ASIAN INSIGHTS VICKERS SECURITIESed- JS/ sa- AH

Re-rating in place for auto dealership sector

• Auto dealerships seeing improvements in

demand for high-end and luxury cars; price discounting pressure is abating

• New models to generate greater buying interest

in 2017; BMW auto dealerships catching up on valuation

• Baoxin, China Yongda, China ZhengTong, China

Harmony, China Meidong and China Rundong are auto dealers riding on BMW’s major product revamp cycle

BMW auto dealerships expect business to pick up this year. The overall auto dealership sector is finally out of the doldrums. The improvements were more apparent in fourth-quarter 2016 as demand picked up nicely, which should result in robust profit growth for the luxury auto dealerships in 2016. As demand has been holding well, there is now lower inventory pressure on auto dealers. The average inventory for the industry was around 1.3 months at end-November 2016, with the level at the sino-foreign dealerships at its lowest of slightly over one month. The low inventory should help stabilising gross profit margins from new car sales. China’s auto dealerships have suffered for several years until the turnaround in 2016. BMW auto dealerships to benefit from new model launches, an important factor to drive valuations higher. The outlook for the BMW auto dealerships is turning better, supported by several launches of new models in 2017 and 2018. New product launches for BMW is heading up while the Mercedes Benz product renewal is at the tail-end of its product cycle. Therefore, we anticipate that the BMW auto dealerships will re-rate, especially with sales of the new BMW 5 series in third-quarter 2017. The localisation of the BMW X3 in first-quarter 2018 would also improve the affordability of this car. Rotate into BMW auto dealerships. There has been strong buying interest in the auto dealership sector recently, especially after several positive profit alerts. We suggest to rotate into the BMW auto dealerships, as they are still at the early stages of recovery and trading at attractive valuations. There are several auto dealerships with exposure to BMW but the large ones are China Yongda, Baoxin and China ZhengTong, followed by China Harmony, China Meidong and China Rundong.

HSI: 22,886

ANALYST Rachel MIU +852 2863 8843 rachel_miu@dbs.com

Recommendation & valuation

F Y 17

PE

HK $ HK $ x US$m

L uxury au t o dealersh ip c ompan iesBaoxin Auto Group (1293 HK)^

2.78 n.a. NR 8.8 917

China Harmony Auto (3836 HK)^

3.39 n.a. NR 6.5 689

China Rundong (1365 HK)^

3.41 n.a. NR 16.7 416

China Yongda (3669 HK)^

5.14 n.a. NR 7.1 981

China ZhengTong (1728 HK)

2.64 3.10 Buy 7.0 753

ZhongSheng*(881 HK)

9.18 8.80 Buy 15.6 2,542

Company Pric e T arget Pric e

Rec om M k t Cap

^ Consensus

* TP & Rating under review

Source: Thomson Reuters, DBS Vickers

DBS Group Research . Equity

China / Hong Kong Industry Focus

China Auto Sector

20 Jan 2017

Refer to important disclosures at the end of this report

Industry Focus

China Auto Sector

Page 2

Strategy and top picks

Luxury dealerships are worth revisiting. We maintain our positive view on luxury auto dealerships, in line with our robust luxury auto market outlook. Mercedes-Benz and BMW are the two traditional luxury brands to benefit from any market upside. As expected, many new luxury brands have entered the Chinese market in recent years. This should improve the vibrancy of the industry and create more choices for consumers. In terms of volume sales, some tier-2 luxury brands (other than the German ones) have chalked up impressive sales growth in 2016.

Luxury automobile sales in China (2016)

unit s 2016 2015 % chgAudi (incl. HK) 591,554 570,889 3.6BMW 516,355 463,736 11.3Mercedes-Benz 472,844 373,459 26.6Land Rover 119,048 92,474 28.7Cadillac 116,406 79,779 45.9Lexus 109,150 86,912 25.6Volvo 90,930 81,588 11.5Porsche 65,246 58,009 12.5Infiniti 41,590 40,188 3.5Lincoln 32,558 11,630 179.9Acura 8,143 4,203 93.7

Source: Companies

We anticipate the BMW dealerships to play catch-up this year. The large BMW dealerships are China Yongda, Baoxin and China ZhengTong, in terms of network coverage and volume sales. The other BMW dealerships include China Harmony, China Meidong and China Rundong. There could be some rotation from Zhongsheng (which sells Mercedes Benz and Lexus) to the BMW auto dealerships. Model revamp cycle and volume sales. Based on the previous product launch cycle, Mercedes Benz sales fell sharply in 2012 before picking up strongly with the launch of new products during 2014-16 (C-Class, E-Class, GLC and GLA). Over the same period, BMW sales volume came off as its vehicle models started to age. However, this time round, the revamp cycle of Mercedes Benz’s new models is ending, while BMW is set to launch its flag-ship model this year. Hence, we anticipate the BMW auto dealerships to benefit.

Auto dealers Index vs luxury car sales growth in China

(40)

(20)

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140

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400

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1,000

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Auto dealer index (LHS) Luxury car sales (RHS)

Index (1 Jan 09 = 100) %

Luxury car sales include Audi, Mercedes Benz, BMW, Jaguar Land Rover Source: CEIC, Thomson Reuters

Industry Focus

China Auto Sector

Page 3

BMW & Mercedes-Benz yearly sales

China property prices vs passenger vehicle sales

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100

200

300

400

500

600

2006

2007

2008

2009

2010

2011

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2014

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2016

Mercedes-Benz BMW

'000 units Benz C-class, E-class, GLA, GLC

BMW 5-series

BMW 3-series

(40)(20)0 20 40 60 80 100 120 140

(15)(10)(5)0 5

10 15 20 25 30

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06

Jan-

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Jan-

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11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

China property price growth - residential (LHS)PV sales growth (RHS)

YoY, %YoY, %

Source: Companies Source: CEIC

Summary of stock outlook A ut o dealersh ip sCompany name T ic k er Rat ing T P K ey po in t s

HK $China ZhengTong 1728 HK Buy 3.10 • Auto dealership sector is recov ering, positiv e on new car sales GP margin on

lower price discounting pressure• Appointment of new CEO (prev iously the President of BMW China Automotiv e

Trading Company Ltd) to strengthen its luxury car business fundamentals• One of the key dealership groups fo BMW in China. Giv en the new model

pipeline for 2017-2018, it should boslter well its BMW car sales• Lev eraging on its automobile financing v enture to driv e car sales and enhance

future profitability• Risk of F X loss is high as ZhengTong has about US$400m debt

Dah Chong Hong 1828 HK Buy 3.40 • Exposure to China auto sector accounts for ov er 50% of total rev enue. This business is recov ering from the trough lev el

• 2016 was the worst period due to exceptional prov isions on food inv entory following a sharp slowdown in the Chinese F &B sector

• Anticipate the "clean-up" to be positiv e on furture business. Li&F ung Asia acquisition has a long-term earnings impact when fully integrated into the group

ZhongSheng 881 HK Buy 8.80 • To benefit from strong luxury car market with its Mercedes Benz and Lexus auto dealerships

• One of the key dealership groups for the J apanese automkers• Strong GP margins sustainable on new car sales business as inv entory pressure is

low• Huge new car unit sales postiiv e on after-sales serv ices throughput

TP and rating under review

Source: DBS Vickers

Industry Focus

China Auto Sector

Page 4

Auto dealerships showing recovery

Improvements in auto inventory levels. The inventory at the dealership level is improving. The November 2016 average inventory days improved by a further 1.3 months, except for self-brands which had been recording increasing inventory days since September 2016. Shipments were rising from the Chinese automakers to beat the expiry of the 5% vehicle purchase tax cut after December 2016 as well as to build inventory ahead of the Chinese New Year in January 2017, as a result of the fewer working days due to closure of production plants. All in, the self-brand segment held 1.58 months of inventory at end-November 2016. Meanwhile, inventory levels at the sino-foreign segment were 1.05 months at end-November 2016, down from 1.48 months at end-June 2016. The HK-listed auto dealerships are engaged mainly in foreign auto brands, and with many in luxury and ultra luxury auto brands.

Industry average inventory days

0.0

0.5

1.0

1.5

2.0

2.5

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15A

pr-1

5Ju

l-15

Oct

-15

Jan-

16A

pr-1

6Ju

l-16

Oct

-16

months

Source: CADA, DBS Vickers

Auto financing crucial in driving vehicle sales. Many automakers and several auto dealerships provide auto financing to drive car sales in China. Auto financing is a lucrative business with strong profitability and high growth potential in China, given the current low penetration rate of auto financing. Apart from the auto dealerships, automakers also provide financial support to dealers and retail consumers for the purchase of automobiles at attractive financing terms. China’s total auto loans rose from Rmb108bn in 2012 to Rmb137bn by 2015, a CAGR of 8% over the same period. Certain auto dealerships such as ZhengTong and Dah Chong Hong have a licence from the government to provide auto

financing and leasing services to consumers and other auto dealers. This new business is a long-term driver to earnings.

Total auto loans in China

0

2

4

6

8

10

12

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012 2013 2014 2015

Total loan (LHS) NPL ratio (RHS)

RMB bn %

Source: CBRC, Wind, DBS Vickers

Breakdown of the Chinese auto finance market

0%

20%

40%

60%

80%

100%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Dealer inventory financing Consumer car loansAuto leasing financing

Source: China Banking Regulatory Commission

We prefer the luxury auto brand dealerships, in line with our positive market view on luxury car sales. Both China ZhengTong and Zhongsheng have 60-70% of their total revenues coming from luxury car sales. Zhongsheng has benefitted from strong Mercedes-Benz volume sales and it is expected to report a substantial jump in 2016 net profit of at least 350%. However, the BMW dealers as listed below would benefit from the new BMW new models in 2017 and 2018.

Industry Focus

China Auto Sector

Page 5

FY16E earnings preview A u t o dealersh ip sCompan y name T ic k er F Y 16E

(Rmb bn )Beat /

M issed / In - lin e

K ey earn ings d riv ers

China ZhengTong 1728 HK 0.62 In-line • F X losses from dev aluation of currency could be higher than expected• New car v olume sales in-line with expectation• Stable margins in 2H16• Improv ing contribution from auto financie business

Dah Chong Hong 1828 HK 0.44 In-line • Swing factor could be higher than expected one-off on inv entory and accounts receiv able write-down

• V olume increase in China auto market• HK car market was challenging last y ear

Source: DBS Vickers

Automobile companies that have released profit alerts Co mp an y n ame T ic k er F Y 16 E

(R mb b n )Net p ro f it

in c reaseK ey earn ing s d riv ers

ZhongSheng 881 HK 1.61 250% • Strong luxury car sales from Mercedes Benz and Lexus• Supply -demand equilibrium; inv entory holding cost greatly reduced• Improv ement in GP margins on new car sales and after-sales serv ices• Operating cost efficiency on larger business scale post M&A• Interest cost sav ings despite its high net gearing

China Meidong 1268 HK 0.14 >35%• V olume sales growth across the luxury and mid-high end segment

(Porsche, Lexus, BMW, Toy ota etc)• Increase in after-sales serv ices throughput• Improv ement in GP margins on new car sales

Baoxin 1293 HK 0.4 80%• Business improv ement as car demand picks up, lifting its new car sales

rev enue• Network enhancement and collaboration with its parent, China Grand

Auto on business growth• Improv ement in proift margins

Source: DBS Vickers

Industry Focus

China Auto Sector

Page 6

Key takeaways from meetings with BMW dealerships

We recently met up with three BMW dealerships - China Harmony, China Yongda and China Meidong. The key takeaways from our meetings with these companies are discussed below. Anticipate improvement in gross profit margins on new car sales. All three companies are looking forward to better prospects, pinning strong hopes on BMW’s new vehicle pipeline in 2017/18. Gross profit (GP) margins on new car sales stabilised in 2016 and price discounting pressure has been less severe. All three companies are excited over the launch of the new BMW 5 series in August 2017, as the new models should help to protect against margin compression. So far, GP margins on new car sales have been hovering at the 3-3.5% range, and these companies believe that margins are unlikely to decline to below the 3% threshold. Generally, luxury car manufacturers are more realistic in their sales targets and are more supportive in ensuring the dealerships make decent returns on their investments. It was also highlighted that the launch of the Mercedes Benz new E-Class in August 2016 did not badly affect sales of the existing BMW 5 series – a pleasant surprise. From August to December 2016, sales of the BMW 5 series fell by less than 1% to 61,980 units, a remarkable performance for a model that is at the end of its product life cycle.

E-Class vs BMW 5 series sales

0 2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000 18,000

Jan/

14

Apr

/14

Jul/1

4

Oct

/14

Jan/

15

Apr

/15

Jul/1

5

Oct

/15

Jan/

16

Apr

/16

Jul/1

6

Oct

/16

Beijing Benz E-class Brilliance BMW 5 series

units

Source: Brilliance, CAAM

After-sales services is the main profit generator. The stickiness from luxury car buyers is higher, hence after-sales services is an important profit generator, given the relatively high GP margins of 45-48%. So far, GP margins remain firm and repair volume is a function of past years’ volume growth. Generally, dealerships selling BMWs, Porsches, Audis, Land Rovers etc, had posted good sales growth in the past few years. The after-sales services account for about 60% of total gross profits of the auto dealerships. New sources of business revenues from auto financing and auto insurance. These are new businesses which the auto dealerships are growing to increase future profits. Currently, these new businesses account for a small portion of their profit, but the potential is good. Besides, auto financing also helps to drive sales of new cars. Hence, auto manufacturers and auto dealerships have set up auto finance companies to provide this service to their car buyers.

Industry Focus

China Auto Sector

Page 7

Peers valuation

M k t PE PE Y ield Y ield P/Bk P/Bk EV /EBIT DA ROE ROE

Currency Price Cap F iscal 17F 18F 17F 18F 17F 18F 17F 18F 17F 18F

Company Name Code Local$ US$m Y r x x % % x x x x % %

Hong K ong

Dah Chong Hong* 1828 HK HKD 2.89 683 Dec 9.3 7.7 3.2 3.9 0.5 0.5 7.4 6.6 6.0 6.9

ZhongSheng* 881 HK HKD 9.18 2,542 Dec 15.6 14.0 1.3 1.4 1.5 1.4 9.3 8.8 9.8 10.0

China ZhengTong* 1728 HK HKD 2.64 753 Dec 7.0 6.2 4.8 5.3 0.5 0.5 6.7 6.1 7.7 8.1

Baoxin Auto Group 1293 HK HKD 2.78 917 Dec 8.8 9.6 1.1 0.9 1.0 1.0 5.0 5.5 12.0 10.7

China Yongda 3669 HK HKD 5.14 981 Dec 7.1 5.5 4.1 5.4 1.2 1.0 4.6 3.5 17.6 20.6

China Meidong Auto 1268 HK HKD 1.37 192 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

China Harmony Auto 3836 HK HKD 3.39 689 Dec 6.5 6.0 4.1 4.5 0.7 0.6 2.8 2.5 10.8 11.3

Sparkle Roll Group 970 HK HKD 0.485 259 Mar n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Auto Italia Holdings 720 HK HKD 0.111 75 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

New Focus Auto 360 HK HKD 0.51 301 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

China Rundong Auto 1365 HK HKD 3.41 416 Dec 16.7 n.a. 0.0 n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Sunfonda Group 1771 HK HKD 2.2 170 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

A v erage 10.2 8.1 2.7 3.6 0.9 0.8 5.9 5.5 10.6 11.3

Ot her A sia

Tan Chong Intl TCM MK HKD 1.77 459 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Zhejiang Material 600704 CH CNY 10.64 4,464 Dec 30.4 n.a. 0.9 n.a. 3.2 n.a. n.a. n.a. n.a. n.a.

Power Diversity Auto 601258 CH CNY 2.71 2,643 Dec 45.2 n.a. 0.7 n.a. 1.4 n.a. n.a. n.a. n.a. n.a.

Wuhu Yaxia Auto 002607 CH CNY 10.03 668 Dec 34.0 26.2 0.5 n.a. 3.8 3.1 n.a. n.a. 10.4 11.9

Sinomach Auto 600335 CH CNY 12.04 1,812 Dec 11.9 n.a. 2.5 n.a. 1.2 n.a. n.a. n.a. n.a. n.a.

China Grand Auto 600297 CH CNY 9.32 7,491 Dec 14.0 11.9 1.1 0.0 1.7 1.6 8.9 8.1 13.5 13.8

Wuxi Coml.Mansion 600327 CH CNY 9.4 779 Dec 21.0 18.1 1.1 1.0 1.9 1.7 n.a. n.a. 8.9 9.4

Shanghai Shenhua 600653 CH CNY 3.66 1,041 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Fujian Zhangzhou 000753 CH CNY 5.05 732 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Yulon Motor 2201 TT TWD 27.15 1,363 Dec 14.9 13.6 3.0 3.0 0.6 0.6 6.8 6.6 3.9 4.2

Hotai Motor 2207 TT TWD 356 6,205 Dec 17.7 15.0 3.7 n.a. 4.1 2.9 10.6 10.4 23.9 22.2

A v erage 22.5 16.2 1.8 1.7 2.2 2.0 8.0 7.5 12.5 12.7

US

Autonation AN US USD 51.62 5,216 Dec 11.9 11.3 0.0 0.0 2.0 1.8 6.6 6.4 18.0 17.0

Group 1 Auto GPI US USD 81.08 1,733 Dec 10.5 10.4 1.1 1.1 1.6 1.4 6.8 6.4 16.0 14.9

Asbury Auto ABG US USD 64.6 1,431 Dec 10.1 9.6 0.0 0.0 3.7 2.5 6.9 6.7 35.7 31.9

Carmax KMX US USD 66.47 12,438 Feb 18.6 17.4 0.0 0.0 3.7 3.1 12.9 12.8 20.6 18.2

Lentuo Intl LASLY US USD 1E-04 0.00 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

A v erage 12.8 12.1 0.3 0.3 2.7 2.2 8.3 8.1 22.6 20.5

Source: Thomson Reuters, *DBS Vickers

Industry Focus

China Auto Sector

Page 8

PE charts

China Zhengtong (1728 HK) Dah Chong Hong (1828 HK)

0

5

10

15

20

25

30

35

40

Dec

-10

Jun-

11Ja

n-12

Jul-1

2

Jan-

13A

ug-1

3Fe

b-14

Aug

-14

Mar

-15

Sep-

15A

pr-1

6O

ct-1

6

Apr

-17

Nov

-17

x

Avg: 15.3x

+1SD: 23.1x

-1SD: 7.5x

0

5

10

15

20

25

Dec

-09

Dec

-10

Nov

-11

Nov

-12

Oct

-13

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-14

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-15

Sep-

16

Sep-

17

x

+1SD: 16x

Avg: 13x

-1SD: 10x

Zhongsheng Group (881 HK)

0

5

10

15

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40

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Dec

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11

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-16

Dec

-16

Sep-

17

x

Avg: 19x

+1SD: 26.3x

-1SD: 11.7x

+2SD: 33.6x

-2SD: 4.4x

Source: Thomson Reuters, DBS Vickers

Industry Focus

China Auto Sector

Page 9

PB charts

China Zhengtong (1728 HK) Dah Chong Hong (1828 HK)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Dec

-10

Jun-

11

Jan-

12

Jul-1

2

Jan-

13

Aug

-13

Feb-

14

Aug

-14

Mar

-15

Sep-

15

Apr

-16

Oct

-16

Apr

-17

Nov

-17

x

Avg: 1.2x

+1SD: 2.1x

-1SD: 0.9x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec

-09

Dec

-10

Nov

-11

Nov

-12

Oct

-13

Oct

-14

Oct

-15

Sep-

16

Sep-

17

x

+1SD: 1.8x

Avg: 1.3x

-1SD: 0.8x

Zhongsheng Group (881 HK)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mar

-10

Dec

-10

Sep-

11

Jun-

12

Mar

-13

Dec

-13

Sep-

14

Jun-

15

Mar

-16

Dec

-16

Sep-

17

x

Avg: 1.9x

+1SD: 2.8x

-1SD: 1x

+2SD: 3.7x

-2SD: 0.1x

Source: Thomson Reuters, DBS Vickers

Industry Focus

China Auto Sector

Page 10

DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends Completed Date: 20 Jan 2017 18:27:24 (HKT) Dissemination Date: 20 Jan 2017 18:42:44 (HKT)

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSVHK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”) and DBSVHK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBSVS and DBSVHK, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments

stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

Industry Focus

China Auto Sector

Page 11

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Industry Focus

China Auto Sector

Page 12

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