This year saw a lot of changes. One of the most outstanding is that 2015 is the first year in which the US is no longer the world’s biggest economy in the world in terms of GDP (Purchasing Power Parity) ; China has overtaken to rule the world.
So it shall come as no surprise that the car manufacturing industry in China is also the largest in the world, in fact it has been since 2008. In 2009, the annual production of automobiles in China exceeded that of both the United States and Japan combined.
In 2014, 26% of all automotive manufacturing was done in China. Management consulting firm McKinsey & Company estimated in one of their reports that the car market in China will increase tenfold between 2005 and 2030.
Even though China’s auto market is expected to continue growing at an exponential rate for the next 15 years, it is currently experiencing much slower growth due to the global economic situation.
The second half of 2015 is expected to be “grim” by most Chinese auto manufacturers citing reasons such as the nation experiencing the slowest economic growth in 25 years and a drop in the stock market discouraging buyers.
Yet even through one of the hardest times the Chinese economy has faced in recent years, according to the China Association of Automobile Manufacturers, the car sales in China is predicted to increase by 3%, which is not as much as last year’s 6% but is still quite impressive considering all other factors.
Slow growth is not expected to last as the industry is expected to pick up very soon.
SAIC Motor Still Strong
Leading the automotive industry is SAIC Motor Corporation Limited (SHA:600104), the largest auto company on China’s A-share market. Involved in every step of the supply chain, SAIC Motor researches, produces, and sells both passenger cars and commercial vehicles.
SAIC Motor operates on their own, but is also involved in joint ventures with many distinguished brands from all over the world, including but not limited to General Motors, Volkswagen, Sunwin, and Hongyan.
In 2014, the Chinese automaker was ranked 60th on the annual Fortune Global 500 list.
SAIC Motor is confident in the future as stated in their earnings statement, “In the short term, although the domestic market situation in the second half of the year remains grim after the macro economy’s stabilized recovery, there are still structural growth opportunities.”
Automobiles in China Still Part of Everyday Life
Even with the declining economy, the company boasts some very impressive financial figures.
SAIC is forecasting that their 2015 number of vehicles sold will experience a slight increase from last year’s. In the first half of 2015, the company reported a 4.4% YoY increase in net profits and 1.1% YoY increase in revenue.
The company also exhibits one of the healthiest ROE in the industry with the last 4 years averaging 19%. With a P/E ratio of below 7 and P/B ratio of 1.24x, the company’s stocks are looking to be the top choice for any investors looking to gain from stocks with potential.
While shares of SAIC Motors dropped sharply during the broad decline in the Chinese stock market this summer, InvestAsian believes that the company was highly oversold and should recover to its 52-week high of around CNY29.00 from its current price of CNY19.55.
The recent opening of the Hong Kong-Shanghai Stock Connect allows individual foreign investors to buy shares listed in mainland China for the first time. A brokerage account in Hong Kong is now more useful than ever, giving access to all companies on the Shanghai Stock Exchange, including SAIC Motors.