Asian Insights SparX Target Regional Automobile, Oil & Metal ......players. Hence, we forecast EV...

ASIAN INSIGHTS

ed-TH/ JS / sa- AS / CW / CS

17 July 2018 DBS Group Research . Equity

Asia leapfrogs in E-mobility

Transportation sector one of the largest generators of

air pollutants in major global cities

Intensifying vehicle electrification could translate to

electric vehicle (EV) penetration rate of over 20% by

2030 globally

For every two EVs sold globally, one will be in China,

creating a huge EV supply chain network

Expect Chinese upstream suppliers to benefit from

robust development of global EV market

E-mobility is a game-changer. Electrification aims to address

vehicle pollution. Western governments have plans to phase

out or cut fossil-fuel vehicle sales from 2025 to 2040. We

estimate global EV to account for some 20% of total vehicle

sales by 2030, translating to about 27m units. With the rise in

EVs, approximately 6% of annual oil demand could disappear

by 2030. To power EV development, governments are leaning

more on clean energy and by 2030, half of the global energy

mix will be from natural gas and renewable sources. The robust

EV market is also a major driver of the metals sector, such as

cobalt and copper.

EV upstream supply chain to benefit. China, the world’s

largest automobile market (both electric and traditional), is

leading the E-mobility development, with its strong policies and

fiscal support. The rapid EV market development has created an

exciting value chain, one of the most complete in the world.

Several Chinese upstream suppliers such as battery

manufacturers and auto parts producers stand to benefit. The

Chinese EV market upcycle is expected to increase battery

production by almost 5x to 215GWh by 2022, up from

44.5GWh in 2017. On the other hand, the introduction of the

EV quota cum carbon credit dual system in 2019 means

automakers could face keen market competition.

HSI: 28,481

ANALYST Rachel MIU +852 2863 8843 [email protected] Suvro Sarkar +65 81893144 [email protected] Pei Hwa HO +65 6682 3714 [email protected]

Lee Eun Young +65 6682 3708 [email protected] Yi Seul SHIN +65 6682 3704 [email protected]

Recommendation & valuation

Source: Thomson Reuters, *DBS Bank (Hong Kong) Limited (“DBS HK”), Bloomberg Finance L.P.

Company Name

Price

Local$

Target

Price

Local$ Recom

PE

18F x

Mkt Cap

US$m

Bat tery

Contemporary Amperex

(300750 CH)

83.90 n.a. NR 55.1 27,566

Guoxuan High-Tech Co

Ltd (002074 CH)

13.64 n.a. NR 14.3 2,345

A uto Part s

Minth Group* (425

HK)

32.25 39.80 BUY 13.1 4,726

Nexteer Automotive

Group* (1316 HK)

11.54 15.60 BUY 10.5 3,698

A uto Makers

BYD 'H'* (1211 HK) 45.30 60.00 BUY 25.6 17,354

Tesla (TSLA US) 310.10 n.a. NR n.a. 52,653

Asian Insights SparX

Regional Automobile, Oil & Metal Sectors

Refer to important disclosures at the end of this report

Asian Insights SparX Regional Automobile, Oil & Metal Sectors

ASIAN INSIGHTS

The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one off treatise on the topic, and invite feedback from our readers, and in particular welcome follow on questions worthy of closer examination.

Table of Contents

Investment summary 3

Rapid economic development brings environmental woes 4

World governments embarking on electric vehicle development to tackle air pollution 7

United States – Exit from Paris Agreement, a potential setback 10

Europe – Set timeline to exit from ICE vehicle productions 11

Asia –China leading in EV adoption 16

India: U-turn on full electric adoption by 2030 23

South Korea: EV market still in an early stage but has huge potential 24

Oil sector – EV unlikely a demand shock 28

Metals sector: Key beneficiary from the EV growth 32

Copper: demand growth powered by EV, from battery to infrastructure 32

Steel – intensifying competition but to remain as key autobody material 34

Aluminium – the lighter the better 34

Profile

BYD Company (1211 HK) 40

Contemporary Amperex Technology (300750 CH) 42

Minth Group (425 HK) 44

Nexteer Automotive Group (1316 HK) 46

Special thanks to Hanjoon Lee for his contributions to the Korean EV market analysis

Note: Prices used as of 16 July 2018


ASIAN INSIGHTS

Investment summary

Thriving cities, environmental woes

Rising carbon emissions from transportation sector a concern;

countries looking at exiting from fossil vehicle sales. Both

developed and developing nations are grappling with rising

carbon emission levels, due to the rapid economic

development in the past decade. Asia’s share of the carbon

emission pie is huge, and China alone accounted for 26% in

2016, double that of the US. Of this, transportation is one of

the main culprits causing rising carbon emissions. Several

European countries have made plans to exit fossil fuel vehicles

starting from 2025 to 2040, such as Norway, Switzerland,

Netherlands, Germany, United Kingdom and France. China is

looking at a time frame after 2025.

Policies and government directives to spur global electric

vehicle (EV) market development; financial incentives an

important driver. Globally, several government bodies (from

the developed countries and Asia, particularly China) are

pushing for EV development as part of their initiatives to

reduce carbon emissions. Policies (including financial incentives

and tax credits) have been implemented to encourage

automakers and car buyers to switch over to EVs. In China, the

“stick and carrot” approach since 2010 has produced some

rather favourable results. From 2013 to 2017, the Chinese

government have spent around Rmb50bn on EV subsidies.

Rapid global EV market expansion; Asia to lead the race. In

2017, EV sales accounted for around 2% of the global vehicle

market. Due to strong policies and government directives, we

project global EV sales to increase from about 1.26m units in

2016 to approximately 27m units by 2030. This translates to an

EV penetration rate of about 20% (from 2%% in 2017). And

the bulk of the EV consumption is expected to come from Asia.

Europe ranks second, well supported by several of the Nordic

countries’ aggressive policy on EV adoption. Broadly, the Asian

EV market is expected to be 3.5 times the size of North

America and 2.6 times of Europe by 2030.

Future power source for EVs. Currently, vehicle energy comes

largely from fossil fuels. As governments increase their

investments into clean energy, reliance on clean fuel is

expected to play a bigger role in powering EVs in the future. By

2030, clean energy (natural gas and renewables) is projected to

account for about half of the energy mix to power EVs, up

from 39% in 2016.

EVs unlikely to create a demand shock on oil sector. The

passenger vehicle market (factoring in improving efficiencies,

share mobility and EV) accounts for about 21% of global oil

demand. While this may seem big, other drivers of oil demand

could mitigate some of the impact from EVs. India is potentially

a bright spot, with projected strong economic growth. With

the rise in EVs, approximately 6% of annual oil demand could

disappear by 2030. Thus, we do not expect a major demand

shock from EVs, as the evolution, growth and adoption of EVs

will take time. Rather, industry investments and geopolitics will

be the major factors in determining oil prices in the future.

But a substantial driver of metals sector. The anticipated robust

EV market outlook has spurred prices of raw materials such as

lithium, cobalt, nickel and copper, the key raw materials for

lithium batteries, automotive parts and infrastructure network

to hit record levels. Based on International Copper

Association’s estimates, the amount of copper needed to make

one battery-electric vehicle (BEV) and hybrid electric vehicle

(HEV) is about four times and two times respectively the

amount needed for an internal combustion engine vehicle

(ICEV). From 2017-2030, we estimate copper demand to rise

by 19% per annum to 1.91m tons solely from EVs alone. Other

metals such as advanced high strength steel and aluminium are

expected to ride on the EV trend, as these metals are widely

used by automakers to reduce the weight of the EVs to

enhance battery performance.

China dominates global EV penetration rate. China has the

largest electric vehicle (EV) market in the world. For every two

EVs sold globally, one is in China. To accelerate the EV

development, the government introduced the EV quota and

carbon credit dual system. The EV quota-credit policy effective

from January 1, 2019, requires passenger vehicle makers in

China to generate a certain amount of credit points from EVs

(equivalent to10% of total production in 2019 and 12% in

2020). In addition, automakers have to comply with higher

vehicle fuel standards under the corporate average fuel

consumption (CAFC) policy. Starting from June 2018, only EVs

that meet the higher drive range will be entitled to subsidies.

This shift effectively forces EV makers to develop more

advanced technologies to level up with the international

players. Hence, we forecast EV sales to reach approximately

15m units by 2030, up from 777,000 units in 2017. By 2030,

China’s EV penetration is expected to hit 33%.

Top players in EV value-chain. Along the EV value-chain, we

prefer upstream EV parts suppliers, as they directly tap on the

global EV market trend. These include high-end EV batteries

and light-weight automotive parts. China has a relatively large

EV supply chain given its scale. By end-2017, China EV market

size has reached approximately 1.8m units, the largest in the

world. Among the Chinese EV battery makers, Contemporary

Amperex Technology Ltd (CATL; 300750 CH) is the largest

player in the world. The Chinese EV market upcycle is expected

to create a battery market size of 215GWh by 2022, almost 5x

up from 44.5GWh in 2017. CATL has locked in several

international automakers to be their battery supplier. In the

lightweight automotive parts segment, Minth (425 HK) is one

of the leading global players. It is expanding production

capacity in view of increasing demand for lightweight parts, as

well as working with US’s Clean Wave to develop electric drive

systems (including the electric traction motor and its drive

control units, and the gearhead system) for NEVs.


ASIAN INSIGHTS

Rapid economic development brings environmental woes

Rising global carbon dioxide emissions a worrying sign. Global

air pollution is not just a country specific issue today, it has

become a global problem, as both developed and developing

countries are facing worsening air quality, especially in the

major capital cities around the world.

Based on WorldBank’s study, rising carbon dioxide (CO2)

emission is reaching a critical point and governments are

getting together to address this issue. Globally, 195 countries

(the US withdrew from the agreement recently) have pledged

their Nationally Determined Contributions (NDCs) under the

Paris Agreement on their emission reduction targets.

In fact, global CO2 emission has been on the rise since 1990,

as shown in the chart below. The rising trend is largely

attributable to economic development – industrial production,

transportation, and power generation. Among which, the

vehicle sector has played a key role.

Trend in global total greenhouse gas emissions

Source: PBL Netherlands Environmental Assessment Agency

Based on the 2015 greenhouse gas (GHG) emission statistics, it

shows that Asia is a large contributor to global warming. China

accounts for almost a quarter of the global GHG emission, one

of the largest in the world.

Share of greenhouse gas emissions by countries (2015)

Source: Natural Resources Defense Council, as of 15 Dec 2015

Over the years, China’s share of global CO2 emission has been

on the rise, attributable to its growing economic power.

Increasing demand for goods and services (such as car

ownership and transportation) has contributed to the alarming

level of CO2 emissions. This trend also holds in many of the

developing nations in Asia. Below are some of the key factors

contributing to the rise in CO2 emissions.

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5%India7%

EU 289%United

States13%

Other G20 countries

14%

Other countries

20%

China 26%

Asian Insights SparX Regional Automobile Sector

ASIAN INSIGHTS

Global carbon dioxide emissions by region, 1751 to 2015

Source: World in Data, CDIAC (2017)

Rapid urbanisation a major driver of GHG emission. Rapid

economic expansion has delivered about 60% of global

growth. The Organisation for Economic Cooperation and

Development (OECD) has suggested that Asia’s fast growth will

stay through 2030. Urbanisation rates are also on the rise in

Asia, from around 40% in 2010 to over 50% in 2030. Such a

fast rate of expansion would drive up GHG emissions.

Transportation needs in step with urbanisation. Based on

various studies, transportation is a growing contributor to GHG

emissions. In fact, rising car ownership is the main culprit to

the worsening air quality across the globe, especially for the

Asian economies. Global vehicle sales have been on the rise

post the great financial crisis, and a large part coming from

Asia. For example, the Chinese government has been building

more roads and this has facilitated car travel and rising car

ownership.

China’s automobile market is the largest in the world, and this

has been the main factor to the worsening air quality especially

in the major Chinese cities. The Chinese government in its

latest 2017 Environmental Report, mentioned that the

automobile industry released a total of 43.6m tonnes of GHG

in 2017, given that the country has over 300m automotive

vehicles, and of which 217m units are motor vehicles.

Global vehicle sales projection

Source: OICA, DBS HK

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ASIAN INSIGHTS

Industrial activities. Economic growth is tagged to a vibrant industrial sector, which also leads to huge power demand. The combined impact of industry growth, power generation and transportation could account for sizeable portion of the total GHG emissions. For example, in the US, these three sectors accounted for approximately 80% of the total GHG emission in 2016, as shown in the chart below.

US greenhouse gas emission by sector

Source: US Environmental Protection Agency

Residential 5%

Commercial6%

Agriculture9%

Industry22%

Transportation29%

Electricity29%


ASIAN INSIGHTS

World governments embarking on electric vehicle development to tackle air pollution

Global EV scenario. Governments worldwide have arrived at

measures to address the worsening air pollution. Regulations

targeting cleaner vehicle fuel are being formulated. For

instance, China and the European Union (EU) have announced

higher fuel standards to reduce the amount of vehicle

pollutants. But a longer-term solution is to increase the vehicle

electrification rates.

Many global automakers are intensifying their EV business

strategy to catch up with the EV trend.

International automakers’ EV strategy

Auto makers EV strategy and targets

Volkswagen Electrified all 300 models by 2030, involving some

EUR70bn of investment

16 productions sites for EV by end of 2022

Partner with battery manufacturers for Europe

and China demand, amounting to EUR50bn by

2025

To build 2-3m Evs annually or 20-25% of total

portfolio by 2025

Over EUR20bn of capex in the period to 2030

BMW All future vehicle models on modular

construction, allowing for fully electric, plug-in

hybrid or internal combustion powertrains

Planned 12 all electric and 13 hybrids in its lineup

by 2025

To enhance its xEVDrive train architectures by

2020, and leveraging on its in-house battery

modules and packs capability

Daimler Focus on 48 Volt electrification to provide comfort

and agility

Modular architecture to provide flexibility from

ICE to xEV

EUR10bn investment in EV fleet

More than 10 BEV and 50 electrified passenger

cars by 2022

General

Motors

Delivering over 300 miles of range

To lower battery cell cost by 30% from US$145

per KWh to below US$100 by 2021Source: Companies

Anticipate faster adoption of EVs globally. Many nations are

racing to finalise their EV development plans and several

European nations (the EU) have vowed to stop the production

and sale of fossil fuel vehicles during 2030-2040. Member

countries of the Paris Climate Accord are becoming more

active in cutting down GHG emissions through various

measures and faster EV adoption is one of the solutions. The

automobile markets in the US and Europe are the most

developed but their EV development were slower compared to

China. Worldwide, the total number of EVs sold passed a

million units in 2017, with China taking a sizeable 40% share.

For the first four months of 2018, EV deliveries worldwide had

hit almost 130,000 units, representing 93% y-o-y expansion.

World’s top 10 best-selling electric cars (Jan-Apr 2018)

Source: Inside EVs

Compared to the US and EU, China’s EV market has advanced

the most. One major driving force is the Chinese government’s

willingness to spend billions of yuan to incentivise new energy

vehicle companies to embark on EV development. After years

of promotion and providing financial support, China’s EV

industry has reached the top, becoming the largest in the

world.

Moving away from fossil fuel vehicles. Globally, the electric car

market is attracting a lot more attention. The following are

factors directing the global EV market development in the

coming few years.

EVs are approaching cost parity with the internal

combustion engine (ICE). Market estimates point to 2020-

2025 for the price of BEV to be on parity to the ICE

vehicle.

Adoption rate of EVs is expected to rise, as global

governments are pushing for EV development. Several

large automakers have plans to roll out new EV models in

the coming years. For instance, Volkswagen plans to offer

80 EV models by 2025. We project EVs to account for

some 20% of market by 2030.

China is accelerating the EV adoption rate through various

investment, incentive and policies measures, especially

under the latest dual credit scheme.

Governments have announced that there could be bans

on ICEs in the future. France, Britain and Norway are

ditching fossil fuel vehicles and replacing these with

cleaner energy ones between 2030 to 2040. And China

has started to study the timeline for the country to exit

from fossil fuel cars.

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Renault ZOE

Tesla Model 3

Tesla Model X

JAC iEV7S/E

BYD Qin

Tesla Model S

BYD Song

Toyota Prius

BAIC EC Series

Nissan LEAF

Units


ASIAN INSIGHTS

Global EV market to post rapid expansion. In 2017, total

electric car sales hit over one million units, with China as the

largest. China sold 770,000 units of electric vehicles (passenger

and commercial vehicles) last year, compared to approximately

750,000 units in the EU and 190,000-200,000 units in the US.

Top electric car market in the world (2017)

Source: Statista Research

Based on the various governments’ incentive schemes and

GHG policy, we estimate total EV sales will reach approximately

27m units by 2030, and account for about 21% of total

vehicle sales.

Global EV sales and penetration rates

Source: CAAM, Global EV outlook 2017, DBS HK

Impact of EVs on value-chain

EV critical mass breakthrough. The adoption rate of EVs largely

depends on the cost parity to internal combustion vehicles

(ICVs). According to various market estimates, the price parity

between electric cars and gasoline cars is expected to narrow

in the coming years, especially with falling battery costs.

Market estimates on cost parity time-line

Source: Companies

The cost of EVs currently is more expensive to ICEVs by about

30%, largely attributable to the battery cost. However, as the

cost of batteries is falling, achieving parity is only a matter of

time. Depending on the speed of battery cost reduction, 2020-

2025 is a possible timeline for EVs to hit a critical mass level.

Battery cost as percentage of EV’s total cost (2016-2030)

Source: Statista Research

A 2018 study by the University of Michigan’s Transportation

Research Institute shows the average cost to operate an EV in

the US is US$485 per year, while the average cost for a

gasoline powered vehicle is US$1,117.

DNV GL predicts EV prices to fall to the same price as

combustion vehicles by 2022. More importantly, automakers

such as General Motors are working towards lowering the

battery cell cost by 30% by 2021. These actions should bring

the price of EVs down to more affordable levels post 2020.

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North America Asia

EV penetration rate (%)

000 units (%)

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Mckinsey

Bloomberg New Energy

DNV GL (Energy ConsultingFirm)

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ASIAN INSIGHTS

Impact on battery market. With the rise in EV developments,

demand for car batteries is expected to surge. Electric car

companies are looking at certain qualities for automotive

batteries, including car battery density, safety, charging time

(quick charge), life span of battery, and travel distance per

charge etc.

As such, manufacturers are constantly looking at ways to

enhance the performance and durability of the car batteries.

Globally, the Lithium Nickel Manganese Cobalt Oxide (NMC)

batteries are widely used in EVs. Hence, the key raw materials

of the NMC batteries is an important consideration. These

include copper, nickel and cobalt, which have seen a strong

price surge in recent years, as demand is expected to outstrip

supply, especially for cobalt.

Global car battery demand

Source: GGII; DBS HK

Global battery players. In 2017, total car battery demand

amounted to 69GWh, representing 40% y-o-y growth. The top

ten global battery manufacturers accounted for approximately

70% of total market share. Among the major manufacturers,

the Chinese battery companies have taken up seven of the ten

positions, with a 65% market share. This is due largely to the

huge EV market demand in China underpinned by supportive

government policies. In 2017, Contemporary Amperex

Technology Ltd (CATL) became the largest EV battery

manufacturer in the world, eclipsing the more established

international players.

Top ten global EV battery manufacturers (based on 2017 sales)

Source: GGII

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ASIAN INSIGHTS

United States – Exit from Paris Agreement, a potential setback

Transportation sector one of largest culprit to US GHG

emissions. According to the US official statistics, transportation

generated about 29% of total GHG (Greenhouse gas)

emissions in the US in 2016. Within the transportation sector,

light duty vehicles formed the largest category (60% of GHG

emissions), while medium-heavy duty trucks accounted for

23%. In fact, transportation GHG emissions share has been on

a rising trend compared to any other sector (electricity

generation, industry, agriculture, residential or commercial) in

absolute terms, due to rising demand for travel. It rose from

24% share of total GHG emissions in 1990 to 29% in 2016.

Share of GHG emissions in the US by sector (2016)


Share of US transportation sector’s GHG emission (2016)


California leads in advocating carbon emission reductions. The

state has set a mandate requiring automakers to sell a certain

quantity of zero emissions cars after reaching certain ICE

vehicle sales volume. California is working toward a goal of

placing in service at least 1 million zero emission vehicles and

near-zero emission vehicles by January 1, 2023. There are other

states following California’s footsteps in implementing stricter

emissions standards and minimum quantity of zero emission

car sales ratios, including Connecticut, Delaware, Maine,

Maryland, Massachusetts, New Jersey, New Mexico, New York,

Oregon, Pennsylvania, Rhode Island, Vermont, and

Washington.

Policy and incentives. The federal government and a number of

states that do offer tax credits to encourage higher EV

adoption rate. The tax credit on plug-in EVs is US$2,500 to

US$7,500 per new EV purchased. The size of the tax credit

depends on the size of the vehicle and its battery capacity. This

tax credit will be available until 200,000 qualified EVs have

been sold in the US by each manufacturer. At present, no

manufacturers have been phased out yet.

California has separate rebate programs for buyers of green

cars. Consumers enjoys US$1,500 to US$5,000 of rebates for

plug-in hybrid, battery EVs and hydrogen fuel cell EVs. The

state also has one of the most extensive charging infrastructure

in the US. The California government also requires automakers

to comply with the “zero emission vehicle regulation” by

earning credits from sales of EVs or plug-in hybrid vehicles.

EV sales projections till 2030. The US EV market is largely

dominated by California, which accounts for about half of the

total EVs sold in the US. The overall EV adoption rate in the US

is still low, at about 1.2% in 2017. We estimate total EV sales

in the US will reach about 4m units by 2030, with a large

portion coming from California.

North America: EV sales projections

Source: Global EV outlook 2017; DBS HK

Residential 5%

Commercial6%

Agriculture9%

Industry22%

Transportation29%

Electricity29%

Light-Duty Vehicles

60%

Medium and Heavy

Duty Trucks23%

Aircraft9%

Other4%

Rail2%

Ships & Boats2%

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ASIAN INSIGHTS

Europe – Set timeline to exit from ICE vehicle productions

EU to phase out ICE vehicles. Several EU governments are

taking steps to phase out petrol and diesel cars. Currently, the

European Union has imposed CO2 emission taxes on vehicles

to discourage fossil fuel vehicles on the roads.

Timetable to phase out ICE vehicles in Europe

Source: European Governments

Tax scheme. The EU member countries have a comprehensive

tax exemption scheme to encourage car owners to switch to

EVs. The top European countries with the highest EV sales are

France, Germany, the United Kingdom and Norway. Their

governments have incentives in place for buyers to purchase

electric vehicles and new electric and hybrid car sales have

been rising in the past few years.

New electric and hybrid car registrations in Europe

Source: ACEA

Electric car sales by country (2017)

Source: ACEA

EV growth projections, one of the fastest. Sales of electric cars

in Europe have grown at a rapid rate in recent years, thanks to

the government policies and incentives to encourage the

industry development. We project EV sales to reach 8m units

by 2030, up from approximately 0.5m units in 2016.

EV projections

Source: Global EV outlook 2017; DBS HK

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ASIAN INSIGHTS

Electric vehicle policy and incentive schemes in Europe

OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV

PV

Registration

AUSTRIA Electric vehicles are exempt from fuel

consumption/pollution tax and ownership tax. In addition,

a deduction of VAT is applicable for zero-CO2 emission

cars (eg electric and hydrogen-powered cars).

The Austrian automobile club ÖAMTC publishes the

incentives granted by local authorities on its website

(www.oeamtc.at/elektrofahrzeuge ).

20% VAT on all vehicles

Fuel consumption/pollution tax for PV: [(CO2

emissions in g/km - 90) / 5] - NoVA deduction

€300 + NoVA malus fee €20 for each g/km of

CO2 emission exceeding 250g/km

Ownership tax for vehicles < 3.5t: 30.62 × (kW

– 24) × f (for the first 66kW) + 0.66 × (kW – 24)

× f (for the next 20kW)+ 0.75 × (kW-24) × f (for

each exceeding kW)

7,154

BELGIUM Electric vehicles pay the lowest rate of tax under the

annual circulation tax in all three regions.

In the Brussels-Capital region, financial incentives apply to

companies electric, hybrid or fuel-cell vehicles.

Electric and plug-in hybrid (until 31 December 2020)

vehicles are exempt from registration tax in Flanders.

Incentives (“Zero Emission Bonus”) for the purchase of

battery electric and hydrogen-powered cars and vans are

granted.

The deductibility rate from corporate income of expenses

related to the use of company cars is 120% for zero-

emissions vehicles.

N.A. 14,299

BULGARIA Electric vehicles are exempt from ownership tax. Ownership tax for PV:

BGN1.02/kW for engine power less than 37 kW,

BGN1.20/kW for power between 37kW and 55

kW, BGN1.62/kW for power between 55kW

and 74 kW, BGN3.30/kW for power between

74kW and 110 kW, BGN3.69/kW for power

more than 110kW

The above tax is multiplied by 1 for more than

14 years of production, 1.5 for 5-14 years of

production and 2.8 for less than 5 years of

production

106

CYPRUS Vehicles emitting less than 120g CO2/km are exempt from

registration tax and pay the lowest rate of tax under the

annual road tax.

Registration tax for PV:

€0 for CO2 emission lower than or equal to 120

g/km, €25/g CO2/km emitted > 120 for CO2

emission 121-150g/km, €750 + €50/g CO2/km

emitted > 150 for CO2 emission 151-180g/km,

€2,250 + €400/g CO2/km emitted > 180 for

CO2 emission more than 180 g/km

Annual road tax:

€0.5/g CO2/km for CO2 emission lower than or

equal to 120 g/km, €3/g CO2/km for CO2

emission 121-180g/km, €8/g CO2/km for CO2

emission >180g/km

NA

Source: ACEA


ASIAN INSIGHTS

Electric vehicle policy and incentive schemes in Europe (con’t)


PV

Registration

CZECH

REPUBLIC

Electric, hybrid and other alternative fuel vehicles are

exempt from the road tax.

Road tax rates are assessed as annual fixed rates

and range:

from CZK 1,200 for vehicles with engines up

to 800cc,

to CZK 50,400 for heavy-duty vehicles over

36t with three axles.

Tax rates increase by 25% for vehicles that were

first registered before 31 December 1989.

307

DENMARK Electric vehicles (BEVs) pay only 40% of the registration tax

(in 2017). This percentage will be gradually increased at

65% in 2018, 90% in 2019 and 100% in 2020. Hydrogen

and fuel cell-powered vehicles are exempt from

registration tax until the end of 2020.

N.A. 1,342

FINLAND Pure electric vehicles always pay the minimum level of the

CO2 based registration tax.

Min registration tax rate for PV: 3.3 % 1,430

FRANCE Regions have the option to provide an exemption from the

registration tax (either total or 50%) for alternative fuel

vehicles (ie electric, hybrids, CNG, LPG, and E85).

Electric vehicles and vehicles emitting less than 60g

CO2/km are not subject to the tax on company cars.

Electric and hybrid electric vehicles emitting 20 g/km or

less of CO 2 benefit from a premium of €6,000 under a

bonus-malus scheme.

An incentive scheme grants an extra €4,000 for switching

an eleven year or more diesel vehicle for a new BEV (or

€2,500 in case it’s a PHEV).

Registration tax: €27 - €51.2 36,835

GERMANY Electric vehicles are exempt from the annual circulation tax

for a period of ten years from the date of their first

registration.

From July 2016, the government granted an environmental

bonus of €4,000 for pure electric and fuel-cell vehicles and

€3,000 for plug-in hybrid and range-extended electric

vehicles.

After the tax exemption, the car tax will amount

to 50% of €11.25 (up to 2,000kg), €12.02 (up

to 3,000kg) or €12.78 (up to 3,500kg) for each

100cc or part thereof.

54,617

GREECE Electric and hybrid vehicles are exempt from registration

tax, luxury tax and luxury living tax. Electric and hybrid cars

(with an engine capacity of up to 1,549cc and first

registration date before 31 October 2010) are exempt

from circulation tax.

Registration Tax for PV = taxable value x basic

coefficient x CO2 emissions coefficient

Luxury living tax:

5% of presumed income annually for cars

with an engine capacity greater than 1,929cc

andup to 2,500cc;

13% of presumed income annually for cars

with an engine capacity greater than

2,500cc.

199

HUNGARY Electric cars and plug−in hybrids are exempt from

registration tax, annual circulation tax and company car

tax.

Company Car Tax: 7,700 HUF/month - 22,000

HUF/month

1,192

Source: ACEA


ASIAN INSIGHTS



PV

Registration

IRELAND Electric vehicles qualify for VRT (purchase tax) reliefs of

€5,000 until 31 December 2021 (€2,500 for plug−in

hybrids until 31 December 2018). In addition, electric

vehicles and plug−in electric hybrids entitle the buyer to a

grant of up to €5,000 on purchase until 31 December

2021 for electric vehicles and December 2018 for plug−in

hybrid electric vehicles.

Electric vehicles pay the minimum rate of the road tax

(€120).

N.A. 948

ITALY Electric vehicles are exempt from the annual circulation tax

(ownership tax) for a period of five years from the date of

the first registration. After this five-year period, they

benefit from a 75% reduction of the tax rate applied to

the equivalent petrol vehicles.

N.A. 4,827

LATVIA Pure electric vehicles pay the lowest fee for technical

annual inspections and the lowest amount for the

company car tax (€10).

N.A. 56

LUXEMBOURG Electric and fuel cell vehicles benefit from a tax allowance

on the registration fees of €5,000. Electric vehicles also pay

the minimum rate of the annual circulation tax.

Pure electric and hydrogen cars pay the lowest tax on

benefit in kind for private use of a company car.

N.A. NA

MALTA Registration tax is based on length of vehicles, emissions

and age. For pure electric vehicles the emission tax is zero.

Total Registration Tax = (X% x CO2 x RV) + (Y%

x length x RV)

Where:

X% is the percentage depends on the CO2

value

Y% is the percentage depends on the length

NA

NETHERLANDS Zero emission cars are exempt from paying registration tax.

Passenger cars with zero CO2 emissions are exempt from

motor vehicle tax up to and including 2020.

Zero emission cars pay the lowest percentage (4%) of the

income tax on the private use of a company car.

Registration tax: €0 - €458 per g CO2/km 11,079

POLAND Electric and plug-in electric vehicles exempt from

registration tax.

Registration tax: PLN 180.50 1,068

PORTUGAL VAT is deductible for electric vehicles (with acquisition cost

<€62,000) and plug-in hybrids (with an acquisition cost

<€50,000).

Pure electric cars are exempt from the registration tax

(Imposto Sobre Vehículos or ISV). Plug-in hybrid cars with

all-electric mode up to 25km benefit from a 75%

reduction of the tax.

VAT at the rate of 23% is calculated on the net

price after all discounts, but inclusive of ISV.

4,082

ROMANIA An incentive scheme grants €10,000 for the purchase of a

new pure electric vehicle (plus €1,500 for scrapping a

vehicle older than eight years) and €4,500 for the purchase

of a new hybrid vehicle.

Electric vehicles are exempt from the ownership tax.

Ownership tax for PV: RON 8 - RON 290 for

each 200cc engine displacement

188

Source: ACEA


ASIAN INSIGHTS



PV

Registration

SLOVAKIA Pure electric vehicles pay the lowest amount for the

registration tax (€33) and are exempt from motor vehicle

tax. Hybrids and natural gas (CNG) vehicles benefit from a

50% reduction of the tax.

N.A. 209

SLOVENIA An incentive scheme grants:

• €7,500 for a new electric vehicle with zero emissions

or a BEV (M1)


or a power-driven vehicle (N1 or L7e)

• €4,500 for a new plug-in hybrid or a new electric

vehicle with a range extender, with emissions < 50g

CO2/km (M1 or N1)


or a power-driven vehicle (L6e)


(L3e, L4e or L5e)

• €500 for a new electric vehicle with zero emissions

(L1e-B or L2e)

• €200 for a new electric vehicle with zero emissions

(L1e-A)

BEV's pay the lowest (0,5%) rate of tax on motor vehicle.

N.A. 456

SPAIN Main city councils (eg Madrid, Barcelona, Zaragoza,

Valencia etc) are reducing the annual circulation tax

(ownership tax) for electric and fuel-efficient vehicles by

75%. Reductions are applied on company car taxation for

pure electric and plug-in hybrid vehicles (30%), and for

hybrids, LPG and CNG vehicles (20%).

N.A. 7,476

SWEDEN ‘Climate bonus’ (Klimatbonus) is available for the purchase

of new vehicles with CO2 emissions of maximum 60g/km.

It ranges from SEK 60,000 for electric vehicles (BEV) with

zero emission to plug-in hybrids (PHEV) with emission of

60g/km. Electric cars and plug-in hybrids are exempted

from paying annual circulation tax for five years. 40%

reduction is applied on company car taxation for electric

cars and plug-in hybrids.

N.A. 19,678

UNITED

KINGDOM

From April 2018 until March 2021, cars that emit less than

50g/km qualify for 100% first year writing down

allowances (FYAs). Zero emission vehicles attract a zero

rate of vehicle excise duty (VED)

Ultra-low emissions and electric vehicles pay reduced

company car tax rates.

VED 12 months: £10 - £2,000 47,298

Source: ACEA


ASIAN INSIGHTS

Asia –China leading in EV adoption

China leading Asia’s EV market development. Asia’s rapid

economic development is pushing its eco-system to the rims,

especially the transportation sector. The automobile market in

Asia is the largest in the world, and dominated by China, while

India and Indonesia, though both have a population size as big

as China, their automobile markets are much smaller. Against

this backdrop, China has been moving fast into the EV space in

recent years, and its EV companies are emerging as one of the

largest in the world in terms of production volumes.

Asia car population on the rise, pressing environmental issues

ahead. Globally, demand for fossil fuel is rising, especially from

the automobile market. China is also experiencing the same

trend. China’s crude oil imports amounted to approximately

420m tons in 2017, or 10.1% y-o-y expansion. As at end of

2017, China had 210m vehicles, and we forecast the vehicle

population to exceed 270m units by 2020 and hit about 500m

vehicles by 2030. To address the growing crude oil demand

from the automobile market, the Chinese government made a

big commitment to develop the EV industry several years ago.

The Chinese government saw a window of opportunity in

green car development and launched the green initiative in

2009, when 13 cities were selective to pilot the electric car

program. Since then, there has been no turning back and

China became the largest EV market in the world in 2016.

Under the Paris Agreement, China has also committed to

reduce its carbon intensity to 60-65% by 2030 from 2005’s

level of carbon emission. Part of the plan is to implement the

green car initiative vigorously. The rising number of vehicles on

the road has created a major environmental issue, especially in

tier 1 cities such as Beijing, Shanghai, Guangzhou, and

Shenzhen. As such, the governments in these cities have

imposed auto sales restrictions in place for several years already

to cap vehicle population growth. In addition, EV is highly

encouraged as part of the governments’ initiative to slow

environmental pollution.

CO emissions by vehicle sector in China (2017)

Source: China Vehicle Environment Management Annual Report

The Department of Atmospheric Environment Management

has released a document that shows that soot and vehicle

exhaust fumes from fast-growing vehicle population in China

has contributed to air pollution. As shown in the chart below,

some of the Chinese tier 1 cities have poor air quality in the

past three years. Shenzhen has a relatively low reading given

the government’s strong promotion of EVs in the city.

China PM2.5 index of major cities

Source: China National Environmental Monitoring Centre

Low speed vehicles0.30% Motorcycles

11.90%

Motor vehicles87.80%

0

10

20

30

40

50

60

70

80

Beijing Shanghai Guangzhou Shenzhen

Apr-16 Apr-17 Apr-18


ASIAN INSIGHTS

China: Proactive policy to accelerate EV development

Regulations and policies main tools to promote EV market

development. Since 2009, the Chinese government has relied

heavily on various regulations and policies (carrot and stick

approach) to promote the EV market development. This carrot

and stick approach in our view has successfully led to

significant progress in the Chinese EV market. Since the start of

EV development in 2009, the Chinese government has offered

generous financial incentives to electric car buyers. By the end

of 2017, there were approximately 1.2m electric cars in China,

making it the largest in the world.

New EV quota and carbon credit policy to accelerate EV

development. The introduction of the EV dual credit policy

(including meeting the minimum EV quota and carbon credit

scheme) in September 2017 signals another major

transformation in the EV market. The latest electric car quota

policy requires passenger vehicle manufacturers to generate EV

credit points starting from 2019. Automakers are required to

earn credit points from EVs, equivalent to 10% of the total

passenger vehicles produced in 2019, and rising to 12% in

2020.

Apart from the electric car quota policy, automakers have to

meet the stringent fuel standard policy. Based on the individual

gasoline car model, the automakers are required to generate

sufficient carbon credits from meeting the minimum fuel

consumption standard. By 2020, they are required to meet the

corporate average fuel consumption (CAFC) target of 5 litres

per 100km (5L/100km), under a step-down system formally

established in 2015. Meeting these two standards is a major

hurdle for the automakers. Based on 2017 sales statistics,

majority of the automakers have made only a small quantity of

EV sales. Many automakers are lining up their EV pipelines to

meet the EV quota that will be implemented in 2019.

CAFC becoming more stringent. China is moving to National

Fuel Standard VI in phases as part of its effort to reduce CO2

emissions. By 2020, the average fuel consumption target is

5L/100km (or 0.021 gallon per mile), as set out under the

Corporate Average Fuel Efficiency Accounting Method for

Passenger Cars regulations released in March 2013.

Corporate Average Fuel Consumption policy

Source: MIIT

Latest EV subsidy scheme encourages technology upgrade.

From 2013 to 2017, the total subsidies on EVs amounted to

some Rmb50bn. In February 2018, the Chinese government

released the latest subsidy scheme, which aims to encourage

technology upgrades, shifting subsidies to the higher end of

the EV market. Electric passenger cars must meet the minimum

driving range of 150km or above on a per charge basis to be

entitled for subsidy (100km previously). Also, the subsidies on

electric passenger cars with driving range of 300km and above

have been raised.

2018 electric car subsidy scheme

Note: R refers to drive range Source: MIIT

To lift electric car battery technology, the government has also

made changes to the battery density standard, as shown in the

table below. So far, car batteries provided by the Chinese

companies are entitled for subsidies.

EV subsidy based on battery density

Note: p refers to power density Source: MIIT

EV purchase tax waiver extended to 2020. EV buyers will enjoy

a 10% vehicle tax exemption until 2020. Assuming a

Rmb200,000 price tag, the EV buyer will save about

Rmb17,000 of purchase tax. The tax exemption covers battery

electric vehicles (BEV), plug-in hybrid vehicles (PHEV) and fuel

cell vehicles (FCV).

Flexibility in usage and availability of licence plates. Tier 1 cities

such as Beijing and Shanghai are providing EV car buyers with

Ye a r Ac tua l CAFC/ta rge t CAFC re qui re me nt

2016 134%

2017 128%

2018 120%

2019 110%

2020 100%

Driv e range

2017

subsidy

(Rmb)

2018

subsidy

(Rmb) % change

Bat tery elect ric car

100km ≤ R < 150km 20,000 0 -100%

150km ≤ R < 200km 36,000 15,000 -58.3%

200km ≤ R < 250km 36,000 24,000 -33.3%

250km ≤ R < 300km 44,000 34,000 -22.7%

300km ≤ R < 400km 44,000 45,000 2.3%

R ≥ 400km 44,000 50,000 13.6%

Plug- in hy brid v ehic le

R ≥ 50km 24,000 22,000 -8.3%

Bat tery densit y Rat ios

p < 105Wh/kg 0

105Wh/kg ≤ p < 120Wh/kg 0.6

120Wh/kg ≤ p < 140Wh/kg 1

140Wh/kg ≤ R < 160Wh/kg 1.1

p ≥ 160Wh/kg 1.2


ASIAN INSIGHTS

easier access to car plates and there is no restriction on EV

usage during peak hours. As tier 1 cities are restricting the

number of new licence plates each year, some buyers have

switched to EVs instead.

Huge potential in China’s EV industry

Huge investment poured in to develop EV market. The Chinese

government is making another big push into the EV market

with its latest policy announced in September 2017. Since the

EV initiative was first launched in 2009, the government has

poured over Rmb50bn into its EV industry, creating the largest

EV market in the world in 2016. Sales of EVs soared from

about 2,000 units in 2009 to 777,000 units in 2017. Of this,

electric passenger and commercial vehicles comprised

75%/25% of the total EV market last year. To-date, China has

produced a total of approximately 1.7m units of EVs, including

both electric cars and buses.

Huge potential attracts tech companies to develop EVs. The

huge potential in the electric car market has attracted some

tech companies to venture into the Chinese EV market. New

start-ups such as NIO and Byton to launch their products in

China. NIO has featured its first EV car, the ES8 model, in

Shanghai recently. Also, following the government’s removing

the foreign ownership cap on EV companies this year, it should

attract more players to enter the industry, such as Tesla.

Robust electric car market outlook. The EV penetration rate is

still low in China, below 3% in 2017. Following the

implementation of the new EV quota policy, the roll-out of EV

models is expected to accelerate in the coming few years to

comply with the regulations as well as increase in proportion of

energy efficient vehicles sales to meet the Corporate Average

Fuel Consumption (CAFC) target, which is getting more

stringent going forward. We estimate EV sales to reach 2m

units in 2020 and by 2030, China’s EV sales are expected to

touch approximately 15m units, translating to penetration rate

of around 33%.

China: EV sales projections

Source: CAAM; DBS HK

In 2017, Beijing Electric Vehicle Co topped the production list

at over 100,000 units of electric cars, followed by BYD with

approximately 93,000 units. These two EV manufacturers are

focused on the full size passenger car segment, while Zhejiang

Geely Group produces mainly the small electric cars.

Electric vehicles productions by automakers

Source: MIIT, Gasgoo

2017 automakers’ carbon credits ranking. Automakers unable

to meet the credit points required would have to buy the credit

points from the open market. This could increase the cost for

these companies. For large automaker groups, they might be

able to transfer some of the excess credits to business units

within the group that are facing deficits.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2016

2017

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

2029F

2030F

Unit: 000

0 20 40 60 80 100 120

Changan Auto Group

FAW Group

Changan-Ford Auto

Huatai Auto

Great Wall Motor

Guangzhou Auto

Dongfeng Group

Chery Auto Group

Jianghuai Auto

Zotye Auto

SAIC Group

Geely Group

BYD Auto

BAIC Group

unit: 000


ASIAN INSIGHTS

Chinese automakers’ credit points (2017)

Source: MIIT

EV supply chain

In China, electric car sales are highest in the tier 1 and 2 cities,

largely due to auto sales restriction and limited supply of car

plate licenses as the local government strives to cut car

pollution. Buyers of electric cars have easier access to license

plates, as the local governments want to promote the EV

industry. Hence, Beijing, Shanghai, and Shenzhen were the top

three on the 2017 EV sales list.

NEV sales in major Chinese cities

Source: CPCA

Infrastructure network still lacking in China. Based on statistics

from China Electric Vehicle Charging Infrastructure Promotion

Alliance, at end 2017, there were 213,903 charging piles

installed by the alliance members. These charging networks are

largely located in tier 1 and 2 cities. Including 231,820

charging points by private entities, total charging network in

China amounted to 445,723 units. This translates to an EV to

charging point ratio of 4:1. Under the Chinese government’s

plan, the target is to have 4.8m charging points across China

by 2020.

Charging networks in major cities (2017)

Source: Government

-500,000 500,000 1,500,000

Changan-Ford

Great Wall Motor

GAC-FCA

Beijing-Benz

GAC-Toytoa

SAIC-VW

SAIC-GM

BMW Brilliance Auto

SAIC-GM-Wuling

FAW-Toyota

Jiangling Motor

BAIC

Jianghuai Auto

FAW-VW

Changan Auto

Beijing New Energy…

Cheery Auto

Zhejiang Haoqing Auto

Zhejiang Geely Auto

SAIC

BYD Auto

NEV credits Fuel consumption credits

0

10

20

30

40

50

60

70

Beiji

ng

Shanghai

Shenzh

en

Tain

jin

Hangzh

ou

Hefe

i

Guangzh

ou

Ch

ongqin

g

Qin

gdao

Ch

angsh

a

Units ('000)

BEV PHEV

0 10000 20000 30000 40000

Beijing

Guangdong

Shanghai

Jiangsu

Shandong

Anhui

Hebei

Zhejiang

Tianjin

Hubei

units


ASIAN INSIGHTS

Energy source for EV. With an objective to ‘Make the skies blue

again’, China has embarked on various policies to reduce the

proportion of dirtier fuels in its energy mix, while boosting the

usage of cleaner fuels. In particular, as part of the 13th Five-

Year Energy Development Plan issued in January 2017 by the

NDRC and the NEA, a mandatory target was introduced for the

first time for coal, with the aim of reducing its proportion of

the energy mix to below 58% in 2020 (that number was about

62% in 2016 and 60% in 2017, so China may very well

overshoot the target if this trajectory continues). Meanwhile,

China plans on ramping up usage of natural gas to 10% by

2020 and 15% by 2030. Renewable energy percentage is also

expected to increase from 13% in 2016 to 20% by 2030.

2016 China energy mix 2030 China energy mix

Source: BP Data Source: DBS Bank estimates

Coal62%

Crude Oil19%

Natural Gas6%

Renewables & Others

13%

Coal50%

Crude Oil15%

Natural Gas15%

Renewables & Others

20%


ASIAN INSIGHTS

New energy vehicle quota and fuel credit policy

NEV credit policy Fuel consumption credit policy i) The NEV credit policy is applicable to every passenger vehicle

company in China which has a production volume or import volume of over 30,000 units per year.

The fuel consumption credit policy is applied to passenger vehicle makers and passenger vehicle importers in China.

ii) The required NEV credits in 2019 and 2020 are set at 10% and 12% of total volume production, respectively. Post 2020 NEV creditrequirements will be announced at a later stage. The calculation ofNEV credits is shown in the table below.

Each PV maker is required to meet the fuel consumption target by 2020. If actual fuel consumption is below the required fuel consumption standard, it creates a credit and vice versa. The fuel consumption standard is based on the corporate average fuel consumption (CAFC) target multiplied by the CAFC ratio (see table below). The CAFC target is derived from the sales volume of every PV model and its fuel consumption target.

iii) Automakers can use the excess NEV credits in 2020 to cover theirdeficit in 2019, or carry forward any excess credits in 2019 to 2020.Automakers unable to meet the NEV credit requirements by 2020,would have to purchase NEV points from the open market.

Excess fuel consumption credits can be transferred within three years.

iv) Excess credits can be transferred in full at 100%. The excess credits accumulated up till 2018 will be transferred at a 20% discount to cover the deficit in the earlier years; while credits generated post-2018 will be transferred at a 10% discount to cover the following years.

V) NEV credits can be freely traded on the credit trading platform.Companies with negative NEV credits should purchase NEV creditsfrom the market to meet the requirement.

Shortfall in fuel consumption credits can be offset by NEV credits.

Source: MIIT

NEV Credits calculation Corporate Average Fuel Consumption (CAFC) requirement

Note: R refers to drive range Source: MIIT

Source: MIIT

NEV ty pe

Credit s

calculat ion

Max

credit Remark s

Battery electric vehicle

(BEV)

0.012*R+0.8 5 R is the mileage of

BEV (unit km)

HEV (Hybrid electric

vehicle)

2 2

FCV (Fuel cell vehicle) 0.16*P 5 P is the power of

FCV (unit kW)

Year

A ctual CA F C/target CA F C

requirement

2016 134%

2017 128%

2018 120%

2019 110%

2020 100%


ASIAN INSIGHTS

Detailed EV policies

Release Date Major Contents

Feb-2018 Starting from August 2018, EV makers are required to set up centres to collect, process and recycle EV batteries. They may have to

collaborate with battery companies and scrap operators to provide a proper channel for battery recycling.

Feb-2018 Electric vehicle subsidies being adjusted down for the low-end EVs while the more advanced EVs will entitle to higher subsidy.

Dec-2017 Waiver of 10% vehicle purchase tax on new energy vehicles (NEV) from 1 Jan 2018 till 31 Dec 2020. The NEVs (pure electric, plug-in

hybrid and fuel cell) have to be approved by the government.

Sep-2017 To implement a point-based system to car manufacturers with more than 30,000 traditional vehicles produced or imported. Credits

will be given to all vehicles produced, with NEV getting higher points. By 2019 and 2020, car manufacturers are required to have at

least 10 and 12 percent of credit score generated from NEVs.

Sep-2017 To promote energy storage research, focus on tackling a number of key energy storage technologies and materials. Experiment on

potential industrialised products, as well as improving energy storage products standard and quality assurance.

Apr-2017 To develop new energy vehicles industry with technology breakthrough and enhanced industry facilitation. Target to produce 2

million new energy vehicles and achieve energy capacity of 300Wh/kg in single automotive batteries by 2020, as well as requiring

new energy vehicles to account for 20% of all vehicles production and sales by 2025.

Feb-2017 To develop the automotive batteries industry, including research and production of high quality lithium battery by 2018,

industrialisation and new battery research by 2020, and revolutionary technology development by 2025.

Jan-2017 To provide the definition for new energy vehicles, as well as the strengthening safety requirements, including manufacturing

enterprises and products market access and legal responsibilities.

Jan-2017 To kick-start the new energy vehicle batteries recycle pilot project, and establish a comprehensive automotive batteries recycle

standard to enhance the re-use of batteries resources.

Dec-2016 The 13th Five-Year Plan set the strategic direction for emerging industries growth and missions. The goal is a rapid expansion in the

new energy vehicles industry and the establishment of a globally competitive vehicle batteries supply chain.

Dec-2016 To update the requirement for NEV specifications (such as energy per 100 km driving range per full charge) for subsidy, provided the

subsidy standard based on automotive battery cost and specification, and changed the subsidy payment from prepaid to yearly

settlement.

Nov-2016 To establish standard for the automotive vehicle battery industry. For example, lithium ion battery automotive battery manufacturers

are required to have yearly production capacity of 8GWh.

Jan-2016 To provide guidance on automotive batteries recycling technology development, requiring the establishment of coding system on

automotive batteries and support upstream and downstream battery industry to achieve an orderly development on the industry.

Sep-2015 To state the requirements for lithium ion battery industry, including production scale, technology, production specification, resources

re-usage, environmental protection, safety management, health and social responsibility, and management supervision.

Jun-2015 To play the role of market participant and support social capital and enterprises with technological innovation capacities in

participating in the scientific research and production of pure electric passenger vehicles.

May-2015 To reinforce the importance on new energy vehicles as a development area, providing continuous support on electric vehicles and

fuel cell vehicles from parts to whole vehicles in order to establish Chinese brands competitiveness in the international market.

Apr-2015 To continue the subsidy policy of promotion and application of new energy vehicles. The subsidy standards are mainly based on the

effectiveness of energy conservation and emission reduction, and will gradually reduce, taking into account the production costs and

economies of scale.

Mar-2015 To regulate the automotive battery manufacturers including the requirements on production capability, technology, products,

quality assurance, post-sales service and corporate management. Authorised automotive batteries manufacturer will be included in

the official approved list.

Mar-2015 To provide guidance on the development scale of new energy vehicles in the public transport industry. By 2020, NEV in public

transport, taxis and lorries should reach 300,000 units. The infrastructure on NEV should also be established with high efficiency and

safety.

Jul-2014 To provide strategic direction on local government and corporate cooperation in order to develop a sustainable eco-system on new

energy vehicles, and policies, including infrastructure network, new companies introduction and industry subsidy.

Jan-2014 To adjust the subsidy standard on new energy vehicles, and ensure the sustainability of the industry after the current subsidy scheme

ends.

Sep-2013 To announce the continuous support on selected cities on the promotion of new energy vehicles, as well as the subsidy on NEV

purchase. The subsidy is based on difference between NEV and traditional vehicle prices, as well as other factors such as technology

advancement.

Jun-2012 To establish a long term goal on the development on new energy vehicles. In particular, the industrialisation of pure electric vehicles

and plug-in hybrid vehicles. Source: Government


ASIAN INSIGHTS

India: U-turn on full electric adoption by 2030

Under the Automotive Mission Plan (AMP) 2026, the Indian

automotive industry will be among the top three in the world

in engineering, manufacture and export of vehicles and

components. The output value from the automobile industry in

India is estimated to account for 12% of Gross Domestic

Product (GDP) and generates some 65 million jobs for the

population.

1. Fuel standard on emission cuts

Cleaner vehicle fuel as an interim solution. The Modi

government has announced various measures to curb

vehicular pollution. The Bharat Stage (BS) IV fuel emission

standard came into effect on 1 April 2017 for all new

four-wheelers sold in the country. The Indian government

is taking a firm stand and will jump from BS IV emission to

BS VI by 2020.

2. Policies and incentives on EV development

U-turn on full electric strategy by 2030. The Indian

government had earlier set an ambitious goal to convert

all vehicles to electric and hybrid by 2030, in an effort to

curb vehicular pollution. But in February 2018, the Indian

government made a U-turn against formulating an EV

policy. Instead, certain action plans will remain to move

the country towards 30% electrification by 2030. To push

for EV adoption, the Delhi government plans to buy

electric and hybrid vehicles for the central government

ministries as well as public transport. To encourage the

private sector participation, the Indian government has

rolled out policies and incentive schemes to support the

industry development.

Policies and incentive schemes. There are two major

policies – National Electric Mobility Mission Plan (NEMMP)

and Fast Adoption and Manufacturing of Electric Vehicles

(FAME) – and both aim at accelerating the electric car

market development.

Under the NEMMP that was unveiled in 2013, the Indian

government intends to have approximately 6-7 million

electric vehicles (including hybrid) by 2020.

FAME was implemented on 1 April 2015 and under the

Phase II implementation (effective from 1 April 2018), the

government will spend US$1.3bn (Rs 8,730 crores) to

provide support to EV buyers. For electric 4-wheelers,

FAME II has allocated US$150m; electric buses US$370m;

2-wheelers US$90m; and 3-wheelers US$110m. As FAME

also provides support for the EV eco-system, electric

vehicle components manufacturers also stand to benefit

from the scheme. FAME II is valid till 2020.

Under FAME Phase I, the Indian government has set aside

an annual budget to subsidise EV purchases. In 2017-18,

US$26m has been allotted for this purpose.

Lack of infrastructure support. India is no different from

other countries in terms of lack of infrastructure support.

For FY15-16 and FY16-17, the government has spent a

total of US$4.5m on charging infrastructure for public

buses. India has about 300+ public charging points as at

end of 2016, which is insufficient to support the EV

strategy. More funding is needed to encourage private car

owners to switch over to EV unless charging infrastructure

at public places are being rolled out. The lack of charging

stations is discouraging people from opting for EVs.

3. 2030 EV target

An ambitious target. A survey by the Society of

Manufacturers of Electric Vehicles (SMEV) shows that

these five states in India are top in terms of retail of

electric vehicles - Gujarat, West Bengal, Uttar Pradesh,

Rajasthan and Maharashtra. Around 25,000 EVs were sold

in the country in FY2016-17 and these five states

accounted for about 14,000 EVs, or c.56% of the total. In

India, about 90% of the EVs sold are 2-wheelers and the

balance 4-wheelers. Under NEMMP, the Indian

government intends to achieve an EV population of 6-7

million (including hybrids) by 2020.

Therefore, the government’s mission to go fully electric by

2030 is a big challenge for the industry. Perhaps, the

immediate action is to bring forth more investments on

infrastructure network.

EVs incentives

FAME II Allocated subsidy

Electric buses US$370m

4-wheelers US$150m

3-wheelers US$110m

2-wheelers US$90m Source: FAME


ASIAN INSIGHTS

South Korea: EV market still in an early stage but has huge potential

Accelerating EV market growth but still small

Rapid growth of Korea’s EV market in 2017, driven by

increased EV incentives from government. The number of EVs

sold in Korea amounted to 14k units in 2017, up 130% y-o-y.

This satisfies the target set by the Korean government in early

2017 (14k units), and is equivalent to 0.8% of newly-registered

vehicles. Until 2016, annual EV sales had failed to meet the

distribution target, but the pace of EV distribution has now

accelerated, attributable to the government’s increased

financial incentives for EV purchases. In 2016, the government

provided EV purchase subsidies to 5k units of EVs, and the

number increased to 16k units in 2017. Also, the number of

local governments providing EV purchase grants rose sharply

from 31 in 2016 to 101 in 2017.

Consumers reacting sensitively to government’s EV support

policies. With i) EV purchase grant per vehicle set to decline

from KRW14m in 2017 to KRW12m in 2018 and ii) only 20k

units of EVs (lower than expected) set to receive the grant in

2018, EV sales volume surged in 2017 as consumers wanted to

buy EVs before 2018. Meanwhile, due to the heated

competition for EV purchase grants, EV purchase reservations

exceeded the limit of 20k units even before the end of January

2018, indicating consumers’ increased interest in EVs. This led

to the government providing EV purchase grants for additional

8k units through a supplementary budget.

Korean EV market is still small, below the government’s goal. It

is true that monthly EV sales volume has increased to c.1.5k

units since 2H17, but cumulative sales volume indicates that

the Korean EV market is still small. Until 2017, a total of 26k

units of EVs (PHEV + BEV + FCEV) had been sold in Korea,

which is just 1.1% of registered vehicles as of end-2017

(22.53m units) and a far cry from the government’s EV

distribution target of 46k units. If this trend continues, the

target of 250k units by 2020 seems difficult to reach.

Annual EV (PHEV+EV+FCEV) sales volume in Korea

Note: The table is based on factory shipment data, and may be different from actual retail sales data Source: Marklines, KTB Investment & Securities

Ma ke r/Bra nd Mode l 2014 2015 2016 '17/01 '17/02 '17/03 '17/04 '17/05 '17/06 '17/07 '17/08 '17/09 '17/10 '17/11 '17/12 2017 '18/01 '18/02 '18/03

Audi Audi A3 PHEV 0 0 35 0

Porsche Panamera PHEV 0 3 0 0

Porsche 918 PHEV 0 3 0 0

Porsche Cayenne PHEV 0 12 19 0

Toyota Prius PHEV 0 0 0 17 6 8 12 3 11 3 4 3 67 3 6 5

Chevrolet Volt PHEV 0 0 40 0 27 10 16 7 60 0 0 0

Hyundai Ioniq PHEV 0 0 0 0 5 11 0

Hyundai Sonata PHEV 0 128 117 4 5 6 9 9 1 3 7 3 4 2 53 1 4 4

Kia K5 PHEV 0 0 0 1 2 1 2 2 8 2 0 3

Kia NIRO PHEV 0 0 0 2 39 58 37 25 17 22 25 225 27 12 43

Mercedes-Benz GLC PHEV 0 0 0 0 0 0 0

BMW i8 PHEV 0 127 70 1 5 6 2 5 2 10 4 10 45 78 10 22

BMW X5 PHEV 0 0 0 8 8 25 11 1

Plug-in Hybrid Subtota l 0 273 281 5 37 22 44 25 47 73 49 45 33 36 50 466 141 54 78

Hyundai Nexo FCV 0 0 0 0 11

Hyundai Tucson (ix35) FCV 0 0 80 5 9 1 6 18 10 4 1 7 61 17 0 0

Hydroge n Fue l Ce l l EV Subtota l 0 0 80 5 0 9 1 6 18 10 4 1 0 7 0 61 17 0 11

GM Spark EV 70 151 100 0 5 5

GM Bolt EV 0 0 0 121 120 39 55 57 24 41 82 24 563 0 5 160

Nissan Leaf EV 16 100 88 26 5 13 1 2 47

Renault Twizy EV 0 0 14 1 5 100 153 432 691 1 50 399

Renault Samsung SM3 EV 309 1,043 623 39 56 55 85 69 100 209 356 266 334 309 136 2,014 9 64 88

Hyundai Ioniq EV 0 0 3,749 255 304 732 607 517 524 810 959 846 649 961 768 7,932 1,086 949 886

Kia Ray EV 202 198 81 3 5 1 10 9 6 4 4 5 47 5 2

Kia Soul EV 414 1,166 729 37 116 86 49 138 206 121 117 259 161 663 98 2,051 7 97 215

BMW BMW i3 EV 170 367 369 8 3 91 51 23 15 191 2 10 3

Ba tte ry EV Subtota l 1,181 3,025 5,753 369 486 874 862 854 972 1,371 1,499 1,494 1,240 2,042 1,478 13,541 1,105 1,180 1,753

Gra nd Tota l 1,181 3,298 6,114 379 523 905 907 885 1,037 1,454 1,552 1,540 1,273 2,085 1,528 14,068 1,263 1,234 1,842

y-y growth 65% 179% 85% 673% 607% 499% 220% 292% 293% 111% 247% 343% 99% 44% 2% 130% 233% 136% 104%


ASIAN INSIGHTS

Number of EVs in Korea (until Mar 2018) and the government’s goals

Note: The table is based on factory shipment data, and may be different from actual retail sales data Source: Marklines, KTB Investment & Securities

South Korea EV policies, not harmonised and yet proactive

Korea’s EV purchase incentives are the world’s highest. Among

various EV promotion policies, purchase incentives, i.e.

purchase grants, are known to be the most effective. In Korea,

the central government provides a grant of KRW7m-12m for

an EV purchase depending on types of cars, and local

governments provide an additional KRW4m-11m (as of 2018).

A subsidy of up to KRW23m can be provided depending on

the region and type of car, although only a small number of EV

purchases would be eligible for the subsidy. Korea’s EV

purchase grants, along with those in Norway, are the world’s

highest (above US$10,000).

EV purchase grant policies in Korea in 2018 (unit: KRW’000)

Source: The Ministry of Environment, KTB Investment & Securities

0

50,000

100,000

150,000

200,000

250,000

300,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

(units, cumulative)

PHEV BEVFCEV Gov'ts Goal

Hyundai Kona EV (basic) 12,000 Seoul 5,000

Hyundai Kona EV (economic) 12,000 Busan 5,000

Hyundai Ioniq (18, HP) 11,260 Daegu 6,000

Hyundai Ioniq (18, PTC) 11,190 Incheon 6,000

Hyundai Ioniq (`17) N, Q trim 11,270 Gwangju 7,000

Hyundai Ioniq (`17) I trim 11,190 Daejeon 7,000

Kia Soul EV (18, PTC) 10,270 Ulsan 5,000

Kia Soul EV (`18) 10,440 Sejong 7,000

Kia Ray EV 7,060 Gyeonggi Province 5,000

Renault Samsung SM3 Z.E (`18) 10,170 Gangwon Province 6,400

Renault Samsung SM3 Z.E (`17) 8,390 North Chungcheong Province 800~1000

BMW i3 94ah (`18) 10,910 South Chungcheong Province 800~1000

BMW i3 (`17) 8,070 North Jeolla Province 6,000

Nissan Leaf 8,490 South Jeolla Province 440~1100

GM Bolt EV 12,000 North Gyeongsang Province 600~1000

Tesla Model P 100D 12,000 South Gyeongsang Province 600~900

Tesla Model S 75D 12,000 Jeju Province 6,000

Tesla Model S 90D 12,000

Tesla Model S 100D 12,000

Cent ral gov ernment 's grants

(v aries by t y pe of cars)

Local gov ernments' grants

(v aries by region)


ASIAN INSIGHTS

Shortage of EV infrastructure hindering EV distribution. In

Norway, EVs account for over 25% of the car market thanks to

the government’s active supports, including financial

incentives. However, in Korea, the percentage is a mere 1%.

This is because the Korean government has been passive in

establishing EV charging infrastructure so far, and there have

been a lack of incentives to lure consumers into EVs other than

purchase grants. As of end-January 2018, public EV charging

stations in Korea amounted to 3,404. While this is quadruple

the number tallied last year (849), it is still not enough for the

EV population in Korea (26k units in cumulative terms).

Currently, a total of 5,773 chargers (2,369 slow chargers,

2,495 fast chargers) are in operation, which equates to one

charger per 4.5 EVs. Moreover, considering that some charging

stations are used by government cars or internal-combustion

cars as their parking spaces, the number of EV chargers

actually in service would be even lower.

Why the Korean government is not aggressive in increasing EV

penetration. The government ministries are showing mixed

stances towards EV subsidies: The Ministry of Environment of

Korea initially set the EV purchase grant quota for 2018 at 30k

units, but due to opposition from the Ministry of Strategy and

Finance, the quota was eventually set at 20k units. Moreover,

there is no comprehensive control tower for EV policies. We

think that there are not enough incentives to encourage the

Korean government to be more aggressive in EV penetration.

What drive EV distribution and expansion policies are mainly

two factors, as follows.

First, reducing greenhouse gas emissions? In the case of

Norway, where renewable energy makes up 98% of energy

source, the government is aggressive in increasing EV

penetration in line with its policy to wean away from oil.

However, Korea is heavily reliant on fossil fuels, with renewable

energy accounting for less than 8% of its power mix.

Therefore, any increase in EV sales in Korea would mean higher

demand for electricity generated from thermal power plants,

thus not amounting to an eco-friendly solution. As such, the

argument that promoting EV penetration is good for the

environment is not very convincing in Korea.

Second, securing competitive edge in the future car industry?

In the case of China, considering that coal makes up more than

70% of China’s power generation mix, its active support for EV

market growth is not intended for improving the environment.

Up until now, China has failed to have the upper hand in

competition for internal-combustion vehicle production.

Therefore, we believe that its aggressive moves in promoting

EV distribution are for securing dominance in the EV market.

Battery companies, rather than carmakers, have the hegemony

over production of EVs that do not require engines and

powertrains, and thus the capability to source various materials

is critical. This is why China has been aggressive in securing

metals such as cobalt, lithium, and other resources. However,

Korea is already a powerhouse in terms of finished cars, and

production of internal-combustion vehicles contribute a great

deal to the national economy, especially to employment.

Korea’s self-sufficiency rate for secondary battery-related

resources is not high. As such, Korea shows weaker initiative in

EV policies and lower EV penetration compared to other

countries.

Huge potential for Korea EV backed by strong IT sector.

Korean carmakers’ strategies to deal with the EV era: Beyond

BEV. Korean automakers are not posting high sales numbers in

pure EVs, but are doing well in the eco-friendly car markets

(including hybrid cars). According to IHS Markit, Hyundai

Motor/Kia Motors ranked 2nd in the eco-friendly car market in

terms of sales volume in 1H17. Hyundai Motor Group has

recently announced its goal to increase BEV models from two

to 14 by 2025 and to become the third-largest EV maker in the

world.

Hyundai Motor is the only global carmaker to produce mass-

production models for four types of green cars (hybrid vehicles,

plug-in hybrid vehicles, electric vehicles, hydrogen fuel cell

vehicles). Currently, only Hyundai Motor, Toyota, and Honda

produce hydrogen fuel cell vehicles. Toyota is expected to

launch its first all-electric vehicle in 2019, Honda to launch its

first plug-in hydrogen-powered hybrid EV in 2018. Hyundai

and Kia plan to release a diverse range of eco-friendly cars,

launching 10 hybrid models, 11 plug-in hybrid models, eight

EV models, and two hydrogen fuel cell car models until 2020.

Contrary to Tesla and Chinese automakers who are focusing

on EVs, Hyundai thinks that the most advanced form of eco-

friendly vehicles is hydrogen fuel cell vehicle and is making

substantial investments to popularise them, while also

expanding its EV line-ups. Hyundai’s extensive green-car

strategy may seem somewhat behind the industry’s moves

towards EVs. There are also concerns that diversified

investments could lead to weak marketability for its individual

green-car model, a lagging response to industrial changes, or

an excessive investment overlap.


ASIAN INSIGHTS

Hyundai Motor Group’s eco-friendly vehicle roadmap

Source: Hyundai Motor, Kia Motors, KTB Investment & Securities

Hyundai Motor Group’s EV Launch Plan

Source: Hyundai Motor, Kia Motors, KTB Investment & Securities

Korea to benefit from EV market growth, supported by its

strengths in the IT industry. EVs use 20% fewer components

than internal-combustion vehicles, and half of them would be

automotive-electronics components. The EV market, in turn,

will be a blue ocean for the semiconductor and electronic parts

industries. The roles of internal combustion engine parts will be

replaced by motors, motor components, and motor controlling

devices. Almost all major components such as electric current

controllers, batteries, battery chargers, and auxiliary power

supply will require semiconductors. Applying self-driving

function to EVs would also require more semiconductors to

enable driving information input/output and sensors. Vehicles

will increasingly adopt IT technologies like IoT (Internet of

Things) and transform into smart cars. Against this backdrop,

Korean IT companies are expected to benefit from the growth

of EVs in the long term. Some companies have already been

preparing for such EV expansion, and LG Electronics is the

most advanced among them.

LGE Vehicle Component Revenue Trends

Source: LG Electronics, KTB Investment & Securities

2016 2020

HEV 6 models Sonata,

Grandeur,

Ioniq, K5,

K7, Niro

10 models To develop EVs with the

best fuel economy

PHEV 2 models Sonata, K5 8 models To expand line-ups to mid-

size cars beginning with

2015 Sonata PHEV

BEV 3 models Ioniq, Soul,

Ray

7 models To develop EVs with

higher milage on one

charge,

to increase next-generation

battery research

to release an EV with a

milage over 300km in 2018

F CEV 1 model Tucson 3 models To develop next-

generation fuel cell cars

610

4

11

2

14

1

2

0

5

10

15

20

25

30

35

40

2017 2025F

(no. of models)

HEV PHEV BEV FCEV

0

0.032

0.05

0.056829065

0%

1%

2%

3%

4%

5%

6%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2014 2015 2016 2017

(%)(KRW bn)

Revenue Revenue share (R)


ASIAN INSIGHTS

Oil sector – EV unlikely a demand shock

Transport end-use sector is a major component of global

energy demand. The industrial sector has been the biggest

consumer of energy over the last five decades, as can be seen

below, with a share of almost 50% to begin with, but the

share of transport in the energy consumption pie has increased

from about 17% in 1970 to around 20% currently. The

increasing prosperity in developing economies has been the

major driver for this, as the demand for transport has increased

manifold. Demand for both passenger and freight services has

fuelled an increase in energy demand of close to 2.5% CAGR

since 1970 from the transport sector.

Primary Energy Consumption by end-use sector

* Industry excludes non-combusted use of fuels Source: BP Energy Outlook 2018, DBS Bank

Transport sector energy demand has been dominated by oil.

Energy sources for meeting demand from the transport sector,

typically passenger vehicles, trucks, aviation, marine and rail,

have been dominated by oil almost completely till the start of

the 21st century, before the emergence of concerns over

emissions that sparked the move towards cleaner options.

However, while the proportion of oil-powered transportation

has fallen from around 98% in 2000 to around 92% currently,

oil is still clearly the dominant fuel and electricity, as a power

source, has not made much of a dent on oil’s dominance for

now. The use of gas has picked up, though again not

presenting much of a challenge to oil yet. As the adoption of

electric vehicles increases over the next 10-15 years, this is

likely to change, especially as much of the increase in electric

vehicle adoption is likely to be in China, which has been one of

the key drivers of transport energy demand over the last 15

years.

Transport energy consumption by fuel type

* includes bio-fuels, gas-to-liquids, coal-to-liquids, hydrogen Source: BP Energy Outlook 2018, DBS Bank

Contribution to incremental energy demand over 2000-2015

Source: BP Energy Outlook 2018, DBS Bank

Conversely, for oil, demand from transport sector makes up

the majority of demand. As of 2015, BP estimates that close to

56% of oil demand is driven by transportation – which includes

cars, trucks, and non-road transport (aviation, marine and rail).

Around 13% in used in industry, 15% as feedstock for

petrochemicals, 11% for buildings (heating) and 5% for power

generation. We do not expect demand from the trucks or

aviation, marine, rail segments to be significantly affected by

the electrification of vehicles, hence the cars segment or

around 20% of oil demand will be vulnerable to the rise of

electric vehicles, in our opinion.

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1970 1980 1990 2000 2010 2020

MTOE

Industry* Non-combusted Buildings Transport

0

500

1,000

1,500

2,000

2,500

3,000

2000 2005 2010 2015

MTOE

Oil Gas Electricity Other*

OECD10%

China31%

India8%

Other Non-OECD51%


ASIAN INSIGHTS

Contribution to demand for liquid fuels (oil and condensates)


Demand from cars and trucks the highest growth drivers for

oil. While global oil demand has risen at a CAGR of around

1.4% over the last 15 years, demand from cars and trucks have

been rising faster at CAGRs of 2.5% and 2.0%, respectively,

and hence, their share of the pie has been increasing. Demand

from industry and buildings is largely flattish, while demand

growth from the power generation sector has been negative,

owing to the high costs involved, and the increasing use of

natural gas.

Strong growth in EV unit sales expected. Our autos analyst

Rachel Miu expects global EV yearly unit sales to grow from

c.1.26m units in 2016 to over 26m units in 2030, representing

an almost 15x increase in yearly sales volumes. Much of the

increase in sales will come from Asia, with China in particular

being the dominant driving force, pun intended.

EV impact to oil demand: 6% of annual oil demand could

disappear by 2030. We estimate EVs will absorb c.285mtoe or

around 5.3mmbpd of oil demand by 2030, which represents

around 6% of the total demand for oil in that year, assuming

that EVs were non-existent. That is not insignificant, but when

you consider that global energy intensity is expected to

improve every year from 2017 till 2030 – we expect a global

energy demand CAGR of 1.7% compared to global GDP

growth of 3.2% over the same timeframe – we believe that

changes in energy intensity trends and policies are as or more

important than sales of EVs, which tend to dominate news

headlines with regard to future oil and energy demand.

Impact of Electric Vehicles on oil demand

Source: DBS Bank forecasts

Industry13%

Non-combusted

15%

Buildings11%

Power5%Aviation,

Marine, Rail

12%

Trucks23%

Cars21%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Oil demand impact from EVs: EV detraction from oil demand as a % of total demand

(mtoe)


ASIAN INSIGHTS

Energy intensity trends are very important in determining oil

demand. Energy intensity is defined as the primary energy

consumed per unit of GDP. A diverse number of factors can

influence energy intensity, including a secular shift away from

energy-intensive industries in certain countries, technology

improvement and evolution (e.g. the proliferation of smart

meters, which enables more accurate control of consumption;

or a shift to electric vehicles, which are more energy efficient),

government policies and so on. Energy intensity has declined at

a CAGR of 1.55% from 1990-2015 (based on World Bank

Data), with that number accelerating to 2.4% from 2010-

2015, led by the middle- and high-income countries, and

notably China and Japan, which are two of the top 10

consumers of energy, and saw their energy intensity decline by

23% and 21%, respectively, over that 5-year period. Numbers

by the IEA indicate 2016 saw a further 1.8% decline in energy

intensity globally; that is US$2.2tr when translated to dollar-

savings – a sizeable figure. There is a similar trend in growth of

consumption of oil vis-à-vis global economic growth, and this

will increasingly be felt for passenger vehicles’ oil consumption,

which has been the key driver of oil demand in recent years, as

highlighted earlier.

Increasing fuel efficiencies of passenger vehicles will be a

limiting factor for oil demand. Fuel efficiencies of cars have

been improving in developed countries, especially the EU, with

its tougher emission norms, as can be seen below. This trend is

expected to continue in the future and we believe will be a

bigger driver for oil demand than the evolution of electric

vehicles. In our estimation, oil demand from passenger vehicles

will be flattish or slightly lower in 2030 than the reference

2016 levels of 18.7mmbpd (BP Energy Outlook data).

Fuel economy of new cars


Oil demand from cars forecast to 2030 (all numbers in mmbpd)

Source: BP Energy Outlook 2018, DBS Bank estimates

Thus, overall, we are projecting oil demand to be growing

quite slowly till 2030. Despite the impact on oil demand from

cars/passenger vehicles owing to improving efficiencies, and

shared mobility and electric vehicles, we must remember that

this accounts for only 21% of global oil demand and other

drivers of oil demand – trucks, aviation, marine, rail and

petrochemicals – will continue to grow as the global economy

expands over time. India, for one, will be a bright spot for oil

demand, and we see significant additions to oil demand from

India, on the back of the strong growth in energy demand as

its economy grows at a clip of close to 6% from 2017-2030,

while efficiency gains remain modest. In addition, India’s Draft

National Energy Policy (2017) – which lays out the expected

energy mix until 2040 – actually sees oil assuming an

increasing role in the energy mix (from 24.5% in 2012 to

26.8% in 2040). Thus, we see slow growth in overall oil

demand, with no signs of decline or plateauing in the 2030

timeframe. Peak oil demand cannot be ruled out in the 2030-

40 timeframe though.

Global crude oil demand forecast

Source: BP Energy Outlook 2018, DBS Bank Forecasts

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2000 2005 2010 2015 2020 2025 2030

Litres/100 km

EU China USA

2016 oil demand fromcars

Growth in demand for travel till 2030

Tightening in vehicle efficiency standards

Impact from switch to EVs

2030 oil demand fromcars

18.7 10.8 6.1 5.3 18.1

4,000

4,100

4,200

4,300

4,400

4,500

4,600

2013

2014

2015

2016

2017F

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

2029F

2030F

(mtoe)


ASIAN INSIGHTS

Demand growth being muted; supply will be the key

determinant for oil prices in medium to long term. We do not

expect a huge spurt in oil demand growth over the 2030

timeframe, as explained above. Neither do we expect a

demand shock from electric vehicles as the evolution, growth

and adoption of electric vehicles is unlikely to be an overnight

phenomenon which would suddenly wipe out a couple of

million barrels of oil demand from the world. Thus, restraints or

constraints in supply as a result of industry investment trends

and geopolitics will be the major factor in determining oil

prices in the future.

In the near term, we expect 2018 Brent crude oil price to

average in the range of US$70-75/bbl and our 2019 average

forecast for Brent is slightly lower at around US$65-70/bbl, as

we expect some moderation from increasing US shale supplies

as well as a gradual exit from the OPEC production cuts in

2019. Given that OPEC and its allies are likely to raise

production caps in its latest Vienna meeting to offset losses

from Venezuela and Iran, we are unlikely to see supply

shortages in the near term, which could lead to the

moderation of oil prices back to US$70/bbl levels, in our view.

Longer-term forecasts remain sanguine owing to huge

underinvestment over 2014-18. Capex budgets worldwide

have been cut substantially since the onset of the 2014 oil

price collapse. Capex budgets for 2015 and 2016 declined by

an average of about 25% each year across our sample of super

oil majors, and even 2017 saw around 10% decline in capex

eventually, though we were initially expecting 2017 capex to

remain flat. In 2018, projections from global oil majors point to

only minor increases in capex – low single-digit growth, which

is not exciting. In any case, we do not expect oil capex levels to

recover back to the highs seen in the 2012-14 timeframe

anytime soon. This represents quite an unprecedented period

of low capex compared to the years preceding 2014, when oil

& gas capex grew at a CAGR of 12% between 2000 and 2014

for an almost five-fold increase.

As a result, industry consultant Wood Mackenzie believes close

to US$1tr of capex meant for 2015-2020 timeline has been

taken out of the system so far, since the oil price crash of

2014, and while project sanctions activities are seen to be

picking up now, all the deferrals will mean that more than

3mmbpd of supply that was supposed to come onstream by

2020 will now only come in the years after that. This will help

the supply-demand equation in the medium to long term. Also,

the need to develop oil production in more expensive areas –

as the most expensive last barrel may need to be called upon

to meet incremental demand – will continue to support oil

prices. According to estimates from independent oil & gas

consultancy Rystad Energy, the marginal sources of supply in

2020 will be currently non-producing shale fields (new shale)

and oil sands, with a weighted average breakeven price of

around US$63-66/bbl. Imputing some cost inflation to these

numbers, we peg our longer-term oil price forecast to around

US$65-70/bbl.

Brent Crude oil price – DBS view

Source: Bloomberg Finance L.P., DBS Bank Forecasts

2016 Global energy mix 2030 Global energy mix

Source: BP Data Source: DBS Bank estimates

(US$ per barrel) 2013 2014 2015 2016 2017 2018F 2019F

Average Brent crude oil price 109 99 54 45 55 70-75 65-70

Long-term Brent crude oil price 65-70

Coal28%

Crude Oil33%

Natural Gas24%

Renewables & Others

15%

Coal25%

Crude Oil27%

Natural Gas26%

Renewables & Others

22%


ASIAN INSIGHTS

Metals sector: Key beneficiary from the EV growth

Substantial impact on demand and prices expected

Strong and positive impact on metal prices already being seen.

The development of electric vehicle (EV) industry is set to

substantially impact the metal market. In recent years, EV has

been one of the most discussed topic in the metal market,

triggering bullish sentiments for related metals. More

specifically, the price of lithium – the key raw material for

lithium-ion batteries, has more than doubled (+135%) since

the beginning of 2016. Similarly, cobalt prices have also

explosively grown by more than triple (+278%) during the

same period, due to its importance in the manufacture of

batteries and expected growth in global EV market.

LME Cobalt price & Lithium price index

Source: Bloomberg Finance L.P., DBS Bank

What are the winning and losing metals? We break down our

analysis of the EV’s impact on metal market into two broad

parts; metal demand arising from i) batteries and ii) non-

battery parts, the car chassis as well as the infrastructure

needed in a scenario of full-fledged adoption of EVs globally.

The biggest beneficiaries should be the metals used in batteries

including lithium, cobalt, nickel and copper. Meanwhile, steel

will face a negative impact because of car body lightening, and

platinum and palladium would see lower demand as the

requirement to reduce air pollutant emissions is not applicable

to EVs.

Impact on metal demand:

Batteries Non-batteries

Positive Lithium

Cobalt

Nickel

Copper

Lead*

Aluminum

Copper

Negative Platinum

Palladium

Steel

*Positive for near term but negative over the long term. Source: DBS Bank

Copper: demand growth powered by EV, from battery to infrastructure

More copper consumption along with more electricity usage

Copper, batteries and the growing EV market. Copper, the

irreplaceable metal for electric conductivity, will enjoy greater

demand than ever in the production of EVs. This is because

EVs, which use an electric motor powered by batteries or fuel

cells, require more copper in their manufacture than the

conventional internal combustion engine vehicles (ICEVs),

which are powered by gasoline or diesel. The greater the

reliance on electricity, the more copper is needed to make the

vehicle. So, a battery-operated vehicle (BEV), which operates

exclusively on battery power, requires more copper than a

plugged-in hybrid electric vehicle (PHEV), which has a battery

that can be recharged by plugging into an external electric

power source and also operates on gasoline or diesel. Among

BEVs, buses would use up more copper than cars as they need

bigger batteries to run.

BEVs consume four times more copper than ICEVs. According

to research commissioned by the International Copper

Association (ICA), EVs require a substantial amount of copper

in their batteries, windings and copper rotors used in their

electric motors, and in wiring, busbars and the charging

infrastructure. It takes 83kg of copper to make one BEV, and

40kg to make one HEV, which is four and two times

respectively the amount required for an ICEV. The BEV battery

pack alone contains 40kg of copper (half of its total copper

content) and is the single biggest component of copper

consumption.

50

100

150

200

250

300

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

12.1 13.1 14.1 15.1 16.1 17.1 18.1

LME COBALT SPOT ($) Lithium Price Index

(US$/to (pt)


ASIAN INSIGHTS

Copper demand in EV

Source: ICA; IDTechEX; BYD, DBS Bank

Copper usage per unit of car by component

Source: Copper Alliance, IDTechEX; BYD, DBS Bank

Copper demand from EV to drive long term growth.

Contribution of copper demand from EVs to rise to 6.6% in

2030 from 0.9% in 2017. Based on our EV forecasts, we

project that copper demand from EVs will rise from 208,000

tons in 2017 to 1.91m tons in 2030, up 19% annually. Copper

demand from EVs is estimated to make up 8.2% of total

copper consumed in 2017 by 2030, up from an estimated

0.9% in 2017. For next five years, copper demand from EVs

will register the strongest growth of 29% in CAGR, in line with

our EV forecasts. In 2022, copper usage in EVs should

contribute to 2.3% of total copper demand. In our pessimistic

scenario, we have factored in the possibility of oil prices staying

low and leading to slower adoption of EVs globally. We

assume that HEVs’ contribution in terms of unit sales to the

total HEV and EV market will gradually fall to 49% in 2030

from 64% in 2017. Where EVs’ contribution exceeds this

premise, we expect a positive impact on copper demand.

EV infrastructure an additional spur to copper demand growth.

Outside of the copper demand projections based on usage in

EVs, we also expect copper usage associated with

infrastructure. First, each 3.3kW charger will add 0.7kg of

copper demand with fast chargers, say a 200kW one, adding

up to 8kg of copper each. On top of that, copper will be

needed in power generation and grid infrastructure, and grid

storage and charging infrastructure. Copper consumption in

these areas, although negligible in the early stages, is set to

grow strongly as EVs become more popular. According to

industry experts, copper demand from EV infrastructure is likely

to register 29% growth during 2020-30, with share of

consumption expanding to 37% in 2030 from 29% in 2020.

Car body materials: Light weighting matters

Lightweighting is rising in importance for EVs as the current

technology has limitations in driving range per charge because

batteries are still heavy. A lighter body would allow a vehicle to

travel further on less power; generally, a 10% drop in vehicle

weight leads to an 8% improvement in fuel economy.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0

500

1,000

1,500

2,000

2,500

15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F

(k tons)

Ebus hybrid (LHS) Ebus BEV (LHS)

Car HEV (LHS) Car BEV (LHS)

Car PHEV (LHS) Contribution to total copper demand((RHS)

(kg) ICEV HEV PHEV BEVEbus

Hy brid

Ebus

BEV

Bat tery 1.0 22.0 40.0 12.0 292.0

Inv erter 0.3 0.3 0.3 1.0 1.0

Elect ric Motor 5.0 5.0 9.9 20.0 20.0

HV Wire 5.0 5.0 5.0 11.0 11.0

Others 5.0 5.0 5.0 5.0 5.0 5.0

LV Wire 18.0 23.0 23.0 23.0 40.0 40.0

Total 23.0 39.3 60.3 83.2 89.0 369.0


ASIAN INSIGHTS

Steel – intensifying competition but to remain as key autobody material

Auto manufacturers’ efforts in lightweighting vehicles are

generally viewed as negative for steel, as they will continue to

explore alternative materials such as aluminium, magnesium

and carbon fibre.

Steel is fighting back with new and better products. However,

we expect continuous demand for steel in the auto sector, on

the back of i) new steel products with high strength being

developed to meet automakers’ requirements, and ii) steel’s

price competitiveness against other materials. Steel makers

have been working to improve products; AK Steel, together

with General Motors, are trying to use nanotechnology to

make lightweight vehicle bodies, and ArcelorMittal and Tata

Steel Europe are also developing lighter, stronger alloys to fend

off the competition. Advanced high-strength steel (AHSS) is

not only lightweight but also engineered specifically to meet

the stringent safety regulations, emission reduction and solid

performance for use in vehicles.

Appealing to automakers as the lowest-cost option. Besides,

steel boasts price competitiveness against other materials; to

reduce 1kg of weight in car body and applications, it is

estimated that AHSS would cost c.US$2-2.5, lower than the

US$3-6 for aluminum alloys, US$5-12 for magnesium and

US$16 or higher for carbon fibre. Especially amid the EV

makers’ concerns over cost savings, steel will likely remain in

demand as part of the material mix for vehicles.

Aluminium – the lighter the better

Apart from steel, aluminium also appeals to automakers as an

alternative car body material for its lightweight property vs.

steel, which allows cars to travel further on less power.

Aluminium producers such as Alcoa, Novelis and Aleris, have

developed aluminium alloys that are stronger than steel, at

only about one-third the weight. Aluminium producers are

boosting capacity to meet the rising demand.


ASIAN INSIGHTS

Automakers peer valuation

# FY18: FY19; FY19: FY20 Source: Thomson Reuters, *DBS HK

Mkt PE PE Yield Y ield P/Bk P/Bk EV /EBITDA ROE ROE

Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Company Name Code Currency Local$ US$m Yr x x % % x x x x % %

Hong Kong

Guangzhou Automobile Gp. 'H' 2238 HK HKD 7.04 13,917 Dec 4.4 3.9 6.7 7.6 0.7 0.6 6.3 5.5 17.4 17.4

Sinotruk (Hong Kong) 3808 HK HKD 11.66 4,119 Dec 8.6 9.0 6.0 5.7 1.1 1.1 3.4 3.5 13.4 12.0

Dongfeng Motor Gp.'H'* 489 HK HKD 7.73 8,521 Dec 3.9 3.6 3.5 3.5 0.5 0.4 2.0 1.9 12.6 12.2

Brilliance China* 1114 HK HKD 11.4 7,358 Dec 7.0 5.7 1.1 1.4 1.5 1.2 7.7 5.9 23.2 22.7

Great Wall Motor Co.'H'* 2333 HK HKD 5.24 10,401 Dec 5.1 4.3 5.9 7.0 0.7 0.6 3.2 2.7 14.8 15.6

BYD 'H'* 1211 HK HKD 45.3 17,354 Dec 25.6 18.5 0.6 0.8 1.8 1.6 9.8 8.4 7.2 9.2

Geely Automobile Hdg.* 175 HK HKD 20.4 23,430 Dec 12.5 10.7 1.6 1.9 3.5 2.8 7.8 6.3 32.1 29.0

Baic Motor 'H'* 1958 HK HKD 6.52 6,686 Dec 6.2 5.1 5.6 6.9 0.9 0.8 2.3 1.9 15.5 16.0

A v erage 9.2 7.6 3.9 4.4 1.3 1.1 5.3 4.5 17.0 16.8

China

Saic Motor 'A' 600104 CH CNY 35.05 61,933 Dec 10.9 10.0 5.5 6.1 1.7 1.5 7.0 6.3 16.0 15.9

Faw Car 'A' 000800 CH CNY 7.23 1,780 Dec 55.6 48.2 0.0 0.0 1.4 1.4 9.7 9.3 4.8 5.2

Chongqing Changan Autmb. 'A'* 000625 CH CNY 8 5,811 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0

Chongqing Changan Autmb. 'B' 200625 CH HKD 6.8 4,178 Dec 4.1 3.9 8.8 9.0 0.5 0.5 0.5 0.5 14.4 14.4

Beiqi Foton Motor 'A' 600166 CH CNY 1.95 1,967 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Tianjin Faw Xiali Autmb. 'A' 000927 CH CNY 3.49 842 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Dong Feng Automobile 'A' 600006 CH CNY 3.87 1,171 Dec 15.4 12.3 2.0 2.4 1.1 1.0 n.a. n.a. 7.4 8.8

Anhui J ianghuai Automobile 'A' 600418 CH CNY 6.41 1,835 Dec 19.6 15.4 1.5 2.0 0.8 0.8 5.2 4.6 4.8 5.8

Zhengzhou Yutong Bus 'A' 600066 CH CNY 17.73 5,937 Dec 10.8 9.9 3.9 4.7 2.2 1.9 8.2 7.6 21.2 20.6

Haima Automobile Group 'A' 000572 CH CNY 3.12 776 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Great Wall Motor 'A'* 601633 CH CNY 9.13 10,401 Dec 10.5 8.9 2.9 3.4 1.5 1.3 6.7 5.8 14.8 15.6

Guangzhou Automobile Gp. 'A'* 601238 CH CNY 10.34 13,917 Dec 5.2 4.6 5.7 6.5 1.1 0.9 3.1 2.5 22.7 21.9

BYD 'A'* 002594 CH CNY 43.95 17,354 Dec 29.1 21.0 0.5 0.7 2.0 1.9 11.0 9.5 7.2 9.2

A v erage 17.9 14.9 3.1 3.5 1.4 1.3 5.7 5.1 11.3 11.7

US

Ford Motor F US USD 10.85 43,238 Dec 7.0 7.1 6.2 6.0 1.1 1.0 2.2 2.1 18.9 16.0

General Motors GM US USD 39.56 55,749 Dec 6.2 6.1 3.9 4.1 1.4 1.2 3.0 3.1 26.0 22.3

Tesla TSLA US USD 310.1 52,653 Dec n.a. 115.1 0.0 0.0 10.8 10.0 46.9 18.5 (16.9) (2.0)

A v erage 6.6 42.8 3.3 3.4 4.5 4.1 17.4 7.9 9.3 12.1

Korea

Kia Motors 000270 KS KRW 32150 11,983 Dec 7.3 6.0 3.1 3.5 0.5 0.4 3.4 3.0 6.4 7.2

Hyundai Motor 005380 KS KRW 126500 33,204 Dec 8.4 7.0 3.4 3.8 0.5 0.5 8.6 7.9 5.5 6.3

A v erage 7.8 6.5 3.3 3.6 0.5 0.5 6.0 5.5 5.9 6.8

J apan

Toyota Motor# 7203 JP JPY 7320 212,124 Mar 9.4 8.9 3.1 3.3 1.1 1.0 4.6 4.4 11.6 11.4

Honda Motor# 7267 JP JPY 3296 53,024 Mar 8.3 7.7 3.5 3.8 0.7 0.6 5.6 5.0 8.7 9.0

Nissan Motor# 7201 JP JPY 1032 38,684 Mar 7.3 6.7 5.5 5.7 0.7 0.7 2.0 1.9 9.8 9.9

Suzuki Motor# 7269 JP JPY 6389 27,861 Mar 12.4 11.5 1.2 1.4 1.9 1.7 3.6 3.3 16.1 15.1

Mitsubishi Motors# 7211 JP JPY 892 11,806 Mar 11.9 10.3 2.3 2.7 1.5 1.4 3.9 3.2 13.5 13.9

A v erage 9.9 9.0 3.1 3.4 1.2 1.1 3.9 3.6 11.9 11.9

Europe

Bmw BMW GR EUR 79.4 61,747 Dec 6.9 6.7 5.1 5.3 0.9 0.8 2.4 2.2 13.6 13.1

Volkswagen VOW GR EUR 141 83,589 Dec 5.2 4.9 4.2 5.0 0.6 0.6 1.8 1.8 11.5 11.9

Saab 'B' SAABB SS SEK 376.3 4,621 Dec 22.8 18.0 1.6 1.8 2.6 2.4 12.2 10.2 11.9 14.0

Peugeot UG FP EUR 20.95 22,417 Dec 7.6 6.7 3.2 3.7 1.2 1.0 1.8 1.6 15.7 15.7

Porsche Aml.Hldg.Pref. PAH3 GR EUR 54.1 19,593 Dec 4.1 3.8 4.6 5.6 0.5 0.4 278.1 287.7 12.0 11.9

Daimler DAI GR EUR 57.15 72,305 Dec 6.3 6.1 6.3 6.4 0.9 0.8 2.7 2.6 15.9 15.3

Fiat Chrysler Autos. FCA IM EUR 16.534 30,300 Dec 4.9 4.7 2.0 2.4 1.0 0.8 2.1 2.0 20.6 18.8

Audi NSU GR EUR 730 37,122 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Renault RNO FP EUR 73.64 25,753 Dec 4.7 4.5 5.2 5.6 0.6 0.6 0.7 0.7 13.4 13.0

Ferrari RACE IM USD 120.6 22,788 Dec 32.6 29.4 0.8 1.0 16.5 12.0 21.3 19.4 61.0 46.3

Volvo 'B' VOLVB SS SEK 148.65 35,592 Dec 11.9 11.4 3.4 3.5 2.4 2.2 5.6 5.5 22.5 20.8

Astra International ASII IJ IDR 6700 20,064 Dec 12.9 11.9 3.4 3.9 2.0 1.8 9.9 9.1 16.2 16.2

A v erage 10.9 9.8 3.6 4.0 2.7 2.1 30.8 31.2 19.5 17.9


ASIAN INSIGHTS

Auto parts peer valuation

# FY18: FY19; FY19: FY20 Source: Thomson Reuters, *DBS HK

Mkt PE PE Yield Y ield P/Bk P/Bk EV /EBITDA ROE ROE

Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Company Name Code Currency US$m Yr x x % % x x x x % %

Hong Kong

Changan Minsheng Apll Logistics 'H' 1292 HK HKD 92 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

China F irst Capital Gp. 1269 HK HKD 2,829 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Fortunet E-Commerce Gp. 1039 HK HKD 174 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Fuyao Glass Industry Gp. Co.'H' 3606 HK HKD 8,781 Dec 16.2 13.8 3.7 4.3 2.8 2.6 11.2 9.6 18.4 19.7

Huazhong In-Vehicle Hdg. 6830 HK HKD 317 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Launch Tech 'H' 2488 HK HKD 431 Dec 13.5 12.0 n.a. n.a. 2.2 2.2 n.a. n.a. 16.2 18.0

Minth Group 425 HK HKD 4,726 Dec 13.1 11.0 3.2 3.8 2.2 1.9 8.8 7.3 18.4 19.5

Nexteer Automotive Group* 1316 HK HKD 3,698 Dec 10.5 9.4 1.9 2.1 2.2 1.8 4.6 4.1 22.7 21.3

Perennial Intl.* 725 HK HKD 35 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0

Shougang Concord Century Holdings 103 HK HKD 46 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Weichai Power 'H' 2338 HK HKD 9,719 Dec 9.5 9.3 5.0 5.1 1.5 1.4 4.3 4.2 18.1 16.2

Wuling Motors Holdings 305 HK HKD 119 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Xinchen China Power Holdings 1148 HK HKD 125 Dec 4.0 3.2 0.0 0.0 0.3 0.2 n.a. n.a. 6.4 7.8

Xingda Intl.Holdings* 1899 HK HKD 425 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0

Xinyi Glass Holdings 868 HK HKD 4,423 Dec 7.6 6.8 6.4 7.0 1.7 1.5 8.2 7.4 22.9 22.3

A v erage 10.6 9.4 2.5 2.8 1.8 1.7 5.3 4.7 13.7 13.9

China

Anhui Quanchai Engine 'A' 600218 CH CNY 278 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Aecc Aero Engine Control 'A' 000738 CH CNY 2,646 Dec 70.7 59.2 0.2 0.2 3.0 2.9 n.a. n.a. 4.3 4.3

Beijing Wkw Autv.Pas.'A' 002662 CH CNY 1,044 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Changchai 'B' 200570 CH HKD 206 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Fangda Special Stl.Tech. 'A' 600507 CH CNY 2,504 Dec 5.9 5.6 4.5 6.3 2.3 1.8 n.a. n.a. 38.3 31.9

China Shipbldg.Ind.Gp. Pwr.'A' 600482 CH CNY 4,844 Dec 23.0 18.1 1.3 1.6 1.2 1.1 n.a. n.a. 5.0 5.9

Fuyao Glss.Ind.Group 'A' 600660 CH CNY 9,520 Dec 17.9 15.1 3.3 4.1 3.1 2.8 11.7 10.1 18.1 19.2

Guizhou Guihang Autv. Components 'A' 600523 CH CNY 512 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Harbin Dongan Auto Enn. 'A' 600178 CH CNY 342 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Huayu Automotive Sys.'A' 600741 CH CNY 10,871 Dec 9.0 8.9 5.5 5.7 1.6 1.4 5.0 4.6 17.9 15.9

Shai.J ialeng Songzhi Autmb.Aircondition 'A' 002454 CH CNY 516 Dec 6.5 5.8 n.a. n.a. 0.9 0.8 n.a. n.a. 11.8 11.7

J iangnan Mould & Plastic Tech. 'A' 000700 CH CNY 452 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

J iangsu Pac.Precn.Frgg. 'A' 300258 CH CNY 826 Dec 17.2 13.5 0.9 1.1 2.8 2.4 10.8 8.8 16.8 18.0

Kunming Yunnei Pwr. 'A' 000903 CH CNY 748 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Liaoning Sg Autv.Gp. 'A' 600303 CH CNY 513 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Lingyun Industrial 'A' 600480 CH CNY 619 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Ningbo Huaxiang Elt.'A' 002048 CH CNY 1,149 Dec 10.0 7.9 0.8 1.0 0.9 0.7 4.8 4.3 10.4 11.1

Shai.Aeros.Autos.Elec. 'A' 600151 CH CNY 861 Dec 44.1 28.4 n.a. n.a. 1.0 0.9 n.a. n.a. 2.0 3.0

Shanghai J iao Yun Group 'A' 600676 CH CNY 775 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Shenyang J inbei Autv.'A' 600609 CH CNY 778 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Sic.Chengfei Intg.Tech. 'A' 002190 CH CNY 973 Dec n.a. n.a. n.a. n.a. 4.0 4.6 73.9 (245.6) (8.9) (11.6)

Sichuan Haowu Erml.'A' 000757 CH CNY 399 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Steyr Motors 'A' 000760 CH CNY 335 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Wanxiang Qiangchao 'A' 000559 CH CNY 2,831 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Weifu High Tech.Gp.'B' 200581 CH HKD 2,228 Dec 5.5 5.1 8.6 9.2 0.9 0.8 3.6 3.4 17.2 n.a.

Xuchang Ynd.Drive Shaft 'A' 002406 CH CNY 490 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Zhejiang Wanliyang Tnsm. 'A' 002434 CH CNY 1,833 Dec 16.0 11.7 1.7 2.1 1.8 1.6 8.1 6.3 11.8 14.2

Chongqing Zongshen Pwr. Machinery 'A' 001696 CH CNY 810 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Weifu High Tech.Gp.'A' 000581 CH CNY 3,357 Dec 8.2 8.1 5.1 4.9 1.3 1.2 5.2 4.8 16.6 15.8

Zhejiang Yinlun Mch.'A' 002126 CH CNY 1,089 Dec 17.9 14.2 0.7 0.8 1.9 1.6 10.7 8.5 10.8 11.6

Changzhou Xingyu Autv. Ltg.'A' 601799 CH CNY 2,374 Dec 25.9 19.6 1.4 1.8 3.5 3.0 16.8 13.1 13.5 15.4

Zhejiang Asia-Pacific Mech.& Elect 'A' 002284 CH CNY 643 Dec 41.1 30.3 2.3 3.0 1.5 1.5 17.2 14.4 3.7 4.8

A v erage 21.3 16.8 2.8 3.2 2.0 1.8 15.3 (15.2) 11.8 11.4

US

China Autv.Sys. CAAS US USD 129 Dec 5.9 4.6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

China Yuchai Intl. CYD US USD 816 Dec 6.4 5.6 7.0 7.7 0.6 0.5 0.2 0.2 13.2 13.8

Sorl Auto Parts SORL US USD 91 Dec 3.3 3.1 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

5.2 4.4 7.0 7.7 0.6 0.5 0.2 0.2 13.2 13.8


ASIAN INSIGHTS

Auto batteries peer valuation

# FY18: FY19; FY19: FY20 Source: Thomson Reuters

Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE

Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Company Name Code Currency Local$ US$m Yr x x % % x x x x % %

Contemporary Amperex 300750 CH CNY 83.9 27,566 Dec 55.1 40.7 0.1 0.1 5.8 5.1 26.5 20.1 11.0 12.9

Guoxuan High-Tech Co Ltd 002074 CH CNY 13.64 2,345 Dec 14.3 12.2 0.9 1.2 1.9 1.7 11.8 9.7 13.6 13.8

Sic.Chengfei Intg 002190 CH CNY 17.93 973 Dec n.a. n.a. n.a. n.a. 4.0 4.6 73.9 (245.6) (8.9) (11.6)

Shaanxi J&R F ire Protc 300116 CH CNY 2.18 802 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Panasonic# 6752 JP JPY 1427.5 31,099 Mar 13.0 11.5 2.4 2.6 1.8 1.6 4.5 4.1 14.0 14.4

CBAK Energy CBAK US USD 0.9141 24 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.


ASIAN INSIGHTS

BYD (1211 HK) PE chart

BYD (1211 HK) PB chart

Minth (425 HK) PE chart

Minth (425 HK) PB chart

Nexteer (1316 HK) PE chart

Nexteer (1316 HK) PB chart

Source: Thomson Reuters, DBS HK

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+1SD: 35x

-1SD: 21.8x

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-2SD: 1.6x


ASIAN INSIGHTS

STOCK PROFILES

ed- CK/ sa- CS / AH

H: BUY Last Traded Price (H) ( 16 Jul 2018): HK$45.30 (HSI : 28,481) Price Target 12-mth (H): HK$60.00 (32.45% upside) (Prev HK$92.00)

A: HOLD Last Traded Price (A) ( 16 Jul 2018): RMB43.95 (CSI300 : 3,481)

Price Target 12-mth (A): RMB49.00 (11.49% upside) (Prev

RMB74.00)

Potential Catalyst: Earnings recovery from 2H18 on new subsidy impact

Where we differ: Market liberalisation has limited impact as business

scale is large vis-à-vis peers Analyst Rachel MIU +852 2863 8843 [email protected]

Price Relative

Forecasts and Valuation (H Shares) FY Dec (RMB m) 2016A 2017A 2018F 2019F Turnover 100,208 102,651 117,326 127,882 EBITDA 15,843 15,185 16,323 19,144 Pre-tax Profit 6,568 5,621 5,700 7,766 Net Profit 4,836 3,791 4,120 5,701 EPS (RMB) 1.77 1.39 1.51 2.09 EPS (HK$) 2.08 1.63 1.77 2.45 EPS Gth (%) 57.7 (21.6) 8.7 38.4 Diluted EPS (HK$) 2.08 1.63 1.77 2.45 DPS (HK$) 0.64 0.17 0.27 0.37 BV Per Share (HK$) 22.04 23.65 25.36 27.65 PE (X) 21.8 27.8 25.6 18.5 P/Cash Flow (X) (57.1) 16.5 10.0 8.7 P/Free CF (X) (15.8) (98.6) 23.1 17.1 EV/EBITDA (X) 9.1 10.3 9.8 8.4 Net Div Yield (%) 1.4 0.4 0.6 0.8 P/Book Value (X) 2.1 1.9 1.8 1.6 Net Debt/Equity (X) 0.6 0.8 0.8 0.7 ROAE (%) 11.6 7.1 7.2 9.2 Earnings Rev (%): (29) (20) Consensus EPS (RMB) 1.73 2.23 Other Broker Recs: B:14 S:6 H:8

Principal Business: BYD produces and sells gasoline and new energy vehicles, rechargeable batteries and also provides handset components & assembly services Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX

Well positioned in NEV play Strong new energy vehicle (NEV) products stand out amid

keen market competition and industry liberalisation

Latest NEV products that could benefit from higher subsidy

Anticipate better 2H18 earnings

Maintain BUY with TP of HK$60

Expect better 2H18 earnings on new subsidy scheme. The cut in

electric vehicle (EV) subsidy is expected to weigh on BYD’s 1H18

earnings. But its 2H18 performance is expected to benefit from the

new scheme which came into effect in June 2018. The new scheme

rewards companies with strong electric car technology. BYD’s high-end

EV such as the Yuan EV 360, Qin EV 450, Song EV400 have longer

driving range. BYD has the highest NEV penetration rate of c.30%

compared to peers, and boasts one of the highest credit point levels.

These credit points can be monetised in the future when the new EV

dual system takes effect in 2019.

Can withstand NEV market liberalisation. The Chinese government has

scrapped the foreign ownership cap for the electric car market from

2018 and reduced import tariffs from 25% to 15% on foreign cars

(except from the US). BYD electric vehicle sales should cross the

120,000-mark this year and 1H18 sales volume has hit 60% of our

2018 forecast. The remarkable sales volume despite lower subsidy in

1H18 attests to BYD’s strong market position.

Current valuation factored in 1H18 weak earnings. We cut our

FY18/19F earnings for lower margin assumptions. However, a police

investigation related to fraudulent marketing contracts by someone

posed as BYD employee could affect short-term sentiment. Its mid-term

earnings fundamentals remain unchanged. BUY on dips with new TP of

HK$60, pegged to target PE 25x (historical 1SD) on FY19 earnings as it

should better reflect the new subsidy impact.

At A Glance

Issued Capital - H shares (m shs) 915

- Non H shrs (m shs) 1,813

H shs as a % of Total 34

Total Mkt Cap (HK$m/US$m) 142,738 / 17,354

Major Shareholders (%)

Wang (Chuan Fu) 28.3

Lv (Xiang-yang) 13.2

Youngy Investment Holding Group Co., Ltd. 9.0

Xia (Zuo Quan) 5.9

Major H Shareholders (As % of H shares)

Berkshire Hathaway Energy Company 24.6

Himalaya Capital, L.L.C. 8.2

H Shares-Free Float (%) 67.2

3m Avg. Daily Val. (US$m) 42.7

ICB Industry: Consumer Goods / Automobiles & Parts

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22.5

32.5

42.5

52.5

62.5

72.5

82.5

Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Relative IndexHK$

BYD Company (LHS) Relative HSI INDEX (RHS)

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125

145

165

185

205

31.3

41.3

51.3

61.3

71.3

81.3

91.3


Relative IndexRMB

BYD Co Ltd - A (LHS) Relative HSI INDEX (RHS)


BYD Company

Bloomberg: 1211 HK EQUITY | 002594 CH Equity | Reuters: 1211.HK | 002594.SZ

Refer to important disclosures at the end of this report


BYD Company

Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F

Turnover 100,208 102,651 117,326 127,882 Net Fixed Assets 42,970 47,831 47,352 46,366 Cost of Goods Sold (81,189) (84,716) (98,821) (106,538) Invts in Assocs & JVs 2,245 3,065 2,807 3,100

Gross Profit 19,018 17,935 18,505 21,343 Other LT Assets 21,502 24,383 26,824 29,022 Other Opng (Exp)/Inc (9,574) (9,379) (9,751) (10,539) Cash & ST Invts 7,694 9,903 10,754 12,409

Operating Profit 9,444 8,556 8,754 10,804 Inventory 17,378 19,873 21,860 24,046 Other Non Opg (Exp)/Inc (629) (464) (469) (448) Debtors 45,733 53,277 57,539 62,717 Associates & JV Inc (600) (225) (258) (207) Other Current Assets 7,549 19,769 21,209 22,809

Net Interest (Exp)/Inc (1,647) (2,247) (2,327) (2,384) Total Assets 145,071 178,099 188,344 200,469 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 32,928 45,649 48,649 51,649

Pre-tax Profit 6,568 5,621 5,700 7,766 Creditors 34,663 39,527 41,504 43,579 Tax (1,088) (704) (855) (1,165) Other Current Liab 10,726 19,821 20,629 21,695 Minority Interest (428) (850) (484) (660) LT Debt 9,339 10,862 10,862 10,862 Preference Dividend (216) (275) (240) (240) Other LT Liabilities 2,005 2,283 2,283 2,283

Net Profit 4,836 3,791 4,120 5,701 Shareholder’s Equity 51,256 55,004 58,980 64,303 Net Profit before Except. 4,836 3,791 4,120 5,701 Minority Interests 4,153 4,953 5,438 6,098

EBITDA 15,843 15,185 16,323 19,144 Total Cap. & Liab. 145,071 178,099 188,344 200,469 Sales Gth (%) 29.1 2.4 14.3 9.0 EBITDA Gth (%) 45.1 (4.2) 7.5 17.3 Non-Cash Wkg. Cap 25,271 33,570 38,475 44,298 Opg Profit Gth (%) 55.3 (9.4) 2.3 23.4 Net Cash/(Debt) (34,573) (46,608) (48,757) (50,102) Net Profit Gth (%) 73.8 (21.6) 8.7 38.4 Effective Tax Rate (%) 16.6 12.5 15.0 15.0 Cash Flow Statement (RMB m) Rates & Ratio


Pre-Tax Profit 6,568 0 0 0 Gross Margins (%) 19.0 17.5 15.8 16.7 Dep. & Amort. 7,028 0 0 0 Opg Profit Margin (%) 9.4 8.3 7.5 8.4 Tax Paid (1,152) (1,208) (704) (855) Net Profit Margin (%) 4.8 3.7 3.5 4.5 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 11.6 7.1 7.2 9.2 (Pft)/ Loss on disposal of FAs FAFAsiaries/Investments (-/+)

0 0 0 0 ROA (%) 3.7 2.3 2.2 2.9 Chg in Wkg.Cap. (17,331) (7,857) (5,057) (6,132) ROCE (%) 9.0 6.9 6.1 7.0 Other Operating CF 3,041 15,433 16,323 19,144 Div Payout Ratio (%) 30.7 10.1 15.0 15.0

Net Operating CF (1,846) 6,368 10,563 12,157 Net Interest Cover (x) 5.7 3.8 3.8 4.5 Capital Exp.(net) (4,839) (7,436) (6,000) (6,000) Asset Turnover (x) 0.8 0.6 0.6 0.7 Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 131.9 176.0 172.4 171.6 Invts in Assoc. & JV (927) (1,010) 0 (500) Creditors Turn (avg days) 160.7 174.4 162.9 158.8 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 81.5 87.6 83.9 85.7 Other Investing CF (7,655) (7,271) (3,856) (3,784) Current Ratio (x) 1.0 1.0 1.0 1.0

Net Investing CF (13,421) (15,717) (9,856) (10,284) Quick Ratio (x) 0.7 0.6 0.6 0.6 Div Paid (1,053) (539) (385) (618) Net Debt/Equity (X) 0.6 0.8 0.8 0.7 Chg in Gross Debt 5,128 17,583 3,000 3,000 Capex to Debt (%) 11.4 13.2 10.1 9.6 Capital Issues 14,369 (9) 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (2,174) (5,868) (2,471) (2,600) N.Cash/(Debt)PS (RMB) (14.87) (20.04) (20.96) (21.54)

Net Financing CF 16,270 11,168 145 (218) Opg CFPS (RMB) 5.68 5.21 5.73 6.70 Currency Adjustments 97 6 0 0 Free CFPS (RMB) (2.45) (0.39) 1.67 2.26 Chg in Cash 1,100 1,825 851 1,655

Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions

FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F

Turnover 43,745 56,462 43,817 58,834 Revenues (RMB m) Cost of Goods Sold (35,223) (45,967) (35,648) (49,068) Batteries & other products 7,103 8,442 9,708 10,873 Gross Profit 8,523 10,495 8,169 9,766 Mobile handset components 38,083 39,708 42,885 46,315 Other Oper. (Exp)/Inc (4,298) (5,276) (4,365) (5,014) Automobile & related prodts 55,022 54,501 64,733 70,693 Operating Profit 4,225 5,219 3,804 4,752 Total 100,208 102,651 117,326 127,882 Other Non Opg (Exp)/Inc (265) (364) (118) (346) Key Assumptions Associates & JV Inc (115) (485) (19) (206) NEV ('000 units) 96 109 126 145 Net Interest (Exp)/Inc (836) (811) (1,017) (1,229) Traditional cars (‘000 units) 394 296 311 326 Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 3,009 3,559 2,650 2,971 Tax (540) (548) (485) (219) Minority Interest (209) (218) (442) (408) Net Profit 2,146 2,690 1,605 2,186 Net profit bef Except. 2,146 2,690 1,605 2,186 Sales Gth (%) 43.7 19.7 0.2 4.2 Opg Profit Gth (%) 154.2 18.1 (10.0) (9.0) Net Profit Gth (%) 359.9 16.1 (25.2) (18.7) Gross Margins (%) 19.5 18.6 18.6 16.6 Opg Profit Margins (%) 9.7 9.2 8.7 8.1 Net Profit Margins (%) 4.9 4.8 3.7 3.7 Source: Company, DBS HK

DBSV's discussion of the issuer in this report (Contemporary Amperex Technology (300750 CH)) will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBSV.

ed- CK/ sa- CS / AH

NOT RATED

Last Traded Price (16 July 2018):RMB83.90 (CSI300 : 3,472)

Price Target 12-mth: n.a.

Potential Catalyst: Strong execution of NMC battery orders

Where we differ: High valuation is warranted on robust future earnings

outlook, especially following the commissioning of new capacity

Analyst Rachel MIU +852 2863 8843 [email protected]

Price Relative

Forecasts and Valuation

ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: CATL is one of the largest car battery makers in the world, counting blue chip automakers as its customers.

Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX

Leader in global EV battery market Largest global player in EV battery; secured orders from various

blue-chip automakers

Rapid ramp-up of production capacity on industry uptrend,

expectations of strong earnings delivery

Scale efficiency mitigates potential impact from reduction in

Chinese EV subsidies

Status as fastest-growing EV battery company vs peers should

support high valuations

International automakers rushing to secure battery supply.

Contemporary Amperex Tech Co. Ltd (CATL) is the largest EV battery

producer in China (market share of c.27% in FY17). Its lithium nickel

manganese cobalt (Li-NMC) battery, which is currently the mainstream

technology for many EV makers, is a key strength. The rapid rise of the

EV market, coupled with shortage in Li-NMC battery supply, has

enabled CATL to secure orders from international automakers, such as

Volkswagen, Daimler, and BMW. It was reported that BMW has signed

a US$4.7bn contract with CATL recently. In China, the company also

supplies to BJ Electric Car Co, Geely, Jiangling Motor, and Guangzhou

Auto. To meet the growing demand, CATL is increasing its production

capacity in Ningde, Fujian Province, by 40% to 24GWh by 2021, up

from 17GWh in FY17. By then, it will be able to support 300,000 units

of EVs, based on average battery power of 80KWh.

Production efficiency to mitigate EV subsidy cuts in China. As the

production cost of EV battery comes down with higher efficiency, the

benefit should ease the margin pressure due to the cut in EV subsidy in

China, starting from June 2018. We expect gross margin to decline

from 35.8% in FY17 to 31.3% in FY19, yet core net earnings are

projected to grow at a comfortable CAGR of 24% from FY17-19F,

riding on volume expansion. Earnings growth could accelerate on

ramping up of its production capacity.

Valuation. CATL’s valuation is supported by its high earnings growth

ability. Based on FY19PEG, it is trading at 1.2x vs the industry range of

0.4x-1.0x. Given CATL’s strong market presence in the Li-NMC battery

market and huge growth potential (riding on the world’s largest EV

market), we believe its high valuation is well justified.

At A Glance

Issued Capital (m shrs) 2,172

Mkt Cap (RMB$m/US$m) 184,157 / 27,556


NB MEISHAN RUITING INV 26.31

Huang Shilin 12.01

NB UNI INNO NEW ENER INV 7.65

Li Ping 5.15

Free Float (%) 48.88

3m Avg. Daily Val. (US$m) Nil


0

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11-Jun 18-Jun 25-Jun 2-Jul 9-Jul

Contemporary Amperex Techn (LHS)

Relative CSI300 (RHS)

RMB Relative Index

F Y Dec (RMB m) 2015A 2016A 2017A

Turnover 5,703 14,879 19,997EBITDA 1,239 3,997 5,176Pre-tax Profit 1,100 3,400 4,848Net Profit 931 2,852 3,878Net Pft (Pre Ex.) 931 2,852 2,839EPS (RMB) 0.78 1.87 2.01EPS Gth (%) n.a. 141.6 7.2Diluted EPS (RMB) 0.78 1.87 2.01BV Per Share (RMB) 1.25 10.37 13.54PE (X) 108.2 44.8 41.8P/Cash F low (X) 0.6 1.4 1.2P/Free CF (X) 151.5 60.5 70.1EV/EBITDA (X) 81.7 30.5 31.2Net Div Yield (%) - - - P/Book Value (X) 67.2 8.1 6.2Net Debt/Equity (X) 0.2 Cash CashROAE (%) 33.0 18.4


Contemporary Amperex Technology

Bloomberg: 300750 CH Equity | Reuters: 300750.SZ Refer to important disclosures at the end of this report


Contemporary Amperex Technology


Cash Flow Statement (RMB m) Rates & Ratio

Segmental Breakdown (RMB m) Interim Income Statement (RMB m)

Source: Company, DBS HK

F Y Dec 2015A 2016A 2017A

Revenue 5,703 14,879 19,997Cost of Goods Sold (3,539) (8,486) (12,836)Gross Prof it 2,164 6,393 7,161Other Opg (Exp)/Inc (1,010) (3,018) (3,997)Operat ing Prof it 1,154 3,375 3,164Other Non Opg (Exp)/Inc 65 84 1,776Associates & JV Inc (10) 22 (50)Net Interest (Exp)/Inc (109) (80) (42)Exceptional Gain/(Loss) - - - Pre- tax Prof it 1,100 3,400 4,848Tax (149) (482) (654)Minority Interest (20) (67) (316)Preference Div idend - - - Net Prof it 931 2,852 3,878Net Profit before Except. 931 2,852 2,839EBITDA 1,239 3,997 5,176Revenue Gth (%) - 160.9 34.4EBITDA Gth (%) - 222.7 29.5Opg Profit Gth (%) - 192.5 (6.2)Effective Tax Rate (%) 13.6 14.2 13.5

F Y Dec 2015A 2016A 2017A

Net F ixed Assets 2,391 5,676 12,703Invts in Assocs & JVs - 170 791Other LT Assets 777 982 3,136Cash & ST Invts 1,293 2,457 14,081Inventory 1,042 1,360 3,418Debtors 2,816 7,886 12,377Other Current Assets 354 10,059 3,158Total A sset s 8,673 28,588 49,663

ST Debt 577 1,227 2,245Creditors 2,514 7,567 13,791Other Current Liab 2,259 1,389 1,854LT Debt - 302 2,129Other LT Liabilities 1,825 2,312 3,173Shareholder's Equity 1,254 15,489 24,701Minority Interests 245 302 1,770Total Cap. & L iab. 8,673 28,588 49,663

Non-Cash Wkg. Cap 371 5,326 10,507 Net Cash/(Debt) (216) 5,950 2,505

F Y Dec 2015A 2016A 2017A

Pre-Tax Profit 1,100 3,400 4,848 Dep. & Amort. 192 784 1,383 Tax Paid (475) (1,560) (1,493) Assoc. & JV Inc/(loss) 10 (22) 50 (Pft)/ Loss on disposal of FAs - - - Non-Cash Wkg. Cap. 1,433 (10,905) 6,867 Other Operating CF (1,568) 10,464 (9,211) Net Operat ing CF 693 2,162 2,444Capital Exp. (net) (1,554) (2,801) (7,180) Other Invts. (net) (176) (9,705) (1,666) Invts. in Assoc. & JV - - - Div from Assoc. & JV - - - Other Investing CF 1,089 62 759 Net Inv est ing CF (641) (12,443) (8,087)Div Paid (69) (54) (82) Chg in Gross Debt 202 993 3,055 Capital Issues 151 11,132 6,179 Other F inancing CF 157 (1,100) (219) Net F inancing CF 440 10,971 8,933Chg in Cash 491 690 3,290

F Y Dec 2015A 2016A 2017A

Gross Margin (%) 37.9 43.0 35.8Opg Profit Margin (%) 20.2 22.7 15.8Net Profit Margin (%) 16.3 19.2 19.4ROAE (%) 101.5 33.0 18.4ROA (%) 10.7 10.0 7.8ROCE (%) 28.0 15.5 12.2Div Payout Ratio (%) - - -Interest Cover (x) 9.6 39.9 89.9Asset Turnover (x) 0.7 0.8 0.5Debtors Turn (days) 153.2 179.5 126.3Creditors Turn (days) 151.9 136.5 141.6Inventory Turn (days) 107.4 58.5 97.2Current Ratio (x) 1.0 2.1 1.8Quick Ratio (x) 0.8 1.0 1.5Net Debt/Equity (X) Net cash Net cash Net cashCapex to Debt (%) 120.2 114.0 51.0N. Cash/(Debt)PS (RMB) 0.60 0.61 4.96Opg CFPS (RMB) 0.58 1.42 1.25Free CFPS (RMB) (0.74) (0.45) (2.48)

F Y Dec 2015A 2016A 2017A

Rev enuesMain Business 5,661 14,626 19,144 Power Battery System 4,981 13,976 16,657 Lithium Battery Materials 591 611 2,471 Energy Storage System 89 39 16Other Business 42 253 853 Disposal and Material Sales 32 182 397 Technology License 10 70 76 R&D Serv ice 365 Other 0 1 15Total 5,703 14,879 19,997

F Y Dec 1H17 2H17

Revenue 6,295 13,702Cost of Goods Sold (3,959) (8,877)Gross Prof it 2,336 4,825Other Oper. (Exp)/Inc (1,477) (2,520)Operat ing Prof it 859 2,305Other Non Opg (Exp)/Inc 1,535 241Associates & JV Inc (13) (37)Net Interest (Exp)/Inc (48) 6Exceptional Gain/(Loss) - -Pre- tax Prof it 2,333 2,515Tax (312) (342)Minority Interest (164) (152)Net Prof it 1,857 2,021Net profit bef Except. 818 2,021

GrowthRevenue Gth (%) na naOpg Profit Gth (%) na naNet Profit Gth (%) na na

Margins & Rat ioGross Margins (%) 37.1 35.2Opg Profit Margins (%) 13.6 16.8Net Profit Margins (%) 29.5 14.7

ed- CK/ sa- CS / AH

BUY Last Traded Price (16 Jul 2018):HK$32.25 (HSI : 28,540)

Price Target 12-mth: HK$39.80 (23.41% upside)

Potential Catalyst: Winning new orders to support earnings growth

Where we differ: Diversification strategy to mitigate potential trade

policy impact Analyst Rachel MIU +852 2863 8843 [email protected]

Price Relative

Forecasts and Valuation FY Dec (RMB m) 2016A 2017A 2018F 2019F Turnover 9,400 11,384 13,289 15,761 EBITDA 2,532 3,002 3,488 4,170 Pre-tax Profit 2,119 2,488 2,926 3,506 Net Profit 1,719 2,025 2,377 2,848 EPS (RMB) 1.54 1.78 2.09 2.51 EPS (HK$) 1.80 2.09 2.45 2.94 EPS Gth (%) 33.4 16.0 17.3 19.8 Diluted EPS (HK$) 1.78 2.07 2.42 2.90 DPS (HK$) 0.74 0.87 1.02 1.22 BV Per Share (HK$) 11.38 13.01 14.69 16.73 PE (X) 17.9 15.4 13.1 11.0 P/Cash Flow (X) 17.9 16.7 12.0 10.0 P/Free CF (X) 52.2 (233.5) 52.6 23.4 EV/EBITDA (X) 11.7 10.1 8.8 7.3 Net Div Yield (%) 2.3 2.7 3.2 3.8 P/Book Value (X) 2.8 2.5 2.2 1.9 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 17.4 17.8 18.4 19.5 Earnings Rev (%): (11) (10) Consensus EPS (RMB) 2.06 2.52 Other Broker Recs: B:19 S:0 H:3

ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: A major automotive producer of exterior car body parts, including trims, body structural parts, decorative parts and car seat frames Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX

Moving in the EV direction EV-related automotive parts business gaining traction

Market and customer diversification mitigate the US-China

trade tension impact

Market volatility should provide accumulation

opportunities; Maintain BUY with TP of HK$39.80

Electric control systems and lightweight parts business

targeting the EV industry. With the growing demand for

lightweight automotive parts, Minth’s aluminium parts business

is getting good order sizes and we expect this success to be

replicated for its electric control systems as well, given the

global EV market is accelerating rapidly. Aluminium automotive

parts account for around 35% of the total Rmb90bn+ backlog

on hand. Margin expansion is possible as economies of scale

kicks in.

Recent trade policy creates some uncertainty, but exposure is

within control. The exposure to the US-China trade and Trump

factor is around 9-10% of Minth’s revenue. Its market and

customer diversification strategy helps to mitigate some

potential risk. Minth is working more with the European

automakers (which accounts for 20-25% of total revenue) to

increase their penetration rate. Any share price corrections

arising from trade uncertainties should present an accumulation

popportunity.

Margin improvement post initial start-up. Minth suffered some

margin compression on the back of higher costs in 2017 (from

raw materials and automation of production processes). We

expect the cost pressure to ease in 2018. For prudent reasons,

we have tweaked our FY18/19F earnings. Its FY17-19F earnings

CAGR of around 20% makes the stock attractive, based on

uncompleted orders of Rmb90bn+. We maintain our BUY call

and TP of HK$39.80, based on 16x FY18 PE. Its strong cash

generation ability implies a generous dividend payout is

possible. Minth has maintained a dividend payout of 40% for

the past seven years.

At A Glance


Mkt Cap (HK$m/US$m) 36,079 / 4,726


Chin (Jong Hwa) 39.3

First State Investments (HK) Ltd. 7.1

Matthews Int’l Capital Management, L.L.C. 7.1

Free Float (%) 46.5



82

132

182

232

282

11.0

16.0

21.0

26.0

31.0

36.0

41.0

46.0

51.0


Relative IndexHK$

Minth Group (LHS) Relative HSI (RHS)


Minth Group

Bloomberg: 425 HK EQUITY | Reuters: 0425.HK Refer to important disclosures at the end of this report


Minth Group



Turnover 9,400 11,384 13,289 15,761 Net Fixed Assets 4,957 6,246 7,747 8,965 Cost of Goods Sold (6,150) (7,535) (8,744) (10,292) Invts in Assocs & JVs 298 461 492 524

Gross Profit 3,250 3,849 4,545 5,469 Other LT Assets 932 1,345 1,481 1,616 Other Opng (Exp)/Inc (1,179) (1,385) (1,601) (1,927) Cash & ST Invts 2,940 3,850 3,435 3,600

Operating Profit 2,071 2,464 2,943 3,542 Inventory 1,569 2,078 2,286 2,514 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 3,438 4,017 4,623 5,324 Associates & JV Inc 45 30 31 32 Other Current Assets 917 113 113 113

Net Interest (Exp)/Inc 2 (6) (49) (67) Total Assets 15,051 18,109 20,175 22,654 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 1,446 2,494 2,494 2,494

Pre-tax Profit 2,119 2,488 2,926 3,506 Creditors 2,529 2,890 3,236 3,628 Tax (339) (396) (468) (561) Other Current Liab 128 159 232 324 Minority Interest (60) (67) (81) (97) LT Debt 0 0 0 0 Preference Dividend 0 0 0 0 Other LT Liabilities 92 168 168 168

Net Profit 1,719 2,025 2,377 2,848 Shareholder’s Equity 10,598 12,113 13,680 15,577 Net Profit before Except. 1,719 2,025 2,377 2,848 Minority Interests 258 285 366 463

EBITDA 2,532 3,002 3,488 4,170 Total Cap. & Liab. 15,051 18,109 20,175 22,654 Sales Gth (%) 22.8 21.1 16.7 18.6 EBITDA Gth (%) 38.0 18.5 16.2 19.5 Non-Cash Wkg. Cap 3,267 3,159 3,553 3,998 Opg Profit Gth (%) 43.4 19.0 19.5 20.3 Net Cash/(Debt) 1,494 1,356 942 1,107 Net Profit Gth (%) 35.2 17.8 17.3 19.8 Effective Tax Rate (%) 16.0 15.9 16.0 16.0 Cash Flow Statement (RMB m) Rates & Ratio


Pre-Tax Profit 2,119 2,488 2,926 3,506 Gross Margins (%) 34.6 33.8 34.2 34.7 Dep. & Amort. 416 507 514 597 Opg Profit Margin (%) 22.0 21.6 22.1 22.5 Tax Paid (294) (403) (396) (468) Net Profit Margin (%) 18.3 17.8 17.9 18.1 Assoc. & JV Inc/(loss) (45) (30) (31) (32) ROAE (%) 17.4 17.8 18.4 19.5 (Pft)/ Loss on disposal of FAs FAFAsiaries/Investments (-/+)

0 0 0 0 ROA (%) 12.2 12.2 12.4 13.3 Chg in Wkg.Cap. (462) (529) (467) (537) ROCE (%) 14.6 15.1 15.6 16.8 Other Operating CF 49 67 0 0 Div Payout Ratio (%) 40.0 40.0 40.0 40.0

Net Operating CF 1,723 1,875 2,594 3,133 Net Interest Cover (x) NM 405.9 60.6 52.8 Capital Exp.(net) (1,133) (2,009) (2,000) (1,800) Asset Turnover (x) 0.7 0.7 0.7 0.7 Other Invts.(net) 80 57 0 0 Debtors Turn (avg days) 116.8 119.5 118.7 115.2 Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 131.1 140.7 135.8 129.2 Div from Assoc & JV 11 14 0 0 Inventory Turn (avg days) 88.0 94.7 96.8 90.3 Other Investing CF 566 510 (86) (92) Current Ratio (x) 2.2 1.8 1.8 1.8

Net Investing CF (477) (1,428) (2,086) (1,892) Quick Ratio (x) 1.6 1.4 1.4 1.4 Div Paid (520) (676) (810) (951) Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt (558) 1,194 0 0 Capex to Debt (%) 78.4 80.6 80.2 72.2 Capital Issues 236 135 0 0 Z-Score (X) 6.9 6.6 6.6 6.4 Other Financing CF (84) (138) (112) (125) N.Cash/(Debt)PS (RMB) 1.60 1.46 1.01 1.19

Net Financing CF (927) 515 (922) (1,075) Opg CFPS (RMB) 1.95 2.12 2.69 3.23 Currency Adjustments (147) (52) 0 0 Free CFPS (RMB) 0.53 (0.12) 0.52 1.17 Chg in Cash 173 910 (414) 165

Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions


Turnover 4,196 5,204 5,266 6,119 Revenues (RMB m) Cost of Goods Sold (2,753) (3,397) (3,487) (4,048) Trims 3,196 3,734 4,294 5,153 Gross Profit 1,443 1,807 1,778 2,071 Decorative parts 2,905 3,450 3,967 4,522 Other Oper. (Exp)/Inc (492) (687) (534) (852) Body structural parts 2,096 2,334 2,614 3,084 Operating Profit 951 1,120 1,245 1,219 Car seat frame 160 262 327 393 Other Non Opg (Exp)/Inc 0 0 0 0 Others 658 820 1,066 1,332 Associates & JV Inc 21 24 17 14 Total 9,400 11,384 13,289 15,761 Net Interest (Exp)/Inc 14 (11) 4 (10) Key Assumptions Exceptional Gain/(Loss) 0 0 0 0 New contract 4,400.0 5,000.0 5,500.0 5,775.0 Pre-tax Profit 986 1,133 1,265 1,223 GP margin 34.6 33.8 34.2 34.7 Tax (145) (194) (180) (215) Minority Interest (28) (32) (31) (36) Net Profit 813 906 1,053 972 Net profit bef Except. 813 906 1,053 972 Sales Gth (%) 22.3 23.3 25.5 17.6 Opg Profit Gth (%) 39.8 46.7 30.9 8.9 Net Profit Gth (%) 30.6 39.6 29.6 7.2 Gross Margins (%) 34.4 34.7 33.8 33.8 Opg Profit Margins (%) 22.7 21.5 23.6 19.9 Net Profit Margins (%) 19.4 17.4 20.0 15.9 Source: Company, DBS HK

ed- CK/ sa- CS / AH

BUY Last Traded Price (16 Jul 2018):HK$11.54 (HSI : 28,540)

Price Target 12-mth: HK$15.60 (35.18% upside)

Potential Catalyst: Winning new orders to boost backlogs

Where we differ: Steady increase in new Chinese customer orders

Analyst Rachel MIU +852 2863 8843 [email protected]

Price Relative

Forecasts and Valuation FY Dec (US$ m) 2016A 2017A 2018F 2019F Turnover 3,842 3,878 3,990 4,233 EBITDA 557 584 719 788 Pre-tax Profit 386 405 433 485 Net Profit 295 352 350 393 Net Pft (Pre Ex) (core profit) 295 312 340 393 EPS (US$) 0.12 0.14 0.14 0.16 EPS (HK$) 0.93 1.10 1.10 1.23 Core EPS (HK$) 0.93 0.98 1.07 1.23 Core EPS (US$) 0.12 0.12 0.14 0.16 EPS Gth (%) 43.4 19.2 (0.4) 12.1 Core EPS Gth (%) 43.4 6.0 8.8 12.1 Diluted EPS (HK$) 0.93 1.10 1.10 1.23 DPS (HK$) 0.19 0.22 0.22 0.25 BV Per Share (HK$) 3.33 4.40 5.28 6.29 PE (X) 12.5 10.5 10.5 9.4 Core PE (X) 12.5 11.8 10.8 9.4 P/Cash Flow (X) 7.2 5.9 4.9 6.8 P/Free CF (X) 10.7 9.4 7.3 15.2 EV/EBITDA (X) 6.8 6.2 4.6 4.1 Net Div Yield (%) 1.6 1.9 1.9 2.1 P/Book Value (X) 3.5 2.6 2.2 1.8 Net Debt/Equity (X) 0.1 CASH CASH CASH ROAE (%) 31.2 28.6 22.7 21.3 Earnings Rev (%): Nil Nil Consensus EPS (US$) 0.88 0.99 Other Broker Recs: B:17 S:3 H:1

ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: A leading steering systems producer with international automakers as its customers

Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX

Penetrating deeper into China Growing presence in China offers more EV business

opportunities

Anticipate 2H18 new orders to rise

Trade tension has limited impact on earnings, as

production is localised

Maintain BUY with HK$15.60 TP

Wider application of electric power steering systems in EVs.

China has the largest EV market and Nexteer’s growing

presence could translate into more EV business opportunities.

Nexteer is stepping up its involvements with Chinese

automakers, such as BYD and Guangzhou Auto. For instance,

BYD is one of the largest EV players in China and this could

lead to more EV business opportunities, acting as a new growth

driver for Nexteer. Currently, the Chinese market accounts for

about 20% of its total revenue and there is upside potential.

New orders from China on the plate; trade policy impact is

limited. Nexteer is negotiating for more business opportunities

in China, which could help lift its order backlog in 2H18. Also,

as Nexteer’s production is highly localised, any trade war

between the US and China is expected to have a limited impact

on earnings. With regard to NAFTA, the outcome is still

uncertain, though this segment accounts for about 20% of

Nexteer’s revenue. But the real impact should be smaller as only

a small portion of its products are shipped back from Mexico to

the US.

Electric-autonomous steering system a long-term strategy; mid-

term earnings from strong contract flows. The successful

implementation of such new products can boost Nexteer’s

long-term development. Based on the new contract flows, it is

expected to post strong earnings growth of 15-20% from FY19

onwards, largely coming from the execution of contracts

secured in FY16. At end-1Q18, the backlog on hand was

US$24bn. We maintain our BUY call with an unchanged TP of

HK$15.60, pegged to 14x FY18PE.

At A Glance


Mkt. Cap (HK$m/US$m) 28,909 / 3,698

Major Shareholders

Aviation Industry Corporation of China (%) 67.1

Free Float (%) 32.9



82

132

182

232

282

4.9

6.9

8.9

10.9

12.9

14.9

16.9

18.9

20.9


Relative IndexHK$

Nexteer Automotive Group (LHS) Relative HSI (RHS)


Nexteer Automotive Group

Bloomberg: 1316 HK Equity | Reuters: 1316.HK Refer to important disclosures at the end of this report


Nexteer Automotive Group

Income Statement (US$ m) Balance Sheet (US$ m)


Turnover 3,842 3,878 3,990 4,233 Net Fixed Assets 779 884 962 1,083 Cost of Goods Sold (3,181) (3,204) (3,280) (3,454) Invts in Assocs & JVs 11 11 9 7

Gross Profit 662 674 710 779 Other LT Assets 476 523 512 491 Other Opng (Exp)/Inc (246) (246) (253) (268) Cash & ST Invts 484 601 981 1,094

Operating Profit 415 428 458 511 Inventory 262 241 262 268 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 590 611 592 684 Associates & JV Inc 1 (2) (2) (2) Other Current Assets 92 108 119 130

Net Interest (Exp)/Inc (30) (21) (23) (23) Total Assets 2,693 2,979 3,436 3,757 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 75 77 77 77

Pre-tax Profit 386 405 433 485 Creditors 604 582 658 572 Tax (84) (49) (78) (87) Other Current Liab 180 209 256 284 Minority Interest (7) (4) (5) (5) LT Debt 489 414 464 514 Preference Dividend 0 0 0 0 Other LT Liabilities 253 256 256 256

Net Profit 295 352 350 393 Shareholder’s Equity 1,059 1,402 1,682 2,005 Net Profit before Except. 295 352 350 393 Minority Interests 32 38 43 48

EBITDA 557 584 719 788 Total Cap. & Liab. 2,693 2,979 3,436 3,757 Sales Gth (%) 14.3 0.9 2.9 6.1 EBITDA Gth (%) 28.4 5.0 23.0 9.6 Non-Cash Wkg. Cap 158 169 59 225 Opg Profit Gth (%) 32.7 3.1 6.9 11.5 Net Cash/(Debt) (80) 110 439 503 Net Profit Gth (%) 43.5 19.4 (0.4) 12.1 Effective Tax Rate (%) 21.8 12.1 18.0 18.0

Cash Flow Statement (US$ m) Rates & Ratio


Pre-Tax Profit 386 405 433 485 Gross Margins (%) 17.2 17.4 17.8 18.4 Dep. & Amort. 140 158 263 280 Opg Profit Margin (%) 10.8 11.0 11.5 12.1 Tax Paid (68) (33) (49) (78) Net Profit Margin (%) 7.7 9.1 8.8 9.3 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 31.2 28.6 22.7 21.3 (Pft)/ Loss on disposal of FAs FAFAsiaries/Investments (-/+)

0 0 0 0 ROA (%) 11.4 12.4 10.9 10.9 Chg in Wkg.Cap. 19 54 81 (175) ROCE (%) 17.9 18.4 15.9 15.4 Other Operating CF 33 41 28 31 Div Payout Ratio (%) 20.0 20.0 20.0 20.0

Net Operating CF 509 625 756 542 Net Interest Cover (x) 13.8 20.1 19.9 21.8 Capital Exp.(net) (165) (234) (250) (300) Asset Turnover (x) 1.5 1.4 1.2 1.2 Other Invts.(net) (1) (2) 0 0 Debtors Turn (avg days) 55.1 56.5 55.0 55.0 Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 69.8 71.1 75.0 70.7 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 31.0 30.1 30.4 30.5 Other Investing CF (118) (121) (80) (80) Current Ratio (x) 1.7 1.8 2.0 2.3

Net Investing CF (283) (357) (330) (380) Quick Ratio (x) 1.2 1.4 1.6 1.9 Div Paid (40) (60) (70) (70) Net Debt/Equity (X) 0.1 CASH CASH CASH Chg in Gross Debt (118) (111) 24 22 Capex to Debt (%) 29.2 47.7 46.2 50.7 Capital Issues 0 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF 3 2 0 0 N.Cash/(Debt)PS (US$) (0.25) 0.34 1.38 1.58

Net Financing CF (155) (169) (46) (48) Opg CFPS (US$) 0.20 0.23 0.27 0.29 Currency Adjustments (3) 18 0 0 Free CFPS (US$) 0.14 0.16 0.20 0.10 Chg in Cash 68 116 380 114

Interim Income Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions


Turnover 1,924 1,918 1,974 1,904 Revenues (US$ m) Cost of Goods Sold (1,589) (1,591) (1,603) (1,601) EPS 2,384 2,482 2,454 2,574 Gross Profit 334 327 371 303 HPS 187 177 192 201 Other Oper. (Exp)/Inc (119) (127) (131) (115) Steering column (CIS) 635 637 696 758 Operating Profit 215 200 240 188 Driveline 637 582 648 700 Other Non Opg (Exp)/Inc 0 0 0 0 Others N/A N/A N/A N/A Associates & JV Inc 1 (1) 0 (2) Total 3,842 3,878 3,990 4,233 Net Interest (Exp)/Inc (16) (14) (13) (8) Key Assumptions Exceptional Gain/(Loss) 0 0 0 0 Revenue (US$m) - North

America2,513.6 2,533.9 2,514.0 2,539.5

Pre-tax Profit 201 185 227 178 Europe and South America 429.2 489.6 518.8 634.9 Tax (48) (36) (44) (5) Asia Pacific 899.4 854.5 957.7 1,058.1 Minority Interest (4) (3) (3) (1) Rest of World 0.0 0.0 0.0 0.0 Net Profit 149 146 180 172 Net profit bef Except. 149 146 180 172

Sales Gth (%) 17.1 11.7 2.6 (0.8) Opg Profit Gth (%) 44.3 22.1 11.5 (6.0) Net Profit Gth (%) 54.2 33.9 20.7 18.0 Gross Margins (%) 17.4 17.1 18.8 15.9 Opg Profit Margins (%) 11.2 10.4 12.2 9.9 Net Profit Margins (%) 7.7 7.6 9.1 9.0

Source: Company, DBS HK



ASIAN INSIGHTS

DBS Bank Ltd, DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 17 Jul 2018 15:08:02 (SGT)

Dissemination Date: 17 Jul 2018 15:50:39 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank, DBS HK. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and

associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any

means or (ii) redistributed without the prior written consent of DBS Bank.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to

DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents

(collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into

account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any

representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are

subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not

have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the

information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate

independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss

(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in

relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS

Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in

this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or

seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there

can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or

condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is

under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from

actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO

BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.



ASIAN INSIGHTS

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to

the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst

(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer

of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of

the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for

the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report

or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of

the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), or their subsidiaries and/or other affiliates have a proprietary

position in the DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Guangzhou

Automobile Group Company Limited (2238 HK), Dongfeng Motor Group Company Limited (489 HK), Brilliance China Automotive Holdings

Limited (1114 HK), Great Wall Motor Company Limited (2333 HK), Byd Company Limited (1211 HK) and Geely Automobile Holdings

Limited (175 HK) recommended in this report as of 29 Jun 2018.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services:

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 monthsfor investment banking services from Astra International Terbuka (ASII IJ) as of 29 Jun 2018.

4. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain

further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this

document should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

5. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.



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RESTRICTIONS ON DISTRIBUTION

6. General 7. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of

or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would

be contrary to law or regulation.

8.

9. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry

out the regulated activity of advising on securities

This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to

carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance

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(Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry

on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the

Laws of Hong Kong).

11. For any query regarding the materials herein, please contact Carol Wu (Reg No. 8283) at [email protected].

12. Indonesia 13. This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

14. Malaysia 15. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from

ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this

report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised

that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective

connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or

associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and

may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject

companies. They may also have received compensation and/or seek to obtain compensation for broking, investment

banking/corporate advisory and other services from the subject companies.

16.

Wong Ming Tek, Executive Director, ADBSR

17. Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.



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18. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

19. United

Kingdom

20. This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.

21. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised

and regulated by the Financial Conduct Authority in the United Kingdom.

22. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and

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matters relating to investments should not rely on this communication.

23. Dubai

International

Financial

Centre

24. This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor,

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professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

25. United Arab

Emirates

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defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information

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27. United States 28. This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s)

named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The

research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a

subject company, public appearances and trading securities held by a research analyst. This report is being distributed in

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DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities

referred to herein should contact DBSVUSA directly and not its affiliate.

29. Other

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professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.



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DBS Regional Research Offices

HONG KONG DBS Bank (Hong Kong) Limited Contact: Carol Wu 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong

MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]

SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]

THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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