[20081118]Beiqi Futian Automobile (600166.SH)- Shanghai Securities commercial, Shanghai, Recently, research, business

yangruoxin

Falling Steel Prices Secure Short-term Earnings, Joint Ventures Promote Long-term Potential
Background
Recently, we made research on Beiqi Futian Automobile and learned its headquarters’ operating conditions & the progress of its main joint ventures. We have deeper understanding about the commercial vehicle market and the company’s developing situations. 
Highlights
Sales growth & revenue growth will continue to slow down
The company’s light truck business, light passenger vehicle business and large-size passenger vehicle business are still expected to realize small growths next year. However, its heavy truck business may slump due to the macro economy factor. It is anticipated that the company’s total sales will grow slightly or maintain in 2009. However, the revenue may reduce y-o-y for the unit price of heavy trucks is higher.   
The falling steel prices will increase the gross margin
Steel occupies a relatively high ratio in the company’s products cost. Hence, the falling steel prices will promote the gross margin to rise. However, due to the lag of price transmission, the company’s Q4 gross margin is expected to further decline. Since Q1 2009, the company’s gross margin will start to climb up. Although some products’ prices may be cut due to the severe market competition, the company’s 2009 gross margin is still expected to rise by 1 percentage point.
The joint ventures established with Cummins and Daimler will help improving the company’s long-term development potential
The energy joint venture established with Cummins will start operation since 2009 and is expected to contribute profits since 2010. The joint venture established with Daimler is anticipated to initiate since the end of 2009. This company is hard to make contribution in short-term. The cooperation with the two international giants will benefit the listed company to develop in commercial vehicle field and promote the company’s long-term investment value significantly.
Investment Suggestions
Outperform the market over the next 6 months
Currently, the company’s 2008, 2009 and 2010 leading PE are 7.7 times, 6.9 times and 5.4 times. We give following investment rating to the company, outperform the market over the next six months and the target share price is 4.8 Yuan per share.
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