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2026-10-13 13:15:10 China Merchants Securities (HK) issued a research report stating that the auto and auto parts industry was affected by weak domestic demand in the first three quarters, while the market was concerned about EU auto trade policies and export tax rebate impacts. However, the broker expects the sector's decline to narrow in the fourth quarter and stabilize next year, with overseas expansion maintaining strong growth. China-EU trade negotiations reached a better-than-expected understanding on hybrid vehicles, giving leading companies sufficient time to address localization adjustments. The implementation pace of reduced export tax rebates for new energy vehicles has also moderated, limiting the impact on profitability, and is expected to drive better-than-expected growth in 4Q26 and 1H27. The broker noted that negative expectations surrounding domestic demand and policies have already been reflected in advance, pushing sector valuations to historical lows. As negative factors fade, the sector beta is expected to recover, making the current period a bottom-fishing opportunity. It expects the high base effect to ease after September, with the YoY decline in fourth-quarter sales narrowing. The impact of EU policies is controllable in the short term. Last Saturday (10th), China-EU trade talks reached an understanding on hybrid and plug-in hybrid vehicle trade, implementing "moderate regulation" and proposing to halve exports to the EU within four years. The proposal is viewed as more favorable than the market's expectations for additional tariffs or quota restrictions. China's Ministry of Finance also announced that the export tax rebate rate for new energy vehicles will be reduced by 4 ppts in April next year. However, due to front-loaded overseas inventory, more localized vehicle models, upgraded overseas product structures and ample room for profit adjustments in distribution channels, the broker expects only limited impact on export performance. CMSI said companies with overseas expansion advantages such as GEELY AUTO (00175.HK), BYD COMPANY (01211.HK) and CHERY AUTO (09973.HK) are expected to benefit from gradually stabilizing domestic demand and strengthening overseas expansion next year, alongside valuation enhancement after their overseas localization capabilities are validated. For auto parts makers, the broker favors FUYAO GLASS (03606.HK), WEICHAI POWER (02338.HK) and MINTH GROUP (00425.HK), citing optimism over endogenous growth, dividend protection and transition into new business tracks. It also noted that internal disputes among HarmonyOS-related brands and pedal accidents have hurt brand credibility and weakened smart driving labels, creating short-term headwinds for the "Five Boundaries" brands under the ecosystem, while benefiting competitors such as LI AUTO-W (02015.HK), XIAOMI-W (01810.HK) and GEELY AUTO's Zeekr. Risk factors include a decline in industry prosperity. CMSI assigned the following ratings and target prices to key companies in the auto sector: Stock|Rating|Target Price (HKD) GEELY AUTO (00175.HK)|Overweight|HKD34.2 BYD COMPANY (01211.HK)|Overweight|HKD130 XPENG-W (09868.HK)|Overweight|HKD92 UBTECH ROBOTICS (09880.HK)|Overweight|HKD172 HORIZONROBOT-W (09660.HK)|Overweight|HKD9 Hesai Group (HSAI.US)|Overweight|USD32 FUYAO GLASS (03606.HK)|Overweight|HKD83 GWMOTOR (02333.HK)|Overweight|HKD13 MINTH GROUP (00425.HK)|Overweight|HKD56 LI AUTO-W (02015.HK)|Neutral|- (da/ad)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |