Jiangling Motors: Undervalued high-quality commercial vehicle company


Jiangling Motors is jointly owned by Jiangling Holdings (41.03%) and Ford Motor (30%) and is one of the largest commercial vehicle manufacturers in China. The company's transit light passengers, JMC light trucks, pickups and other high-end positioning. In the first half of 2008, the company's sales reached 52,000 units, an increase of 13.7% year-on-year, of which Transit light passengers and light trucks (including pickups) increased by 17.1% and 15.5% year-on-year respectively.

For the first time in 2007, the growth rate of commercial vehicles exceeds that of passenger vehicles. We expect that the young passengers (whole vehicle) and light cargo segment will achieve growth of 12% and 15%, respectively. In 2007, both Shunshun Lightbus and JMC light trucks accounted for more than half of the market share in the high-end segment. We believe that the company's light passengers and light trucks (including pickups) will achieve sales growth of 17% and 15% in 2008.

The company is gradually introducing four new products: the V348 New Generation Transit, the N900 new generation widebody light truck, the N350 next-generation pickup, and the JX4d24 engine, which will become the main drivers of future growth. We expect the company's capital expenditures in 08-10 will reach 707 million, 352 million and 224 million respectively, and the company will be able to use its own funds to support these capital expenditures.

At present, the average share price of A-share commercial vehicles is equivalent to 7-12 times the 2009 P/E ratio. The current share price of the company is only 7.7 times the 2009 P/E ratio, and B-shares are equivalent to 4.3 times P/E of 2009. We believe that as the leader of high-end light commercial vehicles, the company's earnings growth is stable, dividends are high and stable, and valuations should be in the mid to high end of the industry's average valuation. Based on the 9x 2009 A stock market earnings ratio and the 5x B stock market earnings ratio, we set the company’s 12-month target price as A share of 10.4 yuan and B share of 6.5 yuan, which is about 17% upside relative to the current stock price. For the first time, we gave our Outperform rating.

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