Director’s Cut -- Great Wall a great buy ::Macquarie Research,

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Director’s Cut
Great Wall a great buy
The latest data out of China show new car sales are slowing in the world’s
largest auto market, creating a buying opportunity for long-term investors.
May data show passenger vehicle sales in China were up 3% on last year but
down 8% on May. Zhixuan Lin says the decline is partly due to supply chain
disruptions in Japanese JVs. Seasonal weakness was also a factor, as were
tight monetary conditions, limits on registrations and high fuel prices.
Looking towards year end, two of the key forces negatively impacting China’s car
sales are expected to be reversed. Zhixuan expects auto sales to pick up in the
second half, noting September and year end are the peak seasons for auto
sales. Our China economist Paul Cavey also thinks monetary policy could be
loosened in the second half, which would also boost car sales.
Zhixuan’s two top picks in China’s auto sector are Great Wall (2333 HK) and
Dongfeng (489 HK). Great Wall in particular looks like a bargain on a 2011e
P/E of ~7 times, and generating a ROE over 24%. Keep in mind, with the
current car penetration in China still well below the global average, the long-term
growth potential of the sector is significant.


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