China A-Share Autos:Electric logistics vehicles on fire

Event

The A-share listed electric vehicle (EV) producers and suppliers had a strongrally in share prices this week (see Fig 1 on page 2), as the electric logisticsvehicles (mainly electric light duty trucks) is emerging as a new and fastgrowingmarket segment and has got a lot of traction from investors.

Jiangling Motors (000550 CH) is our top pick among the truck producers forits leading position in China’s light duty truck (LDT) market and a strong lineupof electric logistics vehicles.

We reiterate our Outperform rating on Yutong Bus (600066 CH) and KingLong Motor (600686 CH) as they should continue to benefit from rising profitcontribution from fast-growing electric bus (E-bus) sales.

Impact

Electric logistics vehicles are set to grow at high speed. As highlighted inour recent report China Truck Market, we believe the rising demand from thelogistics industry will drive LDT demand in coming years. Electric trucks orelectric light buses are ideal products for short-distance transportationservices and demand should rise quickly on the back of strong growth in ecommerce.

China sold a total of 47.8k new energy logistics vehicles(including 44.5k electric logistics vehicles) in 2015 and we expect themarket should grow at 44% CAGR to 300k units in 2020.

Jiangling Motors has a strong line-up of electric logistics vehicles. Eightelectric logistics vehicles from Jiangling and its parent company have beenqualified for the government subsidies. We believe Jiangling will havecompetitive advantages in this new market by leveraging its renowned brand,extensive distribution and large customer base.

JAC investing Rmb2bn for electric trucks. JAC’s electric trucks mainlytarget urban garbage transportation and logistics service markets and anumber of products have been launched since 2014. In July 2015, JACannounced it would invest Rmb2bn for high-end electric truck projects and ithas started the construction of a new factory in Wuhan.

King Long and its subsidiaries have 39 electric logistics vehicles (mainlyderived based on the light buses) qualified for government subsidies and thedrive range varies from 110 to 320 kilometres.

Yutong has one electric logistics vehicle qualified for government subsidiesand we believe it will continue to focus on the bus market.

Outlook

Electric logistics vehicle represents a new and fast-growing market and it willcontinue to be the focus of China A-Share investors in coming years in ourview although the volume and profit contribution remains limited at this stage.

Companies with strong R&D capability and sustainable business model (i.e.

recurring profit) will be the long-term winners. Jiangling Motors and YutongBus are our top picks. King Long Motors and JAC should also benefit fromthe rising demand of electric logistics vehicles.