Lacklustre ICE shipments, but strong NEV shipments likely to remain in FY18E
ICE shipments likely to maintain a low-single-digit growth in FY18, dragged by small engine vehicles post tax rollback policies. Total ICE shipments posted a 3.6% YoY growth in FY17, slowing down significantly from 13.7% YoY growth in FY16, primarily due to the slowdown in sales of vehicles with displacement of 1.0L-1.6L with an almost 60% contribution to total ICE shipments for the year. Meanwhile, we believe the sluggish 4Q17 ICE shipments also signaled the demand of small engine vehicles in FY18E may have been largely over-consumed in advance during FY16-FY17 with lower tax rate. Looking forward, we anticipate total ICE shipments will likely continue to grow at a low-single-digit in FY18E on the back of the small-engine vehicles’ weak growth momentum, in our view.
Strong NEV shipments will continue to be driven by the dual-credit scheme, despite potential subsidy cuts to affect A00 models in FY18. In view of the total NEV PV shipment number in December being more substantial than November, which we believe was due to the dual-credit scheme announced in Nov-17 scheduled to come into effect in 2019, we expect this scheme will continue to drive NEV shipments in FY18E. However, the growth rate is estimated to come in lower at 30%-50% given majority of the best-selling NEV models in FY17 are A00 models with range per charge lower than 300km, which are very likely to see subsidy cuts in FY18E ahead of schedule, according to rumours.
Geely, GAC and BYD remain our top picks in FY18E. Geely (175.HK), GAC (2238.HK) and BYD (1211.HK) remain our top picks in the auto OEM sector under our coverage in FY18E. Meanwhile, we expect BYD will likely be a more volatile play relative to both Geely and GAC due to its likely turnaround potential in FY18E.
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