China autos:Domestic brands’share surges

Overall February PV sales grew 18% off low base: Total PV sales grew18% YoY to 1.6m units off a low base in February, with the combined salesfor the first two months up 6.3% YoY. We view this as a very good numberconsidering the front-loading of demand in 4Q16. Demand for small enginevehicles (displacement ≤1.6L, 1.2m units or 71% of the total sales), for whichthe purchase tax rose to 7.5% from 5.0% from 1 January, remained strong.

Domestic brands’ share surges: Domestic brands’ market share expanded4.1ppt MoM to the highest level ever at 48.2%, mainly supported by thecontinued robust demand for domestic brand SUVs. Japanese brands’ sharealso expanded on strong performance of the Honda JVs. The market share ofother brands all contracted, led by the German brands (18.3%, -3.6ppt MoM)and US brands (10.4%, -1.6ppt MoM).

SUV sales contribution hits a record-high level: SUV total sales jumped40.0% YoY to 672k units, lifting YTD sales up 22% YoY. SUV’s salescontribution hit a record-high level of 41.2%. We believe the market share ofSUVs will continue to expand and reach ~50% by 2020. Sedan sales jumped15% YoY off a low base (YTD +4% YoY). Both MPVs and mini-vans wereweak in February, with sales down 15% and 25% YoY, respectively.

We like premium brands: Premium JVs, like BAIC-Benz and BrillianceBMW, posted above-industry growth, supported by solid underlying demandand new models. Overall, we continue to like premium brands as well asmass-market brands with a solid product line-up including both Honda JVsand SAIC VW.

Truck boom continues: Shipments of CVs jumped 49.9% YoY, mainlyunderpinned by solid demand for trucks (+57.4% YoY). The truck sales boomwas mainly due to 1) cyclical replacement demand, which was further boostedby tightened freight transportation regulations; 2) increased freight demandamid a recovery in commodity demand and rising logistics activities on theback of growth in E-commerce; and 3) a low base.