling 2 Lechi Baojun 630

Chang'an 7 Benben Mini Yuexiang / V3 / V5 EX30 / Eado Honor

DF Liuzhou 1 Joyear

BYD 6 F0 F3 / G3 / L3 / Speed G6

Geely 6 Free cruiser / Panda SC515 SC7 / EC7 / GC7

Great Wall 6 C20R C30 / C50 M2 / M4 V80

Chery 8 QQ3/ Qiyun 1 A3 / Qiyun 2 E5 / G3 / Qiyun 3 Tiggo 3

JAC 3 Yueyue Tongyue Heyue

Haima 4 Haima 1 Haima 2 Familiar Premacy

Lifan 3 320 520 620

Soueast 1 V3

Zhonghua 3 H230 Juejie FSV / FRV

FAW Xiali 2 Xiali Weizhi

Changhe Suzuki 3 Wagon R / splash Liana Source: MIIT, Credit Suisse estimates

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 10

Valuation Our Rmb24.50 target price is based on 8x 2015E EPS. We believe it is better to use a

forward two-year P/E to value growth names, given we are already in the second half. This

implies 9.4x 2014E P/E, in line with the current valuation of HK-listed gasoline engine car-

markers, i.e., Dongfeng, GAC, Brilliance, Geely and Great Wall. We think the upcoming

Shanghai-Hong Kong Stock Connect will trigger a rerating to 8x 2015E EPS.

Besides its decent earnings growth (15% CAGR in 2014-16), we regard SAIC as the best

value stock because of: (1) cheap valuation: 6.6x/ 5.6x 2014/15E P/E and 1.2x P/B, (2)

strong balance sheet: net cash accounts for 40% market cap, (3) high dividend yield at

7.6%—the highest in the China auto universe.

Figure 23: China auto stocks' forward P/E comparison Figure 24: SAIC P/B and dividend yield in past 12 months

5

6

7

8

9

10

11

12

13

14

15

SAIC Dongfeng GAC Great Wall Geely Brilliance

0%

2%

4%

6%

8%

10%

12%

14%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Aug-13 Sep-13 Nov-13 Dec-13 Feb-14 Mar-14 May-14 Jun-14 Aug-14

P/B Dividend Yield

Source: the BLOOMBERG PROFESSIONAL™ service consensus Source: the BLOOMBERG PROFESSIONAL™ service consensus

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 11

Figure 25: China auto sector valuation comparison

Bloomberg Close Market Cap

Ticker 21-Aug-14 (US$ m) 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E

H share Passenger Vehicle maker

Guangzhou Automobile Group Co Ltd 2238 HK 8.61 8,051 10.5x 8.1x 1.2x 1.1x 11.8% 13.5% 2.8% 3.7%

Byd Co Ltd 1211 HK 51.20 18,970 82.8x 53.3x 3.9x 3.6x 5.2% 7.0% 0.1% 0.1%

Dongfeng Motor Group Co Ltd 489 HK 13.84 15,387 7.9x 6.9x 1.3x 1.1x 17.2% 17.2% 1.8% 2.2%

Great Wall Motor Co Ltd 2333 HK 30.45 13,976 8.2x 6.7x 2.1x 1.7x 28.8% 28.5% 3.6% 4.5%

Brilliance China Automotive Holdings Ltd 1114 HK 14.38 9,325 12.3x 10.4x 3.3x 2.5x 30.9% 28.3% 1.0% 1.1%

Geely Automobile Holdings Ltd 175 HK 3.03 3,441 8.6x 7.2x 1.1x 1.0x 14.1% 14.7% 1.5% 1.8%

H-share PV makers' simple Avg. (excl. BYD) 9.5x 7.9x 1.8x 1.5x 20.6% 20.4% 2.1% 2.7%

H-share PV makers' market cap weighted Avg.(excl. BYD) 9.3x 7.7x 1.9x 1.5x 21.9% 21.6% 2.3% 2.9%

A share Passenger Vehicle maker

Chongqing Changan Automobile Co Ltd 000625 CH 13.90 10,508 9.3x 7.1x 2.5x 1.9x 29.6% 28.0% 1.2% 1.7%

Guangzhou Automobile Group Co Ltd 601238 CH 8.21 8,148 12.7x 9.3x 1.4x 1.3x 11.7% 14.0% 1.9% 2.5%

SAIC Motor Corp Ltd 600104 CH 16.32 29,238 6.6x 5.9x 1.1x 1.0x 17.4% 17.1% 6.1% 6.6%

Great Wall Motor Co Ltd 601633 CH 32.69 15,039 10.2x 7.7x 2.8x 2.1x 27.3% 27.7% 2.8% 3.0%

FAW CAR Co Ltd 000800 CH 11.54 3,052 12.1x 10.8x 2.6x 2.4x 17.1% 18.8% 0.1% 0.1%

Anhui Jianghuai Automobile Co Ltd 600418 CH 14.04 2,931 16.3x 12.7x 2.3x 2.0x 14.9% 16.8% 1.7% 2.0%

Haima Automobile Group Co Ltd 000572 CH 4.36 1,165 11.7x 8.0x 0.9x 0.9x 7.8% 9.3% NA NA

Byd Co Ltd 002594 CH 51.21 19,152 76.5x 43.5x 5.2x 4.8x 6.7% 9.9% NA NA

Jiangsu Yueda Investment Co Ltd 600805 CH 10.46 1,446 6.4x 5.3x 1.4x 1.2x 22.0% 21.3% 1.4% 1.6%

A share PV makers' simple Avg. (excl. BYD) 10.7x 8.3x 1.9x 1.6x 18.5% 19.1% 2.2% 2.5%

A share PV makers' market cap weighted Avg. (excl. BYD) 9.2x 7.4x 1.8x 1.5x 20.5% 20.6% 3.6% 4.0%

Global Auto maker

Hyundai Motor Co 005380 KS 224,000 48,200 6.6x 6.1x 1.0x 0.9x 15.1% 14.1% 0.9% 0.9%

Kia Motors Corp 000270 KS 59,000 23,363 6.5x 6.1x 1.0x 0.9x 16.7% 15.4% 1.2% 1.3%

Toyota Motor Corp 7203 JP 5,990 197,224 9.6x 8.7x 1.2x 1.1x 13.0% 13.1% 3.1% 3.4%

Honda Motor Co Ltd 7267 JP 3,580 62,460 10.1x 9.0x 1.0x 0.9x 10.2% 10.8% 2.6% 3.0%

Nissan Motor Co Ltd 7201 JP 1,013 44,092 9.4x 8.2x 0.9x 0.8x 9.8% 10.2% 3.3% 3.8%

Maruti Suzuki India Ltd MSIL IN 2750.55 13,681 23.3x 17.8x 3.5x 3.0x 15.1% 17.2% 0.5% 0.7%

Tata Motors Ltd TTMT IN 512.75 25,591 8.9x 7.7x 2.0x 1.6x 25.3% 22.9% 0.5% 0.6%

General Motors Co GM US 34.53 55,410 12.5x 7.6x 1.4x 1.2x 12.0% 16.8% 3.5% 3.7%

Ford Motor Co F US 17.41 67,524 13.2x 9.0x 2.3x 1.9x 20.2% 24.6% 2.8% 2.9%

Tesla Motors Inc TSLA US 255.71 31,869 235.5x 83.0x 29.4x 22.6x 17.0% 44.0% 0.0% 0.0%

Renault SA RNO FP 59.89 23,493 8.8x 6.4x 0.7x 0.6x 8.0% 10.5% 3.3% 3.8%

Peugeot SA UG FP 10.72 11,136 -74.4x 12.2x 0.8x 0.8x -3.1% 7.5% 0.0% 0.0%

Volkswagen AG VOW GR 172.35 108,661 8.1x 7.2x 0.9x 0.8x 11.3% 11.7% 2.9% 3.4%

Bayerische Motoren Werke AG BMW GR 88.79 76,072 9.9x 9.4x 1.5x 1.3x 15.6% 14.6% 3.3% 3.7%

Fiat SpA F IM 7.29 12,089 15.1x 7.9x 0.8x 0.7x 4.5% 10.3% 0.4% 0.8%

Overseas Avg. 20.2x 13.8x 3.2x 2.6x 12.7% 16.2% 1.9% 2.1%

Overseas market cap weighted Avg. 17.8x 11.3x 2.4x 2.0x 13.5% 15.5% 2.5% 2.8%

P/E (x) P/B (x) ROE (%) Divident yield

Source: the BLOOMBERG PROFESSIONAL™ service consensus

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 12

Risks Downside risks

Key downside risk comes from the potential anti-monopoly investigation, which could hurt

margin. Recent media reports (Economic Information Daily) have said that China NDRC

could announce monopoly penalties for several car makers, with penalties ranging from

1% to 10% of a car maker's revenue, such as Audi and Chrysler. China State

Administration for Industry & Commerce announced it would stop allowing distributors and

dealers to obtain general auto sales licences, who until now were allowed to update their

business licenses to general auto sales from the previous single brand-specific. We regard

this policy as a step further to breaking the vertical monopoly by changing the existing

‘Auto Brand Sales Management Approach’. This ‘Approach’ offers car makers strong

control over dealers' pricing, sales volume and inventory, and aftersales parts and service.

We think the potential breaking of the vertical monopoly could reduce the car makers'

bargaining power, and thus hurt automakers’ profitability.

Roewe and MG brand PV, SAIC's local brand operation, has suffered continuous loss in

the past five years, mainly because of its high R&D expense, i.e., Rmb3.4 bn or 14% of

SAIC group’s total 2013 earnings. Given the lack of big volume models, SAIC Motor

cannot even break even at the operating level. We forecast SAIC's local brand operation’s

losses to reduce sequentially on the back of upcoming new MG brands SUV (to launch in

Oct-2014), which is expected to sell at least 5,000 units per month. If the MG brands

SUV price is too high (to overlap those of mainstream global brands' product), its sales

volume might miss our monthly 5,000-unit assumption. This is because high-end

customers' primary purpose in buying a car is to show their social status, hence they are

disinclined to buy a local brand such as MG CS with a high price.

Upside risks

The major upside risks to our investment thesis are: (1) better-than-expected SUV sales,

as China is experiencing a SUV sector boom, and SAIC's strong new SUV portfolio might

surprise on the upside; (2) More models being eligible for the upcoming cash subsidy

could boost SAIC's sales volume, thanks to its leadership in the fuel-saving technology.

Financial forecasts

Earnings forecasts up 16% and 17% YoY in 2014 and 2015, respectively

We expect SAIC's 2014 and 2015 earnings to go up 16% and 17% YoY to Rmb28.8 bn

and Rmb33.7 bn, respectively. The earnings growth is derived from a combination of

decent volume growth along with rising margin on improving product mix.

■ Shanghai GM: earnings contribution up 16%/19% YoY to Rmb11.1/13.3 bn, thanks to

12%/15% volume growth, with improving margin on SUV and luxury models launch.

■ Shanghai VW: earnings contribution up 21%/10% YoY to Rmb15.1/16.6 bn, thanks to

14%/10% volume growth and high-margin large sedan debut, like Passat and SuperB.

■ SAIC-GM-Wuling: profit contribution +12%/16% YoY to Rmb1.85/2.2 bn on MPV spike.

■ SAIC-Motor (Roewe and MG): loss down 2%/21% YoY, thanks to MG CS SUV debut.

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 13

Figure 26: SAIC earnings growth outlook Figure 27: SAIC total volume growth outlook

16

20 21

25

29

34

38 23%

3%

20%

16%17%

12%

0%

5%

10%

15%

20%

25%

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5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014e 2015e 2016e

Rmb Bn

Tho

usan

ds

Earnings YoY

3.64.0

4.5

5.15.8

6.6

7.2

11%12%

14% 15%

12% 10%

0%

2%

4%

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8%

10%

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14%

16%

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2

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6

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8

2010 2011 2012 2013 2014e 2015e 2016e

million unit

Mill

ions

Total volume YoY Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 14

Figure 28: SAIC net profit and sales volume breakdown by operations

2012 2013 2014e 2015e 2016e 2014e 2015e 2016e

Net profit (Rmb mn) YoY YoY YoY

SAIC-GM (50% stake) 9,500 9,600 11,146 13,318 14,398 16% 19% 8%

SAIC-VW (50% stake) 10,484 12,500 15,065 16,580 18,688 21% 10% 13%

SAIC-GM-Wuling (50.1% stake) 1,453 1,653 1,855 2,151 2,469 12% 16% 15%

SAIC-Motor (100% stake) -2,800 -3,500 -3,430 -2,723 -2,384 -2% -21% -12%

Huayu (60.1%) 1,863 2,077 2,621 2,885 3,189 26% 10% 11%

others 252 2,473 1,500 1,500 1,500 -39% 0% 0%

Total 20,752 24,804 28,757 33,710 37,860 16% 17% 12%

as % of total

SAIC-GM (50% stake) 46% 39% 39% 40% 38% 0% 1% -1%

SAIC-VW (50% stake) 51% 50% 52% 49% 49% 2% -3% 0%

SAIC-GM-Wuling (51% stake) 7% 7% 6% 6% 7% 0% 0% 0%

SAIC-Motor (100% stake) -13% -14% -12% -8% -6% 2% 4% 2%

Huayu (60.1%) 9% 8% 9% 9% 8% 1% -1% 0%

others 1% 10% 5% 4% 4% -5% -1% 0%

Total 100% 100% 100% 100% 100% 0% 0% 0%

Sales volume (unit)

PV 4,302,046 4,897,316 5,660,305 6,380,500 7,040,000 16% 13% 10%

SAIC-GM 1,363,532 1,542,558 1,735,005 2,000,500 2,200,000 12% 15% 10%

SAIC-VW 1,280,008 1,525,008 1,886,000 2,100,000 2,340,000 24% 11% 11%

SAIC-GM-Wuling 1,458,188 1,600,550 1,817,000 2,000,000 2,200,000 14% 10% 10%

SAIC-Motor 200,318 229,200 222,300 280,000 300,000 -3% 26% 7%

CV 159,358 191,621 173,910 175,710 178,710 -9% 1% 2%

Nanjing Iveco 132,013 148,528 119,500 119,500 119,500 -20% 0% 0%

SAIC Maxus 7,071 11,302 20,000 21,000 23,000 77% 5% 10%

Sunwin Bus 3,256 3,783 4,410 5,210 6,210 17% 18% 19%

SAIC-Iveco-Hongyan 17,018 28,008 30,000 30,000 30,000 7% 0% 0%

Total 4,461,404 5,088,937 5,834,215 6,556,210 7,218,710 15% 12% 10%

as % of total

PV 96% 96% 97% 97% 98% 1% 0% 0%

SAIC-GM 31% 30% 30% 31% 30% -1% 1% 0%

SAIC-VW 29% 30% 32% 32% 32% 2% 0% 0%

SAIC-GM-Wuling 33% 31% 31% 31% 30% 0% -1% 0%

SAIC-Motor 4% 5% 4% 4% 4% -1% 0% 0%

CV 4% 4% 3% 3% 2% -1% 0% 0%

Nanjing Iveco 3% 3% 2% 2% 2% -1% 0% 0%

SAIC Maxus 0% 0% 0% 0% 0% 0% 0% 0%

Sunwin Bus 0% 0% 0% 0% 0% 0% 0% 0%

SAIC-Iveco-Hongyan 0% 1% 1% 0% 0% 0% 0% 0%

Total 100% 100% 100% 100% 100% 0% 0% 0% Source: Company data, Credit Suisse estimates

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 15

Shanghai GM: To see immediate model cycle revival

Shanghai GM, which historically contributed around 40% to overall SAIC earnings, is

estimated to book 16%/19% earnings growth in 2014/15 to Rmb22.3/26.6 bn on the back

of a wave of new models and new capacity.

After a weak new model launch in 2013 (only 1 new niche model Cadillac XTS), we expect

Shanghai GM to enter a new era with a strong model cycle from 2014 (4/5/6 new models

in 2014 /15 /16), especially in high-margin segments like SUVs and large sedans.

2014 – Trax SUV (Apr), New Cruze (Aug), Cadillac ATS L(Aug) , Envision SUV (Sep)

2015 – New Sail (1Q), new Excelle GT (1Q), Verano (3Q), new Malibu (3Q), P-lux (4Q)

2016 – Cruze L (1Q), new LaCross (1Q), SRX (1Q), GL8 (2Q), C-value(3Q), Aveo(4Q)

Among the abovementioned models, we highlight Chevrolet Cruze, the JV's key volume

and earnings contributor, will launch a new-generation model in 2014 and boost both

margin and volume.

Besides the strong new model cycle push, Shanghai GM also enjoys new capacity

support—Shanghai-based Cadillac plant and Wuhan plant to kick off production from 2015,

raising overall Shanghai GM capacity by 28% from the current 1.42 mn units to 1.82 mn

units. Thus, we estimate Shanghai GM sales volume to increase by 12%/15% in 2014/15,

to 1.74/ 2.0 mn units.

Figure 29: Shanghai GM earnings growth outlook Figure 30: Shanghai GM earnings by model (2015 E)

21%

12%

1%

16%

19%

8%

0%

5%

10%

15%

20%

25%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2010 2011 2012 2013 2014E 2015E 2016E

Rmb Mn

Shanghai GM earnings YoY growth

Cruze, 15%

Envision SUV, 11%

GL8, 10%

Excelle GT / XT, 11%

Excelle, 8%

Regal, 7%

Lacrosse, 7%

Trax SUV, 7%

Encore SUV, 6%

Malibu, 6%

Others, 13%


22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 16

Figure 31: Shanghai GM new model plan Figure 32: Shanghai GM net margin outlook

2014 2015 2016

Trax (Apr) New Sail (1Q) Cruze L (1Q)

Small SUV Small sedan Middle sedan

New Cruze (Aug) Excelle GT (1Q) LaCrosse (1Q)

Middle sedan Middle sedan Large sedan

ATS L (Aug) Verano (3Q) SRX (1Q)

Large sedan Middle sedan Large SUV

Envision (Sep) New Malibu (4Q) New GL8 (2Q)

Middle SUV Large sedan MPV

P-lux (4Q) C-value (3Q)

Large sedan Middle sedan

New Aveo (4Q)

Small sedan

11.8%12.4%

12.1%

10.7%10.8%

11.2% 11.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010 2011 2012 2013 2014E 2015E 2016E


22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 17

Shanghai VW – Strong growth on new Changsha

plant debut

Shanghai VW, which historically contributed around 50% to overall SAIC earnings, is

estimated to book 21%/10% earnings growth in 2014/15 to Rmb30/33.2 bn on the back of

its new Changsha plant debut, as well as new large-size sedan models.

Shanghai VW currently operates at very tight capacity constraint—120% utilisation rate

due to strong demand. We expected the utilisation constraint to be more severe after the

release of the long-awaited list of Rmb3,000/unit fuel-efficient car models eligible for

subsidy. Shanghai VW was clearly the biggest beneficiary among global brands camp

during the last round of efficient car subsidy programme, with 6 models eligible thanks to

its advanced power-train technology: "TSI+DSG" turbo engine with GDI and double clutch

transmission (DCT). We expected a similar situation in the upcoming new batch of fuel-

efficient car models eligible for subsidy, thereby helping Shanghai VW's share gains.

Thanks to the completion of the new Changsha plant construction, overall Shanghai VW

capacity is expected to rise by 20% from the current 1.55 mn units to 1.85 mn units. Thus,

we estimated Shanghai VW sales volume to increase by 24%/11% in 2014/15, to 1.9/ 2.1

mn units. Looking into 2016, we expected Shanghai VW's product mix to improve

substantially, thanks to the launch of three high-margin products—VW brands large-size

sedan (1Q), VW Cross Blue SUV (3Q) and new Skoda SUV (4Q).

Figure 33: Shanghai VW earnings growth outlook Figure 34: Shanghai VW earnings by model (2015 E)

38%

27%

19%

21%

10%13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010 2011 2012 2013 2014E 2015E 2016E

Rmb Mn

Shanghai VW earnings YoY growth

Tiguan, 36%

Passat, 29%

Lavida, 19%

Others, 16%


22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 18

Figure 35: Shanghai VW new model plan Figure 36: Shanghai VW net margin outlook

2014 2015 2016

New Octavia (May) New Fabia (2Q) E-Sedan (1Q)

Middle sedan Small sedan Large sedan

A plus (Dec) New SuperB (3Q) Cross Blue (3Q)

Middle sedan Large sedan Large SUV

Passat (4Q) Skoda SUV (4Q)

Large sedan Middle SUV

New Touran (4Q)

MPV

9.6%

10.7%

12.2% 12.2% 12.1% 12.1% 12.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2010 2011 2012 2013 2014E 2015E 2016E


22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 19

SAIC-GM-Wuling: Key beneficiary of low-end MPV spike

SAIC-GM-Wuling, which historically contributed around 7% to overall SAIC earnings, is

estimated to book 12%/16% earnings growth in 2014/15 to Rmb3.7/4.3 bn on the back of

both new MPV model launch and new Chongqing plant debut.

SAIC-GM-Wuling is China's largest mini bus and MPV maker, with 50% and 43% market

share, respectively. The company's key profit contributor—Wuling Hongguang MPV—is

derived from the mini-bus platform but at a much higher price (Hongguang MPV's

Rmb45K-80K vs mini bus' Rmb30-48K), resulting in a much better margin than mini bus.

After a weak model launch in 2013 (no model), we expect SAIC-GM-Wuling to see a

strong model cycle from 2014 (2/3/1 new models in 2014/15/16). We expected this wave

of new models to drive SAIC-GM-Wuling sales volume up 14%/10% in 2014/15 to 1.8/2.0

mn units.

■ 2014 – Baojun 610 sedan (Mar), Baojun 730 MPV (Aug)

■ 2015 – Baojun C-SUV (3Q), Baojun B-sedan (4Q), new Wuling MPV (4Q)

■ 2016 – new generation Baojun 630 (3Q)

Figure 37: SAIC-GM-Wuling earnings growth outlook Figure 38: SAIC-GM-Wuling net margin outlook

0%

4%

14%

12%

16%15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014E 2015E 2016E

Rmb Mn

SAIC-GM-Wuling earnings YoY growth

7.2%

6.7%

5.4% 5.4%5.2% 5.3% 5.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2010 2011 2012 2013 2014E 2015E 2016E


Figure 39: SAIC-GM-Wuling MPV sales outlook Figure 40: SAIC-GM-Wuling new model plan

316530

790990

1,2001,458

1,601

1,8172,000

2,200

22%

33%

43%

50%55%

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014E 2015E 2016E

'000 unit

SAIC-GM-Wuling MPV sales Total SAIC-GM-Wuling salesMPV as % of total volume

2014 2015 2016

610 (Mar)

Middle sedan

730 (Aug)

MPV

C-SUV (3Q)

Middle SUV

B-Sedan (4Q)

Small Sedan

Wuling MPV (4Q)

MPV

New 630 (3Q)

Middle sedan


22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 20

SAIC Motor: Reducing loss on new MG SUV debut

SAIC Motor, SAIC's local brand operation, has suffered continuous losses in the past five

years, mainly because of its high R&D expense, i.e., Rmb3.4 bn or 14% of SAIC group’s

total earnings. SAIC is one of the very few automakers that design cars from scratch and

successfully design in-house powertrains—"Cube-Tech" turbo engine series and 7-speed

DCTs.

Given the lack of big volume models, SAIC Motor cannot even break even at the operating

level. We expect SAIC Motor to book Rmb3.4/2.7/2.4 bn loss in 2014/15/16. The

lossmaking reduction mainly stems from our confidence in its upcoming new MG brands

SUV (to launch in Oct-2014), which is expected to sell at least 5,000 units per month,

pushing the overall SAIC Motor sales volume to 223,300/280,000/300,000 units in

2014/15/16. Management guided the breakeven volume assumption to be 400K-500K

units, which is unlikely to be achieved before 2018, in our view.

Figure 41: SAIC Motor earnings growth outlook Figure 42: SAIC Motor gross margin/net margin outlook

25%

12%

25%

-2%

-21%

-12%

-30%

-20%

-10%

0%

10%

20%

30%

(4,000)

(3,500)

(3,000)

(2,500)

(2,000)

(1,500)

(1,000)

(500)

-

2010 2011 2012 2013 2014E 2015E 2016E

Rmb Mn

SAIC-Motor Loss YoY growth

-12%

-18%-18%

-22% -22%

-13%-10%

19%

12%

9% 7% 8% 9% 10%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013 2014E 2015E 2016E

Net Margin Gross margin


Balance sheet: To stay in net cash position in 2014-

15E

We expect SAIC's balance sheet to remain in a net cash position in 2014/15/16 at

Rmb74.4/92/116 bn. Thanks to SAIC's decent earnings power, we expect SAIC to book

sizeable free cash flow in 2014/15/16 of Rmb 9/14/22 bn.

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 21

Figure 43: SAIC net cash outlook Figure 44: SAIC free cash flow outlook

4%

-13%

57%

18%

23%27%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

-

20

40

60

80

100

120

140

2010 2011 2012 2013 2014e 2015e 2016e

Rmb Bn

Tho

usan

ds

Net cash YoY

18,987

4,044 3,583

4,943

9,042

13,913

21,642

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013 2014E 2015E 2016E

Rmb Mn


Company overview

Company background

SAIC Motor Corp is China’s largest auto group with 24% market share in 1H14. It is the JV

partner for GM and VW. SAIC's businesses cover the full auto value chain, including

passenger vehicle, commercial vehicle, parts, distribution and auto financing.

Figure 45: Company milestones

2012 Roewe brand E50 electric vehicle launch

2011 SAIC commercial established, launch "Maxus" brand

2007 SAIC merge Nanjing Auto group , gain "MG" brand

2007 SAIC-Iveco-Hongyan JV established

2006 SAIC group listed

2006 SAIC launch its local brand – Roewe operation

2002 SAIC-GM-Wuling JV established

1997 Shanghai GM JV established

1984 Shanghai VW JV established

Source: Company data, Credit Suisse

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 22

Figure 46: Company structure

SAIC Motor (600104 SS)

Yuejing AutoShanghai Auto

industry Group CorpA-share public

shareholder

Shanghai GM manufacture(50%)

Shanghai GM sales (51%)

Shanghai VW manufacture(50%)

Shanghai VW sales(60%)

SAIC-GM-Wuling(50.1%)

VW powertrain(40%)

VW Transmission(20%)

SAIC Finance(100%)

GMAC-SAIC (50%)

Pan Asia Technical Automotive Center

(50%)

Passenger Vehicle Commercial Vehicle Components & parts Finance & service

3.75% 74.3% 18.9%

SAIC Motor (Roewe and MG)(100%)

Shanghai Auto industry Co

3.03%

SAIC-GM-Wuling(50.1%)

SAIC-Iveco-Hongyan(33.3%)

Nanjing Iveco(50%)

SAIC Maxus(100%)

Sunwin Bus(50%)

SAIC Tangshan Bus(51%)

Huayu Auto (600741 SS) (60.1%)

Shanghai Diesel (600841.SS)(48.05%)

Shanghai Huizong(100%)

Nanjing Tooling (100%)

Anjin auto (100%)

Anyo service (100%)

Source: Company data, Credit Suisse

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 23

Companies Mentioned (Price as of 21-Aug-2014)

BMW (BMWG.DE, €89.78) BYD Co Ltd (1211.HK, HK$51.2) Brilliance China Automotive Holdings Limited (1114.HK, HK$14.38) ChangAn (000625.SZ, Rmb13.31) Dongfeng Motor Group Company Limited (0489.HK, HK$13.84) Faw Car (000800.SZ, Rmb11.54) Faw Xiali (000927.SZ, Rmb4.86) Fiat (FIA.MI, €7.28) Ford Motor Company (F.N, $17.41) Geely Automobile Holdings Ltd (0175.HK, HK$3.03) General Motors Corp. (GM.N, $34.53) Great Wall Motor (2333.HK, HK$30.45) Guangzhou Automobile Group (2238.HK, HK$8.61) HAIMA AUTO (000572.SZ, Rmb4.73) Honda Motor (7267.T, ¥3,580) Huayu Automotive (600741.SS, Rmb11.97) Hyundai Motor (005380.KS, W224,000) JAC (600418.SS, Rmb13.01) Jianghuai Eng (000816.SZ, Rmb4.85) Kia Motors (000270.KS, W59,000) Lifan (601777.SS, Rmb8.96) Maruti Suzuki India Ltd (MRTI.BO, Rs2750.05) Mazda Motor (7261.T, ¥2,487) Nissan Motor (7201.T, ¥1,012) Renault (RENA.PA, €60.55) SAIC Motor Corp Ltd (600104.SS, Rmb17.1, OUTPERFORM, TP Rmb24.5) SDEC (600841.SS, Rmb10.41) Suzuki Motor (7269.T, ¥3,430) Tata Motors Ltd. (TAMO.BO, Rs512.6) Tesla Motors Inc. (TSLA.OQ, $255.71) Toyota Motor (7203.T, ¥5,990) Volkswagen (VOWG_p.DE, €172.75) Yueda Invt (600805.SS, Rmb10.73)

Disclosure Appendix

Important Global Disclosures

Bin Wang and Mark Mao, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’ s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the releva nt sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10 -15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 24

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 44% (53% banking clients)

Neutral/Hold* 40% (52% banking clients)

Underperform/Sell* 13% (44% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Ne utral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for SAIC Motor Corp Ltd (600104.SS)

Method: Our Rmb24.50 target price for SAIC Motor Corp Ltd is based on 8x 2015E EPS (earnings per share), justified by the upcoming Shanghai-Hong Kong Stock Connect. This implies 9.0x 2014E P/E (price-to-earnings), in-line with current valuation of HK-listed gasoline engine car-markers, i.e., Dongfeng, GAC, Brilliance, Geely and Great Wall.

Risk: Risks that could impede achievement of our Rmb24.50 target price for SAIC Motor Corp Ltd include: the potential anti-monopoly investigation, which could hurt margin, and a potential increase in losses at its local brands operation (Roewe and MG brand PV).

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (600104.SS, 0489.HK, 1114.HK, 005380.KS, F.N, GM.N, VOWG_p.DE, 2238.HK, 000270.KS, 7203.T, 7267.T, TAMO.BO, RENA.PA, BMWG.DE, FIA.MI) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (F.N, VOWG_p.DE, 000270.KS, 7267.T, BMWG.DE, FIA.MI) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (005380.KS, F.N, GM.N, VOWG_p.DE, 000270.KS, 7203.T, 7267.T, TAMO.BO, RENA.PA, BMWG.DE, FIA.MI) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (F.N, VOWG_p.DE, 7267.T, BMWG.DE, FIA.MI) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (F.N, VOWG_p.DE, 000270.KS, 7267.T, BMWG.DE, FIA.MI) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (600104.SS, 7201.T, 0175.HK, 7269.T, 0489.HK, 7261.T, 1114.HK, F.N, VOWG_p.DE, 2238.HK, 000270.KS, 7203.T, 7267.T, MRTI.BO, TSLA.OQ, BMWG.DE, FIA.MI) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (005380.KS, F.N, GM.N, VOWG_p.DE, 000270.KS, 7203.T, 7267.T, TAMO.BO, RENA.PA, BMWG.DE, FIA.MI) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (7201.T, F.N, GM.N, 7203.T, 7267.T, TSLA.OQ).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (0489.HK, 2238.HK, 2333.HK).

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 25

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (600104.SS, 7201.T, 0175.HK, 7269.T, 0489.HK, 7261.T, 1114.HK, 005380.KS, 1211.HK, F.N, GM.N, VOWG_p.DE, 2238.HK, 2333.HK, 000270.KS, 7203.T, 7267.T, MRTI.BO, TAMO.BO, TSLA.OQ, RENA.PA, BMWG.DE, FIA.MI) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

The following disclosed European company/ies have estimates that comply with IFRS: (7201.T, F.N, VOWG_p.DE, RENA.PA, BMWG.DE, FIA.MI).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (005380.KS, F.N, VOWG_p.DE, 2238.HK, 7203.T, 7267.T, TAMO.BO, BMWG.DE, FIA.MI) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse (Hong Kong) Limited ........................................................................................................................................ Bin Wang ; Mark Mao

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

22 August 2014

SAIC Motor Corp Ltd

(600104.SS / 600104 CH) 26

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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