Most listed Chinese auto makers powered to better-than-expected profit this year on growing sales, and analysts forecast that they will drive investors to higher profit next year.

 

Shanghai Automotive Co Ltd, the listed unit of China's biggest car maker, Shanghai Automotive Industry Corp, reported its net profit more than tripled to 3.8 billion yuan (US$513 million) for the first three quarters of this year. Sales rocketed more than 21 times to 76 billion yuan.

 

Shanghai Auto's share price soared more than 170 percent from 8.3 yuan at the start of the year to 26.07 yuan at the close last Friday.

 

Its shares reaped harvest from the car maker selling additional shares to investors last year to expand its core business from auto parts to car production by merging assets in its two joint ventures with General Motors Corp and Volkswagen AG.

 

SAIC sold over 840,000 units in the first half.

 

Net profit at Beiqi Foton, China's largest light vehicle producer, powered 92 percent to 285 million yuan from January to September while sales rose 45 percent to 21 billion yuan during the same period.

 

Sinotruk, China's largest heavy-duty truck assembler, estimated profit for the whole year will jump by 150 percent to 200 percent on high demand for heavy-duty trucks.

 

Last year Sinotruk made a net profit of 224 million yuan. Its shares also climbed from 25.48 yuan on January 4 to 48.4 yuan last Friday.

 

"In addition to the booming stock market, auto-related stocks are favored because the profitability of car makers has improved and assets have been optimized, ensuring more potential for future growth," said Wang Canbing, an independent industrial analyst.

 

Auto-related stocks are projected to remain upbeat against overall market performance because of a rosier outlook.

 

China replaced Japan as the world's second largest auto market last year, trailing only the United States.

 

Vehicle sales in the first three quarters rose 24.4 percent to 6.45 million units from a year earlier. The forecast for the whole year is 8.5 million units, with passengers car accounting for 6.2 million and commercial vehicles seen growing at the fastest pace.

 

Auto exports also soared 64 percent to 413,500 units of complete finished vehicles - including cars, buses and trucks - in the first 10 months of the year from a year earlier.

 

The fast-growing momentum in vehicle sales is seen to continue to 2020 as rising income will spur auto consumption while exports will increase, a report from CITIC Securities Co Ltd said.

 

"The booming economy boosts people's income and makes cars more affordable for them," said Zheng Jun, an analyst at CITIC Securities Research, adding improved road condition and low market penetration will lay a solid foundation for future development.

 

CITIC Securities' report also said the cumulative sales growth for China's auto industry will be 15 percent to 20 percent annually over the next 10 years while profit at mainstream car makers will expand 30 percent annually in the next five to 10 years.

 

This year, several car makers have actively sought opportunities to list on the stock exchange as they aim to tap the bullish market to fund future development.

 

Shares of FAW Car as well as FAW Xiali got a boost from market speculation that they would be the platform for a back-door listing of their parent company First Automotive Works Group, China's second-largest car maker.

 

Others like Foton also attracted investors' attention as it will partner Chrysler LLC to jointly develop commercial vehicles that will sharpen its competitiveness in the rapidly growing segment.

 

Compared with mainland bourses, car makers listed on the Hong Kong stock market, however, paint a different picture as overseas investors are concerned over declining prices and looming overcapacity.

 

Rapid expansion

 

Sinotruk (Hong Kong) Ltd, China's largest maker of heavy trucks, plunged 16 percent to close at HK$10.86 (US$1.39) on its first day of trading despite its initial offer being oversubscribed by institutional and individual investors.

 

Looking ahead to next year, state-owned car makers are likely to expand rapidly as the Chinese government is promoting mergers and acquisitions to create a nationwide auto giant in the face of global competition from rivals.

 

Despite a positive blueprint in terms of sales, profits and exports, the mainland's maturing auto market also faces challenges, including declining car prices, high fuel prices, and possible overcapacity that may slow down sales and dent car makers' profits.

 

But Li Mengtao, an auto analyst at Guojin Securities Co Ltd, said the impact could be limited with improved efficiency of car makers and their faster pace in launching new models.

 

On the other hand, there are also risks for car makers to roll out Chinese-branded models due to their perceived lower technological expertise and weak brand awareness.

 

"Competition in the mid-to-low car segment, with smaller car size and low prices, will be more intense that will result in falling profit," Guojin Securities's Li said.

 

(Shanghai Daily December 24, 2007)