Dividend Rate Is Higher Than Expectation

In 2016, Shanghai Automotive Industry Corporation recorded a revenue of RMB756.4 billion, representing a year-on-year increase of 12.8%. Net profit attributable to shareholders stood at RMB32 billion, with a year-on-year increase of 7.43%. Profits are in line with our expectation. Earnings per share was RMB2.9. The figure was RMB2.7 in last year. The dividend per share was RMB1.65 in cash, with a payout ratio of 56.8%, 9 points higher than our previous expectation.

In Q1 2017, the company reported a revenue of RMB196.28 billion, a year-on-year increase of 6%. Net profit attributable to the shareholders stood at RMB8.26 billion, a year-on-year increase of 4.1%. Net profit excluding non-recurring profit and loss was RMB8.17 billion, a year-on-year increase of 11%. Earnings per share was RMB0.71, a little lower than RMB0.72 in the same period last year. The increase of share issuance caused dilution.

JVs Reported Mix Results in Their Performance

In 2016, Shanghai Automotive Industry Corporation sold 6,489,000 vehicles, a year-on-year increase of 9.95%. The target of 6.17 million vehicles has been fulfilled, with a completion rate of 105%. The sales volume of SAIC Volkswagen increased by 10.5% year on year to 2,002,000 vehicles; that of SAIC GM by 7.7% year on year to 1,887,000; that of SGM-Wuling increased by 4.4% year on year to 2,130,000. In terms of financial data, the revenue of SAIC Volkswagen rose by 4.6% to RMB228.55 billion, and the net profit of SAIC Volkswagen was up by 3.1% to RMB25.68 billion. The revenue of SAIC GM increased by 14% to RMB202.9 billion, and the net profit of SAIC GM went up by 2.3% to RMB16.95 billion, which is quite stable. The net profit of SGM-Wuling increased by 3.6% YoY to RMB5.198 billion and that of Huayu soared by 27% YoY to RMB6.076 billion.

In Q1 2017, the whole sales volume of SAIC was 1,656,000 vehicles, a year-on-year increase of 3%. Due to the temporary shortage of parts, the sales volume of SAIC Volkswagen dropped by 4.7% year on year. However, high-priced models, such as Teramont (approx. RMB400,000), Tiguan L (approx. RMB300,000) and Kodiak (approx. RMB200,000) are expected to sell well. It is estimated that the increase speed of profits will grow gradually. The sales volume of SAIC GM increased by 2.3% while new models such as Chevrolet Equinox and new version GL8 met with sufficient orders. The quarterly sales of Cadillac rocketed by about 80%, which is expected to sustain steady growth rate and profit improvement. The sales volume of SGM-Wuling reached 563,000 vehicles, a year-on-year decrease of 0.7%. The increase of Baojun SUV will be offset by the drop of mini MPV and minivan. We expect that the whole sales will be basically flat this year.

The performance of self-owned brands of SAIC is getting better, with explosive sales growth. In 2016, the sales volume increased by 89% to 322,000 vehicles. In the first quarter of 2017, the sales volume jumped by 112% to 118,000 vehicles. The strong sales momentum mainly comes from Roewe RX5, whose monthly sales exceeded 15,000. New models such as Roewe i6 and MG ZS is meeting with stable sales now, which are expected to have a share in the updated car market in the future. Along with gradual match of manufacturing capacity, the self-owned brands of SAIC are very likely to achieve a breakthrough in the sales volume, with an expected year-on-year increase of more than 90%.

Investment Thesis

We hold that driven by new product cycle and improving product structure, the company's better-than-expected growth is worth looking forward to. A relatively high cash dividend rate (about 55%) is expected to continue with its abundant cash flow. We adjust the profit forecast, giving the target price of RMB32.67, equivalent to 10.2/9.4x estimated P/E ratios in 2017/2018. The "Accumulate" rating is given. (Closing price as at 23 May 2017)

Financials

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