First commercial vehicle company revived by Foton Motor
In the second quarter, sales rose sharply
In the first quarter, Foton Motor achieved a performance of 0.2 yuan due to the decrease in the cost of steel products and the increase in sales of construction vehicles. We believe that heavy trucks did not contribute profit in the first quarter, and the profit mainly came from light trucks and others. In the second quarter, sales of light trucks and construction vehicles are expected to increase by around 17% month-on-month, with both light passengers and large and medium-sized passengers reporting high quarter-on-quarter growth. In the absence of significant increase in costs, it is expected that the profits contributed by other businesses except for heavy trucks in the second quarter will be no less than 0.2 yuan in the first quarter. In addition, the second quarter of heavy truck season is approaching, and sales volume is expected to increase by about 140% quarter-on-quarter. The medium- and heavy-duty trucks will become another pillar of earnings in the second quarter. It is expected that the contribution of medium- and heavy-duty trucks will account for 35-40% of total profits. We expect the company's second-quarter earnings per share of RMB 0.35 and the first half profit of RMB 0.55.
Heavy truck recovery
We estimate that the heavy-duty trucks in the first quarter of 2009 did not contribute to profitability because January and February failed to reach a break-even point of around 2,600-3,000 units. In March, the heavy-duty trucks have shown signs of recovery, with sales of nearly 5,200 units. Monthly average sales of medium- and heavy-duty trucks in April-May have reached 7,200 units, a YoY decline of 13% to 15% compared to the April-May period of strong sales in the first half of 2008, showing a strong recovery. We do not expect the sales of this segment to drop sharply in June. In the second quarter, sales will exceed 20,000 units, which is a quarter-on-quarter increase of nearly 140%. Due to the gradual recovery of logistics vehicle utilization, it is expected that the company's orders in the third quarter will be good, and will maintain an average monthly sales of 7,000 units, continuing the strong sales trend in the second quarter.
From the perspective of sales ratio in the second quarter, the sales volume of medium- and heavy-duty trucks will account for 13%-14% of the total sales, which is similar to the sales ratio of the whole year last year. Based on the proportion of earnings contribution of the sector last year, we expect that the medium- and heavy-duty trucks will contribute in the second quarter. The overall 35% -40% profit.
Light-chain quarterly steady growth
We believe that the light truck segment is the main earnings support in the first quarter. We have noticed that the company has historically included the construction trucks produced at the light truck base into the light truck statistics. In fact, the gross profit of the construction vehicles is higher, which is the support for the profitability of Foton light trucks. From a sales perspective, it is expected that sales of construction vehicles in the second quarter will account for about 50% of total light truck sales (this figure is expected to be 42% in 2008). Thanks to the engineering tipper, the gross profit of the Foton light truck segment reached the level of 7%-8%, which is similar to the heavy truck segment.
Engineering dump truck
Fukuda Engineering Truck Co., Ltd. meets the needs of various market segments with small, light, medium, and heavy construction vehicles. The major brands are Age King Kong and Times Ruiwo, among which Ruiwo is heavy and King Kong is lighter. Futian's construction trucks are produced at the two bases in Shandong and Hunan as light trucks. It is estimated that the market capacity of the Southern Construction Vehicle (Hunan Base) will be about 190,000 units, and the market capacity of the Northern Construction Vehicle (Shandong Base) will be 240,000 units. Based on the market share of 28% and 35% in the south and north of 2008 respectively, the sales volume of engineering vehicles in 2008 was 139,000 units, accounting for 42% of light truck sales. The second quarter of 2009 is expected to have reached about 50%. This will help increase the gross profit of the sector.
We believe that the country's 4 trillion economic stimulus package will increasingly drive investment in infrastructure projects, causing users to make certain advance purchases of construction vehicles. This has led to the hot selling of construction vehicles in the first half of the year. We believe that with the real start of infrastructure investment, this A sales level is also expected to maintain. We expect the enthusiasm for the purchase of construction vehicles of Foton Motor in the third quarter will not cool down quickly and will reach the level of the first quarter.
Light truck
For the sales of Foton light trucks, we are optimistic about the development in the second half of the year. Compared with 2008, due to the low base, the year-on-year increase is expected to increase. On a month-on-year basis, we believe that the policy of “cars going to the countryside†has not played a role in the sales of light trucks in the first half of the year, but it is expected to actually boost sales of light trucks in the second half of the year. The favorable policies are as follows:
Car to the countryside
The rules changed the original subsidy scheme for light trucks to be replaced by scrapped agricultural vehicles. The subsidy program was changed to subsidy for the purchase of light trucks, and mini trucks were also included in the subsidy range. The subsidy amount was 10% of the sales price but not more than 5,000 yuan. When the peasants receive subsidy funds, the detailed rules specify that the subsidy funds will be directly subsidized to farmers.
We believe that the conditions for the direct subsidy for light trucks will be relatively relaxed, and the low-end light trucks of Foton Motor will be able to enjoy the equivalent of a tax free purchase tax, which is expected to boost sales of light trucks. As the implementation of the automobile to rural areas policy took place from March 1, 2009 to December 31, 2009, we believe that price-sensitive consumer groups will pay more attention to light truck purchases in the second half of the year.
2. Trade-in
In 2009, the country will arrange another 4 billion yuan on the basis of arranging retirement subsidies for old cars to be renewed. A vehicle that meets certain service age requirements and a “yellow mark car†will be scrapped in advance and replaced with new ones. It is not higher than the purchase tax allowance for a single vehicle.
We believe that because of the higher unit price of passenger cars, the incentive effect is not obvious, but the promotion effect of light trucks and micro cards is obvious. According to the calculation of the subsidy limit, for the 70,000 yuan in the card and yellow standard car, about 58,000 light trucks, about 46,000 micro-cards will be able to maximize the policy benefits. The current subsidy can support the renewing subsidies for 1 million old cars. We believe that the subsidy will be favorable to medium and low-end models. With the support of subsidies, Futian is expected to maintain better gross profit while increasing sales.
Taizhongzhong takes orders again
Futian Motor’s large and medium-sized passenger board has repeatedly attracted attention in 2009. New energy orders have been awarded to 800 buses of the Beijing Public Transport Group, 20 of the Jinan City Government, and 75 new orders for the Taiwan region, with a total of about 900 subtotals. 750 Euro V buses (chassis KDs) signed with India boost exports. Although the markets of large and medium-sized passengers have rapidly declined since the beginning of this year, we expect Futian Dazhong Passenger will be able to exceed the sales target of 3,000 units.
Earnings forecast and valuation
We expect the sales of heavy trucks to remain good in the third quarter. Although there are certain uncertainties in the construction truck and light truck segments, it is expected that the average monthly sales in the three to four quarters will reach the level of the first quarter, which will be around 35,000 units; Complete sales tasks. We increased the company's 2009-2010 recurring EPS from RMB 0.63 and RMB 0.76 to RMB 0.85 and RMB 0.92, respectively. Based on the average 19x P/E for the auto industry in 2010, the target price will be raised from 15.26 yuan to 17.50 yuan, maintaining the BUY rating.