Kandi Technolgies Corp (KNDI)

[bullmarket2222]

http://pg.jrj.com.cn/acc/Res/HK_RES/STOCK/2013/12/16/333f2acf-fc82-4b99-af34-52276eb5c77d.pdf



December 16, 2013
COMPANY UPDATE
Geely Automobile Holdings (0175.HK)
Buy
Equity Research
‘Micro public transport’ may reso
lve EV obstacles; maintain CL-Buy
What's changed
The subject of clean transportation came into sharp focus in early Dec due
to the severe air pollution recorded in eastern China. We highlight the
latest new flow and an update fr
om Geely supportive of new-energy
vehicles: 1) On Nov 26, the first batch of 28 pilot cities/city clusters to
promote new energy vehicles was jointly announced by China’s Ministry
of Finance, Ministry of Science and Technology, Ministry of Industry and
Information Technology and the National Development and Reform
Commission. 2) On Dec 2, China Automotive News reported that the total
new-energy vehicle (mainly electric) cumulative volume target from the
first batch of cities could reach 330K units by 2015. 3) We visited the Kandi
(KNDI.O, Not Covered) and Geely joint venture in Hangzhou on Dec 6 and
discussed the “micro public transport” concept with management.
Implications
We are constructive on electric vehicle
(EV) development in China and see
further policy tailwinds favoring its development, but three obstacles lie
ahead of a mass market rollout: 1) battery durability and cost; 2) changes
of consumer behavior addressing mileage anxiety; and 3) availability of
charging infrastructure. We believe
current EV/HEV/PHEV business models
in China have limited near-term volume potential as they fail to address all
three obstacles. The “micro public transport” model promoted by the
Kandi/Geely JV, however, might provide an EV solution for city transport,
with considerable near-term volume potential, by addressing the three
obstacles and helping local governments achieve environmental targets.
Valuation
We do not factor in earnings from the Kandi JV due to lack of visibility on
EV sales/profit. However, we do see potential JV sales upside on policy
tailwinds and innovative business model. Maintain 2013-16 estimates and
12-month PB/ROE-based target price of HK$5.20, implying 35.4% upside.
Key risks
Lower-than-expected volume/pricing;
less EV policy support than expected.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
Yipeng Yang
[phone] yipeng.yang@ghs
l.cn Beijing Gao Hua Securities Company Limited
Goldman Sachs does and seeks to do business with companies
covered in its research reports. As
a result, investors should be
aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment
decision. For Reg AC certification and other important
disclosures, see the Disclosure Appendix, or go to
www.gs
.com/research/hedge.html. Analysts employed by non-
US affiliates are not registered/qualified as research analysts
with FINRA in the U.S.
Yuqian Ding
[phone] [e-mail] Beiji
ng Gao Hua Securities Company Limited
The Goldman Sachs Group, Inc. Global Investment Research
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low Hi
g
h
P
e
r
ce
n
t
il
e
2
0t
h4
0t
h
60t
h
80t
h1
00t
h
* Returns = Return on Capital For a complete description of the
investment profile measures please refer to
the disclosure section of this document.
Geel
y
Automobile Holdin
g
s (0175.HK)
Asia Pacific Autos & Auto
p
arts Peer Grou
p
Avera
g
e
Key data Current
Price (HK$) 3.93
12 month price target (HK$) 5.20
Market cap (HK$ mn / US$ mn) 22,972.5 / 2,962.9
Foreign ownership (%) --
12/12 12/13E 12/14E 12/15E
EPS (Rmb) 0.27 0.33 0.41 0.52
EPS growth (%) 30.6 23.7 23.0 25.9
EPS (diluted) (Rmb) 0.22 0.28 0.30 0.30
EPS (basic pre-ex) (Rmb
)
0.27 0.33 0.41 0.52
P/E (X) 8.8 9.2 7.5 5.9
P/B (X) 1.5 1.7 1.4 1.1
EV/EBITDA (X) 6.4 6.6 4.8 3.7
Dividend yield (%) 0.9 0.9 1.0 1.4
ROE (%) 18.2 19.5 19.5 21.2
CROCI (%) 23.9 25.9 25.1 26.4
Price performance chart
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Dec-12 Mar-13 Jun-13 Sep-13
50
55
60
65
70
75
80
Geely Automobile Holdings (L)
MSCI China (R)
Share price performance (%) 3 month 6 month 12 month
Absolute (2.7) 8.0 8.0
Rel. to MSCI China (5.8) (6.4) 4.9
-2146826273
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
2
Geely Automobile Holdings: Summary Financials
Analyst Contributors
Yipeng Yang
[e-mail]
Yuqian Ding
[e-mail]
Profit model (Rmb mn) 12/12 12/13E 12/14E 12/15E Balance sheet (Rmb mn) 12/12 12/13E 12/14E 12/15E
Total revenue 24,627.9 31,962.6 37,561.2 47,916.8
Cash & equivalents 4,188.9 4,174.0 4,864.1 5,355.4
Cost of goods sold (19,209.0) (24,722.1) (28,864.6) (36,630.9) Accounts receivable 11,569.2 14,011.0 16,465.2 21,004.6
SG&A (2,881.1) (3,643.7) (4,206.9) (5,270.8) Inventory 1,822.3 2,345.3 2,738.3 3,475.0
R&D -- -- -- -- Other current assets 2,274.7 2,085.0 1,980.8 1,881.7
Other operating profit/(expense) 105.3 104.7 141.8 204.8
Total current assets 19,855.0 22,615.3 26,048.3 31,716.8
EBITDA 2,643.1 3,701.5 4,631.5 6,219.9
Net PP&E 7,007.7 8,001.8 9,011.8 10,161.4
Depreciation & amortization (860.1) (932.1) (1,008.4) (1,095.1) Net intangibles 2,820.7 2,492.6 2,164.6 1,836.5
EBIT 1,783.0 2,769.4 3,623.2 5,124.8
Total investments 198.8 311.1 423.4 535.6
Interest income 42.2 69.9 69.6 81.1 Other long-term assets 1,497.6 1,604.4 1,604.4 1,604.4
Interest expense (236.8) (142.8) (109.5) (63.3)
Total assets 31,379.8 35,025.3 39,252.4 45,854.7
Income/(loss) from uncons. subs. (1.7) 0.0 0.0 0.0
Others 942.4 720.0 620.0 500.0 Accounts payable 9,814.8 10,837.1 12,257.6 15,053.8
Pretax profits 2,529.1 3,416.5 4,203.3 5,642.6
Short-term debt 1,378.9 1,378.9 878.9 878.9
Income tax (479.3) (638.3) (785.4) (1,054.3) Other current liabilities 5,499.3 5,559.6 5,612.6 5,709.5
Minorities (9.8) (12.8) (15.1) (19.4)
Total current liabilities 16,693.1 17,775.6 18,749.1 21,642.2
Long-term debt 1,373.6 1,373.6 590.6 90.6
Net income pre-preferred dividends 2,040.0 2,765.3 3,402.8 4,568.9
Other long-term liabilities 109.0 123.5 124.0 124.5
Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 1,482.7 1,497.2 714.7 215.2
Net income (pre-exceptionals) 2,040.0 2,765.3 3,402.8 4,568.9 Total liabilities 18,175.8 19,272.8 19,463.8 21,857.4
Post-tax exceptionals 0.0 0.0 0.0 0.0
Net income 2,040.0 2,765.3 3,402.8 4,568.9 Preferred shares 0.0 0.0 0.0 0.0
Total common equity 12,886.7 15,422.4 19,443.4 23,632.7
EPS (basic, pre-except) (Rmb) 0.27 0.33 0.41 0.52 Minority interest 317.4 330.2 345.3 364.7
EPS (basic, post-except) (Rmb) 0.27 0.33 0.41 0.52
EPS (diluted, post-except) (Rmb) 0.22 0.28 0.30 0.30
Total liabilities & equity 31,379.8 35,025.3 39,252.4 45,854.7
DPS (Rmb) 0.020.030.030.04
Dividend payout ratio (%) 7.6 8.3 7.8 8.3
BVPS (Rmb) 1.56 1.86 2.20 2.68
Free cash flow yield (%) 13.8 1.0 5.5 5.0
Growth & margins (%) 12/12 12/13E 12/14E 12/15E Ratios 12/12 12/13E 12/14E 12/15E
Sales growth 17.5 29.8 17.5 27.6 CROCI (%) 23.9 25.9 25.1 26.4
EBITDA growth 27.8 40.0 25.1 34.3 ROE (%) 18.2 19.5 19.5 21.2
EBIT growth 25.1 55.3 30.8 41.4 ROA (%) 6.9 8.3 9.2 10.7
Net income growth 32.2 35.6 23.1 34.3 ROACE (%) 18.6 21.7 22.5 25.4
EPS growth 30.6 23.7 23.0 25.9 Inventory days 30.2 30.8 32.1 31.0
Gross margin 22.0 22.7 23.2 23.6 Receivables days 163.9 146.1 148.1 142.7
EBITDA margin 10.7 11.6 12.3 13.0 Payable days 163.4 152.5 146.0 136.1
EBIT margin 7.2 8.7 9.6 10.7 Net debt/equity (%) (10.9) (9.0) (17.2) (18.3)
Interest cover - EBIT (X) 9.2 38.0 90.9 NM
Cash flow statement (Rmb mn) 12/12 12/13E 12/14E 12/15E Valuation 12/12 12/13E 12/14E 12/15E
Net income pre-preferred dividends 2,040.0 2,765.3 3,402.8 4,568.9
D&A add-back 860.1 932.1 1,008.4 1,095.1 P/E (analyst) (X) 8.8 9.2 7.5 5.9
Minorities interests add-back 9.8 12.8 15.1 19.4 P/B (X) 1.5 1.7 1.4 1.1
Net (inc)/dec working capital 1,502.7 (1,942.6) (1,426.7) (2,480.0) EV/EBITDA (X) 6.4 6.6 4.8 3.7
Other operating cash flow 25.1 97.3 104.8 99.5 EV/GCI (X) 1.3 1.5 1.1 1.0
Cash flow from operations 4,437.6 1,864.8 3,104.4 3,303.0
Dividend yield (%) 0.9 0.9 1.0 1.4
Capital expenditures (1,922.1) (1,598.1) (1,690.3) (1,916.7)
Acquisitions 0.0 0.0 0.0 0.0
Divestitures 115.5 0.0 0.0 0.0
Others (264.4) (112.3) (112.3) (112.3)
Cash flow from investments (2,071.0) (1,710.4) (1,802.5) (2,028.9)
Dividends paid (common & pref) (183.8) (169.5) (229.8) (282.8)
Inc/(dec) in debt (1,460.5) 0.0 (1,283.0) (500.0)
Common stock issuance (repurchase) 617.7 0.2 901.0 0.0
Other financing cash flows (181.5) 0.0 0.0 0.0
Cash flow from financing (1,208.1) (169.3) (611.8) (782.8)
Total cash flow 1,158.5 (14.8) 690.0 491.3
Note: Last actual year may include reported and estimated data.
Source: Company data, Goldman Sachs Research estimates.
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
3
We see further policy tailwinds favoring EV development in China
A series of supportive policies for new energy vehicle, especially EV, have been announced
since Sep 2013. We also see potential for further policy tailwinds helping to boost EV sales
in China from early 2014.
Central government: 2013-2017 new-
energy vehicle plans favor EV
Key points from the new 2013-2015 EV policy
announced by China’s Ministry of Finance
(MoF) on Sep 17:
1) Geographically
, new EV promotion will focus on select big cities
(especially megacities) in Beijing-Tianjin-Hebei,
Yangtze River Delta, Pearl River Delta, and
other areas suffering from severe air pollution.
2) Sales volume
in each selected megacity
or focus area should cumulatively surpass 10k units of new-energy vehicles, while the
target is >5k units for other cities/areas.
3) Pilot city candidates
need to apply to the
central government before October 15, 2013.
4) Subsidy scope
includes EV and PHEV
(plug-in hybrid electric vehicle) but not HE
V (hybrid electric vehicle); subsidy for each
EV/PHEV will amount to Rmb35k-60k/Rmb35k per car, and Rmb300k-500k/250k per bus.
5)
EV charging infrastructure
will receive special MoF funding to support construction in
pilot cities. (For more details see
New EV policy to ease local protectionism; target more
realistic
, published Sep 18, 2013, and Exhibit 10 in appendix.)
Beijing more supportive in license quota for new energy vehicles
On Nov 5, the Beijing government released detailed implementation measures for 2013-
2017 vehicle emission control plans, including:
1) from 2014, the
new car license quota
will be cut
to 150K units per annum (from 240K now)
and the quota for new-energy
vehicles will be increased
to 20K/30K/60K/60K per annum over 2014-2017;
correspondingly, more charging stations and gas refueling stations will be built;
2)
congestion fee/pollution fee/progressive fuel pricing system may be introduced
from
2015 or after, subject to further review; and
3) higher parking fees
may be levied from
2015.
(For more details see
Beijing to cut new car license quota; favoring new energy
vehicles
, published Nov 6, 2013.)
First batch of pilot cities could
drive >200k units of new-energy
vehicle sales by 2015, with more to follow
On Nov 26, the first batch of 28 pilot cities/city clusters to promote new-energy vehicles
was announced. The 2013-2017 development plan targets cumulative new energy vehicle
(mainly EV) sales volume of >10K units for megacities and >5K units for other cities/areas
by 2015.
On Dec 2, China Automotive News reported that
the total new energy vehicle (mainly EV)
cumulative volume target from the first batch could reach ~330K units by 2015, including
the sum of unsuccessful first-round applicant city target volumes. The report highlighted
that some cities did not make the first batch due to unqualified filings and lack of
infrastructure support planning. The report esti
mated that the second batch list could be
announced by end-2013 at the earliest. In addition, the pilot cities/city clusters are required
by the regulatory authorities to achieve 30% of the planned volume by end-June 2014,
which suggests an addition of around 60K units of new-energy vehicles by mid next year.
We estimate there will be at least 200K units cumulative EV sales volume in 2013-2015 in
China from the pilot cities/city clusters. See Exhibit 1 for calculation details.
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
4
Exhibit 1:
We estimate cumulative new-energy vehicle volume at > 200K units in 2013-2015 from the first batch of 28
cities/city clusters
Source: Ministry of Finance, Ministry of Science and Technol
ogy, Ministry of Industry and Information Technology, National Deve
lopment and Reform Commission,
Gao Hua Securities Research.
Poor air quality in eastern Chin
a might accelerate EV-supportive
policies from local governments
Very high levels of smog and fog were recorded across eastern China in early December.
On Dec 5, Nanjing issued its first ever “red al
ert” for poor air quality (issued when readings
of PM2.5 exceed an Air Quality Index measure of 300 for 12 hours in a row, and when
visibility is less than 1 kilometer). The heavy pollution resulted in closure of the city’s
schools, expressways, ferries and airport. With air pollution now a high-level public
concern across the country, we see the po
ssibility that central/local governments may
accelerate the development of more EV-supportive policies in order to reduce vehicle
emissions.
Further policy tailwinds expected
We see potential for further policy tailwinds supportive of EV development, including:
1)
More cities joining official pilot/showcase cities to promote new-energy vehicles.
For example, Nanjing, which issued its first-ever “red alert” for poor air quality in
early Dec, is not in the first batch. We think it is likely to be in the second.
2)
Announcement of more detailed EV-supportive policies from local governments
specifying volume targets, subsidy levels, etc.
3)
Cities currently implementing new license restrictions might follow Beijing’s lead
in setting aside part of their license quotas for new-energy vehicles only.

units
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
5
We see increasing EV supply driven by more new products
New model launches on the rise
amid increasing EV supply
Both the Shanghai and Guangzhou 2013 auto shows presented a variety of new-energy
vehicles, mainly EV and PHEV. At Guangzhou we saw key EV/PHEV models including: 1) JV
local brand EV models: Brilliance-BMW’s Zi
noro 1E, FAW-Toyota’s Ranz, and DF-Nissan’s
Venucia e30; 2) pure local brand EV/PHEV m
odels: BYD Qin, JAC iEV, GAC E-jet; 3)
international brand EV/PHEV models: VW e-up!
and Audi A3e-tron PHEV. We note that the
EV models showcased at the 2013 shows have real production potential compared to the
concept cars highlighted in previous years. We believe this could boost China’s EV supply
in the near term, as more EV/PHEV models come on the market in 2014-2015.
Exhibit 2:
We see more models coming on the market in 2014-2015
No of EV/PHEV models in market
Source: ChinaAutoMarket, Global Insight, Gao Hua Securities Research estimates.
Differentiated EV/PHE
V products targeting different segments
Different EV/PHEV products with a variety of
specifications target different segments
(Exhibit 3).

2012 2013E 2014E 2015E
No.
of
EV/PHEV
models
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
6
Exhibit 3:
EV models with various specifications target different segments
Comparison table of select models
Source: Autohome, Cheshi.com, company data.
Scale of China EV/PHEV/HEV sales still lags developed markets
No single EV/PHEV model has achieved significant sales volume in the China market
compared to global leaders like the Nissan Leaf in the US/Japan (Exhibit 4).
Exhibit 4:
In 2012 no EV model achieved big vol. in China
Leaf US/JP/China sales vs. top 3 EV models China sales, 2012
Exhibit 5:
...neither does HEV
Prius US/JP/China sales vs top 2 HEV models China sales,
2012
Source: ChinaAutoMarket, Global Insight.
Source: ChinaAutoMarket, Global Insight.
We are still constructive long term on EV/PHE
V/HEV development in China for the following
reasons: 1) China plans to tighten fuel efficiency standards to curb dependence on energy
imports, and EV has zero/very low fuel consumption. 2) China will likely look to accelerate
plans to impose stricter emission standards in response to recent poor air quality and EV
Car
maker
Geely/Kandi JAC
Brilliance
-
BMW
Model F3DM Qin e6 Roadster Model
S
Panda
EV Heyue
iEV Zinoro
1E
Types
of
vehicle PHEV PHEV EV EV EV EV EV EV
Vehicle
price
(before
subsidy,
in
China)
Rmb'000
149.8
-
169.8 NA 329.8
-
369.8 NA 800
-
1,000 NA
(rental
only) 16.98 NA
(rental
only)
Size:
length/width/Heighth
mm 4533X1705X1520 4740X1770X1480 4560X1822X1645 3946X1873X1127 4976X1963X1435 3598X1630X1595 4590X1765X1465 4503X1798X1564
Wheelbase
mm 2600 2670 2830 2352 2959 2340 2710 2760
Weight
kg 1560 2045 2380 1235 2108 NA 1200 NA
Target

E150 Leaf- China
2012 sales volume (in unit)
317,536
199,986
2,434 2,283
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Prius-USA Prius-Japan Prius-China Camry Hybrid
2012 sales volume (in unit)
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
7
would help in this regard. 3) The government plans to continue its subsidy for PHEV/EV
(potentially favoring local EV leaders mainly) to help the national competitive advantage.
(For more details see
Steering through policy waves; local leaders to benefit; Buy Great
Wall (H); Baoxin off CL
, published April 17, 2013.)
We see three major obstacles before mass market EV adoption
Although we hold constructive views on long-term EV development in China, we see three
major obstacles before a mass market rollout:
1) Battery durability and cost
Listed companies and industrial experts are in agreement on the uncertainties surrounding
EV battery durability. Two examples: 1) The China Quality Network report of Nov 6, 2012,
stated that battery packs for the 50 e-bus units rolled out in Beijing during the 2008
Olympics lasted only three years, and the capacity of the replacement battery packs in 2011
declined significantly after six months in use. 2) A Nissan Leaf owners’ internet forum in
2012 highlighted a loss of battery capacity in the Phoenix, Arizona area. As part of a class
action lawsuit settlement, Nissan is to extend battery warranties to repair or replace a
Leaf's battery within five years or 60,000 miles if it loses more than 30 percent of its charge
capacity. We believe these reports indicate that
uncertainties remain over battery durability,
especially after extensive use (e.g., >2 charges per day for e-bus) and extreme weather
conditions (e.g., hot weather in Phoenix ar
ea might shorten EV battery lifespan).
In addition, there are still uncertainties rega
rding battery cathode materials: there is no
common agreement on which lithium ion battery cathode material will deliver the best
performance and will prevail in future (see Exhibit 7).
Exhibit 6:
Pros and cons for various battery technologies
Comparison of different battery technology
Source: Aleees company data.
LiFePQ4 LiCoO2 LiMn2O4 LiNiO2 NMC
Cathode
Materials LFP LCO LMO LNO NMC
Green? YYYYY
Patented? YNNNN
Operating
Temperature <300°
C <180°
C <180°
C <180°
C <180°
C
Energy
Density
(mAh/g)
160
(theo.170)
140
-
160
(theo.275)
105
-
110
(theo.148)
190
-
210
190
(theo.278)
Cycle
Life >2000 >500 >500 >500 >500
Advantage
Safety,
long
cycle
-
life
High
energy
density,
mature
Safer
than
LCO,
high
power,
cheap
Highest
energy
density
Highest
energy
density
Disadvantage
Low
energy
density
Unsafe,
scarity
of
cobalt
Energy
density,
degrade
at
high
temp
Hard
to
make,
unsafe
Has
all
the
disadvantage
of
Co,
Ni,
Mn
Lithium
Ion
Batteries
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
8
Potentially shorter-than-expected battery durability might increase the
replacement/warranty costs of EV battery and negatively impact timing for a mass-market
EV rollout.
2) Mileage anxiety and changes in consumer behavior
Compared with the full-tank mileage for traditional internal combustion engine (ICE)
vehicles (c.600km), EV mileage per charge is significantly lower (c.150km in most cases,
Tesla’s Model S being an exception). Also, the battery recharge of an EV takes longer than
a gas refuel for an ICE car, unless an EV battery is swapped out rather than recharged.
Therefore EV users might need to plan routes in advance to assure they are travelling
within mileage range, or identify charging facilities en route, and ensure they allow enough
time for recharges.
3) Charging infrastructure availability
With bigger battery packs, luxury EV models
feature longer mileage per charge (e.g.,
Tesla’s Model S can drive >400km per charge with a battery size of 85kwh). However, more
mainstream brands’ EV models have shorter mileage and smaller battery packs due to cost
concerns. When mileage is shorter, the availability of charging infrastructures becomes
more important. Standardization of charging pl
ugs/devices is also a concern, as it could
become difficult for grid companies to provide
suitable charging infrastructures to meet the
need of every OEM. Hence, as is the case in other global markets, the availability of
infrastructure and EV sales is a “chicken and egg” issue: OEMs are reluctant to launch EV
models until there is infrastructure, while grid
companies are reluctant to build EV charging
infrastructures until EVs are widely sold.
JV’s “micro public transport” might drive near-term sales in China
China’s 4 business models have limited near-term volume potential
We believe the four business models in China for new-energy vehicles (HEV/PHEV/EV) can
achieve only limited near-term sales volume as they fail to address the three major
obstacles described in the previous section. We summarize the models and target markets
as follows:
1)
Luxury private buyers
The luxury approach targets wealthy buyers with high-end models with premium
pricing and features. For example, the Tesla Model S has the highest mileage per
charge at >400km, hence customers’ mileage anxiety and the importance of
charging facility availability is low as most customers can drive home and charge
in the garage vs. a charging station. Nevertheless, cost per unit is relatively high
(we estimate a minimum retail price at Rmb800,000 per unit in China, including
import tariff, VAT, etc.). As only affluent customers in China can afford such
models, we consider the near-term sales potential to be limited.
2)
Public transportation
The public transportation approach (e.g. BYD K9 bus and e6 taxi) targets local
bus/taxi companies. Each e-bus or e-car runs at high mileage per day within the
city and therefore emission reduction is significant. Bus and taxi fleets are
centralized in certain locations each
night, so charging and maintenance are
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
9
relatively easier to arrange. However, the high requirement on mileage per charge
as well as high frequency of charging
(1-2 times per day) challenges battery
durability and pushes up vehicle cost (battery size needs to be big). Hence, we
believe near-term sales potential is highly dependent on local governments’ will
and financial resources.
3)
Mainstream private buyer approach (for both EV and PHEV)
Mainstream private buyers are more price sensitive than luxury private buyers, so
mainstream brand EV models (e.g., Niss
an Leaf, BYD Qin) are generally cheaper
with smaller battery capacity (shorter mil
eage per charge) than luxury models. Key
concerns here are the higher level of mileage anxiety and importance of charging
facility availability. Near-term sales potential is limited, in our view, due to the lack
of charging facilities in most cities in China.
4)
Hybrid approach
We believe the most feasible green solution is hybrid electric vehicles (HEV) like
the Toyota Prius (not the plug-in version),
as no charging facilities are required.
However, HEVs are currently not eligible for government subsidy and hence their
higher prices/costs associated with insta
llation of two powertrains (electric-drive
and gas-drive) compared to traditional ICE cars are a major obstacle to mass
market rollout in China.
Exhibit 7:
We believe none of the current 4 business models has big volume potential near term in China
Comparison of pros/cons of 4 business models of new energy vehicles in China
Source: Company data, Gao Hua Securities Research.
Bus Taxi
Types
of
buyers Private
buyer Fleet
buyer Fleet
buyer Private
buyer
Example Tesla
Model
SBYD
K9 BYD
e6
taxi EV
like
Nissan
Leaf PHEV
like
BYD
Qin Toyota
Prius
Degree
of
electrification 100% 100% 100% 100% 50% 30%
Battery
capacity large large large small
Range
(mileage
on
battery) long long long
short,
but
total
mileage
is
same
as
ICE
car
Price
(initial
cost) high high high low
to
medium
Dependence
on
charging
facilities low high high high low
to
medium no
dependency
Subsidy
(as
%
of
price) low very
high very
high very
low
Target
segment
Wealthy
private
buyers
who
already
own
at
least
1
car
Bus
companies Taxi
companies
Private
buyers
who
care
about
environmental
issues
Strength
-
Low
dependence
on
charging
infrastructure
-
High
mileage
per
charge
-
Meet
the
demands
of
wealthy
buyers
-
Effective
emission
reduction
-
Charging
facilities
can
be
planned
in
the
fixed
routes
-
Centralized
charging
station
-
Effective
emission
reduction
-
Centralized
charging
station
-
No
charging
infrastructure
needed
Weakness
-
Premium
pricing
might
curb
massive
roll
-
out
-
High
mileage
per
day
required
hence
frequent
charges
needed
-
Potential
battery
durability
concern
due
to
high
utilization
rate
-
High
battery
cost
as
large
capacity
needed
-
High
mileage
per
day
required
hence
frequent
charges
needed
-
Potential
battery
durability
concern
due
to
high
utilization
rate
-
Wide
coverage
of
charging
infrastructure
needed
due
to
uncertain
routes
-
High
battery
cost
as
large
capacity
needed
-
Low
fuel
saving
level
vs.
EV
-
Excluded
from
scope
of
new
energy
vehicle
subsidy
-
Higher
priced
than
similar
ICE
car
Near
-
term
volume
potential
Tap
the
luxury
segment
well
but
limited
total
volume
potential
in
China
due
to
high
price
Limited
volume
due
to
mismatch
between
high
mileage
per
day
required
vs.
limited
mileage
per
charge
Limited
volume
due
to
mismatch
between
high
mileage
per
day
required
vs.
limited
mileage
per
charge
Very
low
due
to
exclusion
from
scope
of
new
energy
vehicle
subsidy
HEV
Mainstream
private
buyer
Business
models
Might
be
limited
in
the
near
term
due
to
availability
of
charging
indrustructures
-
Limited
mileage
per
charge
due
to
cost
and
battery
capacity
constraints
-
Higher
mileage
anxiety
-
Wide
coverage
of
charging
infrastructure
needed
due
to
uncertain
routes
-
Price
more
affordable
to
mass
market
buyers
Private
buyer
medium
to
high
medium
medium
medium
Mass
market
buyers
who
are
more
price
-
sensitive
and
require
daily
usage
Public
transportation
Premium
buyers
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
10
“Micro public transportation”
– a new business model
On Feb 1, 2013, Geely and Kandi Technologies (KNDI.O, Not Covered) formed a JV
targeting the EV market in China. The JV’s innovative business model, namely the pure EV
rental model for micro public transportation, is described as follows:
1)
Target customers are resident
s/tourists commuting short distances within cities.
2)
Small pure electric cars are leased to
target customers at proposed rate of
Rmb20/hour.
3)
Cars are parked in automated stackers with
charging system, allocated in airports,
train stations, business centers, select re
sidential areas and other focus areas of
commuter traffic.
4)
Network system will provide EV rental serv
ice to individual drivers in and around
the city as well as centralized management of EV maintenance, battery swap, and
battery charging to users. Battery chargi
ng can thus be done during off-peak hours
for electricity demand.
5)
Booking system will match the distance a
customer plans to drive with an EV in
the nearest parking place with sufficient mileage using electricity left in the battery.
Thus, as long as there is demand for
short-distance travel, a battery with
decreased capacity can be utilized.
6)
Kandi, Geely, and the JV will cover the full value chain from EV manufacturing,
construction of automated stacking system
s, to leasing/operation of the fleet.
We are positive on near-term volu
me potential of “micro public
transportation”
We are positive on the “micro public transporta
tion” business model as it tackles the EV
obstacles such as high initial cost (rental model), short range (targeting commuter needs),
long charging time (charging batteries overnight
), limited infrastructure (parking station
consolidates rental/charging functions), and
battery maintenance and pollution (centralized
management of EV maintenance, shifts liabilit
y from individuals to corporate). From the
local city’s point of view, this solution also helps to address traffic congestion (fewer
private cars needed), scarce parking and pollution concerns.
It is also important to understand local governments’ incentives to favor such a scheme:
?
We believe there are more pressures for city governments to address
environmental issues.
?
Cities applying for a place in the pilot program for new energy vehicles need to
fulfill a near-term sales target: 30% of cumulative 13-15 sales volume must be
accomplished by mid of 2014.
We note there might be limited financial reso
urces available for local governments for EV
subsidies: HEV, which has relatively low increm
ental cost and requires a low subsidy, is
excluded from the scope of new energy vehic
le subsidies, while the E-Bus has proven
costly to roll out (total government subsidy for BYD K9 in 2011 reached Rmb1mn/per unit).
We thus see micro public transportation at the
current stage providing the most practicable
and cost-effective way for city governments to achieve their new-energy vehicle volume
targets in the near term, via:
?
Leasing rather than private purchase makes end-users less concerned about
battery durability and costs.
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
11
?
Network system provides shared usage of EV, so major environmental issues can
be addressed (e.g., traffic congestion, lack of parking spaces, air pollution, etc.).
?
Only short-distance, small EV to be depl
oyed with relatively small battery size,
limiting the total cost/subsidy needed per car.
Risks of the “micro public transportation” business model include:
?
High dependence on government support, especially land for construction of
stacking buildings.
?
High complexity of business has high requirements on operations management
(e.g., quick turnover of EV after short-distance lease, etc.).
Near-term volume potential of EV business supports CL-Buy rating
We don’t factor Geely’s 50% stake in the EV JV in
to our valuation due to: 1) low visibility of
local governments’ EV subsidy policies; and 2)
low visibility of JV volume/profit outlook
(especially with a relatively low rental rate at Rmb20/hour). Nevertheless, we do see near-
term volume potential from the JV due to policy tailwinds and the new “micro public
transportation” initiative. We consider it a
‘free option’ within the listco currently not
appreciated by the market.
We reiterate our CL-Buy on Geely as we li
ke its improving product mix/margin, undergoing
restructuring in brands/channels, and product cycle beyond 2015. For more details, see
Identifying 3 winning growth strategies; Geely up to CL-Buy, Changan (A)/GAC (H) to Buy,
published Sep 28, 2013, and Exhibits 10-13 in the appendix.
Our 2013-16 estimates and 12m PB-ROE based target price of HK$5.20 are unchanged,
implying 35.4% upside. The stock is currently trading at 2014E PE/PB of 7.3X/1.4X vs. the H
share average (excl. BYD) of 10.1X/1.7X.
Risks: lower-than-expected volume/pricing;
weaker-than-expected policy support on EV.
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
12
Exhibit 8:
We see Geely’s valuation attractive among auto OEM peers
* On regional Conviction List
Source: Datastream, Goldman Sachs Global Investment Research, Gao Hua Securities Research.
V
aluation Summary - Auto China
Ticker Company name Currency Rating Close Market cap ADTV EPS
12/11/2013 USD'mn USD'mn
Growth %
12-15
CAGR
2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E
600104.SS SAIC CNY Buy 15.51 21,755 79 6% 7.5
7.5
7.3
7.0
1.3
1.2
1.1
1.0
18% 17% 16% 15% 4% 4% 4% 4% 40% 31% 26% 24%
0489.HK Dongfeng HKD Neutral 12.84 14,267 22 6% 9.4
8.1
8.3
8.0
1.6
1.4
1.2
1.1
18% 18% 16% 14% 2% 2% 2% 2% 23% 20% 18% 16%
2238.HK GAC HKD Buy 9.48 4,278 11 82% 30.2
15.1
9.6
6.9
1.1
1.4
1.2
1.1
4% 10% 14% 17% 0% 1% 2% 3% 9% 13% 15% 16%
1114.HK Brilliance HKD Neutral 12.82 8,255 17 31% 14.5
13.7
11.2
9.8
3.3
3.9
3.1
2.5
27% 33% 31% 28% 0% 2% 2% 3% 36% 37% 28% 27%
000625.SZ Changan (A) CNY Buy 12.81 8,864 60 70% 16.3
16.1
10.4
8.5
1.5
3.2
2.6
2.1
10% 22% 28% 27% 1% 1% 2% 3% 18% 23% 24% 25%
200625.SZ Changan (B) HKD Neutral 16.10 8,723 8 70% 8.2
16.0
10.2
8.4
0.8
3.2
2.5
2.1
10% 22% 28% 27% 2% 1% 2% 3% 18% 23% 24% 25%
2333.HK Great Wall (H) HKD Neutral 45.60 16,102 41 32% 7.6
12.9
9.7
8.4
2.0
4.0
3.1
2.4
30% 35% 36% 33% 4% 2% 3% 4% 44% 44% 43% 39%
601633.SS Great Wall (A) CNY Neutral 45.40 21,043 24 32% 8.6
16.3
12.3
10.6
2.3
5.0
3.9
3.1
30% 35% 36% 33% 4% 2% 2% 3% 36% 36% 31% 40%
0175.HK Geely HKD Buy* 3.84 2,895 40 24% 8.8
9.1
7.3
5.8
1.5
1.6
1.4
1.1
18% 20% 20% 21% 1% 1% 1% 1% 24% 26% 25% 26%
1211.HK BYD HKD Neutral 38.55 10,192 20 195% 123.0
47.6
34.2
1.6
3.3
3.1
2.8
0% 3% 7% 9% 0% 0% 0% 0% 11% 11% 11% 11%
600418.SS JAC CNY Neutral 9.55 2,027 29 37% 14.9
13.3
10.5
9.6
1.2
1.8
1.7
1.5
8% 15% 17% 16% 2% 2% 3% 4% 20% 21% 20% 17%
000800.SZ FAW Car CNY Neutral 12.86 3,447 43 238% 21.5
12.2
10.5
2.0
2.4
2.0
1.7
-9% 12% 18% 18% 0% 0% 0% 0% -1% 11% 16% 16%
3808.HK Sinotruk HKD Sell 4.54 1,617 1 91% 84.1
22.5
15.3
11.3
0.6
0.5
0.5
0.5
1% 2% 3% 4% 0% 1% 2% 3% 7% 9% 6% 7%
000338.SZ Weichai (A) CNY Neutral 20.23 6,661 24 16% 16.1
11.2
9.7
8.7
1.9
1.5
1.3
1.2
13% 14% 14% 14% 1% 2% 3% 3% 18% 21% 15% 15%
2338.HK Weichai (H) HKD Neutral 33.35 8,599 11 16% 15.4
14.7
12.5
11.2
1.8
1.9
1.7
1.5
13% 14% 14% 14% 1% 1% 2% 2% 19% 22% 15% 15%
China Average 63% 18.6
21.4
12.9
10.6
1.6
2.
4
2.0
1.7
13% 18% 20% 19% 1% 2% 2% 2% 21% 23% 21% 21%
China Average (excl. FAW Car/BYD) 39% 18.6
13.6
10.3
8.8
1.6
2.
4
1.9
1.6
15% 20% 21% 20% 2% 2% 2% 3% 24% 25% 22% 22%
10.2
2.0
Global peers
Ticker Company name Currency Rating Close Market cap ADTV EPS
12/11/2013 USD'mn USD'mn
Growth %
12-15
CAGR
2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E
MRTI.BO Maruti Suzuki India INR Neutral 1,752
8,259
NA 25% 20.4
16.9
19.5
16.0
2.2
2.2
2.5
2.2
11% 14% 14% 15% 1% 1% 1% 1% 13% 25% 14% 15%
TAMO.BO Tata Motors INR Buy* 378
17,525
NA 7% 4.6
8.3
7.1
6.8
1.8
2.3
2.1
1.6
55% 30% 36% 27% 2% 1% 0% 0% 11% 14% 23% 21%
India Average 16% 12.5
12.6
13.3
11.4
2.0
2.2
2.3
1.9
33% 22% 25% 21% 1% 1% 0% 0% 12% 19% 19% 18%
005380.KS H
y
undai Motor Com
p
KRW Buy 229,000
47,948
NA 9% 6.1
5.9
5.2
4.6
1.2
1.0
0.8
0.7
21% 18% 17% 17% 1% 1% 1% 1% 18% 16% 16% 16%
000270.KS Kia Motors KRW Neutral 56,300
21,291
NA 3% 7.5
6.3
5.9
5.5
1.7
1.1
1.0
0.8
25% 19% 18% 16% 1% 1% 1% 1% 15% 15% 14% 14%
Korea Average 6% 6.8
6.1
5.5
5.0
1.4
1.1
0.9
0.8
23% 19% 17% 16% 1% 1% 1% 1% 16% 15% 15% 15%
PEUP.PA Peugeot EUR Buy* 11.50
5,449
NA -178% 10.6
4.9
0.3
0.4
0.4
0.4
-14% -10% 4% 8% 0% 0% 0% 0% 3% 3% 5% 6%
VOLVb.ST Volvo SEK Neutral 84.05
27,305
NA 17% 16.2
27.6
16.5
9.6
2.2
2.0
1.8
1.6
13%7%12%18%3%2%4%4%6%7%9%11%
SCVb.ST Scania SEK Sell 123.30
14,710
NA 6% 15.0
15.6
14.2
12.5
2.8
2.6
2.4
2.2
19% 17% 18% 18% 4% 4% 4% 4% 10% 10% 10% 11%
RENA.PA Renault EUR Neutral 58.20
23,735
NA 1% 4.1
10.0
7.8
6.5
0.4
0.7
0.7
0.6
6% 7% 8% 9% 5% 3% 3% 5% 6% 7% 7% 7%
BMWG.DE BMW EUR Neutral 80.58
71,362
NA 3% 8.2
10.1
9.9
9.5
1.4
1.6
1.4
1.3
18% 16% 15% 14% 4% 3% 4% 4% 12% 14% 12% 11%
PSHG_p.DE Porsche (pref) EUR Neutral 71.83
27,246
NA -18% 1.8
6.7
5.6
5.1
0.5
0.7
0.6
0.6
30% 10% 11% 11% 0% 0% 0% 0% 16% 2% 2% 2%
MANG.DE MAN SE EUR Neutral 88.80
18,002
NA 66% 67.9
21.1
16.2
2.2
2.4
2.3
2.2
3% 0% 11% 14% 1% 3% 3% 3% 3% 4% 9% 10%
FIA.MI Fiat SpA EUR Rating Su
s
5.33
9,182
NA 23% 8.4
25.1
11.4
5.8
0.5
0.7
0.7
0.6
7% 3% 6% 11% 0% 0% 0% 0% 10% 10% 11% 11%
DAIGn.DE Daimler AG EUR Buy* 59.15
87,020
NA 14% 7.6
16.0
10.2
7.6
1.0
1.3
1.2
1.1
13% 9% 12% 15% 6% 4% 4% 5% 11% 10% 10% 12%
VOW G_p.D
E
Volkswagen (Pref) EUR Buy 190.40
115,840
NA -16% 3.4
9.5
8.2
7.6
0.9
1.0
0.9
0.9
29% 12% 12% 12% 3% 2% 3% 3% 9% 9% 9% 9%
Europe Average -8% 14.7
15.1
11.6
8.5
1.2
1.3
1.3
1.1
12%7%11%13%3%2%2%3%9%8%8%9%
7203.T Toyota Motor JPY Buy 6,170
190,696
NA 92% 33.0
11.7
10.5
9.7
0.9
0.9
1.5
1.3
3% 8% 15% 14% 2% 3% 3% 3% 10% 14% 15% 16%
7269.T Suzuki Motor JPY Buy 2,612
14,205
NA 27% 18.0
12.8
13.6
13.3
1.0
0.9
1.2
1.1
6% 8% 9% 9% 1% 1% 1% 1% 9% 8% 9% 9%
7201.T Nissan Motor JPY Neutral 893
36,395
NA 6% 9.2
9.7
10.3
9.1
1.0
0.9
0.9
0.9
11%10%9%10%3%3%3%3%9%8%13%13%
7261.T Mazda Motor JPY Neutral 482
14,061
NA -197% 12.6
12.6
9.1
1.0
0.9
2.4
1.9
-24% 7% 21% 23% 0% 0% 0% 1% 0% 3% 8% 10%
7202.T Isuzu Motors JPY Neutral 615
10,171
NA 11% 6.8
8.1
9.1
8.3
1.5
1.5
1.7
1.4
25% 20% 20% 19% 2% 2% 2% 2% 9% 12% 12% 13%
7267.T Honda Motor JPY Buy* 4,165
73,260
NA 49% 23.3
13.9
12.6
10.8
1.1
1.0
1.4
1.3
5% 8% 11% 12% 2% 3% 2% 2% 9% 15% 14% 14%
7205.T Hino Motors JPY Neutral 1,486
8,278
NA 66% 16.2
8.0
11.5
11.3
1.4
1.7
3.0
2.5
9% 23% 29% 24% 2% 3% 2% 3% 7% 10% 11% 12%
7262.T Daihatsu Motor JPY Neutral 1,799
7,481
NA 7% 8.8
7.9
9.5
9.6
1.3
1.3
1.4
1.3
16% 17% 15% 14% 3% 4% 3% 3% 13% 12% 12% 11%
7270.T Fuji Heavy Industrie
s
JPY Neutral 2,818
21,464
NA 77% 10.9
5.5
11.1
10.4
0.9
1.1
3.0
2.5
9% 23% 30% 26% 2% 2% 3% 3% 5% 10% 15% 15%
Japan Average 15% 15.8
10.0
11.2
10.2
1.1
1.1
1.8
1.6
7%14%18%17%2%2%2%2%8%10%12%13%
F Ford Motor Compan USD Buy 16.41
64,688
NA 18% 7.8
9.6
8.3
7.1
2.6
2.9
2.3
1.8
36% 37% 32% 29% 2% 2% 2% 2% 15% 11% 14% 13%
GM General Motors Co
m
USD Buy* 40.16
55,662
NA 20% 7.3
12.3
8.8
7.3
1.5
1.9
1.6
1.3
20% 17% 20% 20% 3% 3% 0% 0% 22% 18% 19% 20%
American Average 19% 7.5
11.0
8.5
7.2
2.1
2.
4
1.9
1.6
28% 27% 26% 25% 2% 3% 1% 1% 18% 15% 16% 17%
P/E P/B ROE Dividend yield CROCI
P/E P/B ROE Dividend yield CROCI
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
13
Appendix
Exhibit 9:
We see new energy subsidy scheme benefiting EV/PHEV
2013-2015 EV policy subsidy scheme announced on Sep 17, 2013, in Rmb ’000s
Note: 2014/2015 subsidy for EV/PHEV will be reduced by 10%/20% from 2013 base respectively while
that for bus will remain unchanged.
Source:
MoF.
Exhibit 10:
We see stable ICE car volume growth for
Geely
Wholesale volume in units
Exhibit 11:
Geely core models (EC7+GX7+SX7) growth
outpaced total growth in November
Wholesale volume in unit
Source: Company data.
Source: Company data.
80<
R<150 150<
R<250 250<
R 50<
R
EV
car 355060
-
PHEV
car
---
35
6<
L<8 8<
L<10 10<
L
EV
Bus 300 400 500
PHEV
Bus
--
250
Type
of
vehicle
Mileage
range
(R,
km)
Type
of
vehicle
Length
of
bus
(L,
meter)
0
10000
20000
30000
40000
50000
60000
70000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total
sales
volume
(2012)
Total
sales
volume
(2013)
0
5000
10000
15000
20000
25000
30000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
EC7+GX7+SX7
(2012)
EC7+GX7+SX7
(2013)
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
14
Exhibit 12:
Geely utilization rate to increase on slowing
down capacity expansion
Utilization rate in %
Exhibit 13:
We see Geely ROE/CROCI improving steadily
in coming years
ROE/CROCI, 2008-2016E
Source: Company data, Gao Hua Securities Research.
Source: Company data, Gao Hua Securities Research.
77%
82%
73%
67%
77%
83%
85%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
2009 2010 2011 2012 2013E 2014E 2015E
Geely's
capacity
utilization
rate
December 16, 2013 Geely Automobile Holdings (0175.HK)
Goldman Sachs Global Investment Research
15
Disclosure Appendix
Reg AC
We, Yipeng Yang and Yuqian Ding, hereby certify that all of the views expressed in this report accurately reflect our personal
views about the subject
company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly
or indirectly, related to
the specific recommendations or views expressed in this report.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to
its peer group and
market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexe
d based on composites
of several methodologies to determine the stocks percen
tile ranking within the region's coverage universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is
as follows:
Growth
is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue.
Return
is a year one prospective aggregate
of various return on capital measures, e.g. CROCI, ROACE, and ROE.
Multiple
is a composite of one-year forward valuation ratios, e.g. P/E, dividend
yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book.
Volatility
is measured as trailing twelve-month volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios
. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTA
IN focus list
includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive adv
antage and
superior returns on capital relative to their global industry p
eers. Leaders are identified based on quantifiable analysis of t
hree aspects of corporate
performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' managem
ent of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Yipeng Yang: China Alternative Energy & Utilities, China Autos, China Transportation.
China Alternative Energy & Utilities: Beijing Jingneng Clean Energy, CLP Holdings, China High Speed Transmission Equipment Grou
p, China
Longyuan Power, China Power International, China Resources Power, China Yangtze Power, Datang Int'l Power Generation, Datang In
ternational
Power Generation (A), Dongfang Electric Corporation Limited (A), Dongfang Electric Corporation Limited (H), Guangdong Investmen
t, Harbin Electric,
Hong Kong & China Gas, Huadian Power International (A), Huadian Power International (H), Huaneng Power International (A), Huane
ng Power
International (ADR), Huaneng Power International (H), Huaneng Renewables Corporation, Power Assets Holdings, Shanghai Electric
Group, Xinjiang
Goldwind Science & Technology (A), Xinjiang Goldwind Science & Technology (H).
China Autos: Anhui Jianghuai Automobile Co., BYD Company, Baoxin Auto Group, Brilliance China Automotive Holdings, China Harmon
y Auto
Holding Ltd, Chongqing Changan Auto (A), Chongqing Changan Auto (B), Dongfeng Motor, FAW Car, Geely Automobile Holdings, Great
Wall Motor
Co., Great Wall Motor Co.(A), Guangzhou Automobile Group Co, Huayu Automotive Systems, Minth Group, SAIC Motor, Sinotruk (Hong
Kong),
Weichai Power (A), Weichai Power (H), Xingda International, Zhengtong Auto Services Holdings, Zhongsheng Group Holdings.
China Transportation: AVIC Aircraft, AVIC Avionics, AviChina, Daqin Railway, Guangshen Railway (A), Guangshen Railway (H), Hafe
i Aviation,
Hongdu Aviation, Xian Aero-Engine.
Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs")
and companies
covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs beneficially owned 5% or more of common equity (excluding positions managed by affiliates and business units not
required to be
aggregated under US securities law) as of the month end preceding this report: Geely Automobile Holdings (HK$3.93)
Goldman Sachs beneficially owned 5% or more of common equity (excluding positions managed by affiliates and business units not
required to be
aggregated under US securities law) as of the second most recent month end: Geely Automobile Holdings (HK$3.93)
Goldman Sachs has received compensation for investment banking services in the past 12 months: Geely Automobile Holdings (HK$3.
93)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Geely Au
tomobile
Holdings (HK$3.93)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: Geely Automobile Holdings
(HK$3.93)
Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: Geely Automobile Holdings (HK$3.9
3)
Goldman Sachs makes a market in the securities or derivatives thereof: Geely Automobile Holdings (HK$3.93)
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
Rating Distribution
Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 31% 54% 15% 50% 42% 37%
As of October 1, 2013, Goldman Sachs Global Investment Research had investment ratings on 3,570 equity securities. Goldman Sac
hs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to B
uy, Hold and Sell
for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related defin
itions' below.