上汽集团:Market sentiment is rising on A-share auto

In 3Q20, GPM was 11.0%, down 2.4ppt YoY, reflecting intensified market competition. The expense ratio was 9.6%, down 2.3ppt YoY (tax exp -0.1ppt, S&D exp -2.0ppt, Admin exp -0.3ppt). The decrease in S&D exp ratio was mainly due to 1) implementation of the new accounting standard in the current period which moves the car loan interest subsidy from S&D expense to revenue recognition offset; and 2) the YoY decrease of logistic expense and advertising expense.

SAIC achieved a total investment income of RMB8.9bn in 3Q20, an increase of 19% YoY. Among which, investment income from JVs and associates was RMB6.6bn, an increase of 2.9% YoY. SAIC Volkswagen achieved sales of 454K units in 3Q20, down 4% YoY. SAIC GM achieved sales of 395K units, an increase of 3% YoY. We believe the main factor which contributes to YoY earning growth in 3Q20 was still the investment income from financial assets.

The sales performance of major JVs is still mixed. SAIC Volkswagen launched a mid-term facelift version Santana in Oct (-23% YoY in 3Q20). At the end of Oct, the first BEV based on the MEB platform, namely ID.4 was put into production. We expect both new models to drive the recovery of the Volkswagen brand. However, the Skoda brand fell 29% YoY in 3Q20, which is still expected to drag down the recovery of SAIC Volkswagen in the short-term. For SAIC-GM, the sales volume of Excelle (英朗) in Sep exceeded 30K units after the re-launch of four-cylinder version. As a result, Buick achieved a 30% YoY growth in 3Q20. The sales of high-end brand Cadillac increased by 75% YoY given the strong performance in overall luxury segment. However, due to lack of brand power, Chevrolet declined by 47% YoY, dragged down the overall performance of SAIC GM.