Industry Research Bringing China to the World www.swsresearch.com 12 May 2014
Overweight
Initiation of Coverage
模式正在升级
中国汽车类垂直网站
Analyst Titus Wu A0230511040056 ARG344 [email protected] 汽车类垂直网站在中国开始流行。消费者能够更方便的通过汽车类垂直网站了 解和研究他们感兴趣的车型以及比较相应的销售价格。汽车类垂直网站能够为 汽车制造商和经销商提供潜在的消费线索，因此这类网站正成为汽车买卖双方 都依赖的信息平台。 轻资产：服务为导向。目前汽车类垂直网站的商业模式主要集中于广告业务和 经销商会员服务。当数字媒体正在逐步取代传统形式的广告时，汽车制造商也 开始重新分配广告投入，以期在潜在客户中获得更高的渗透率。目前，汽车类 垂直网站的广告占比还非常低，2013 年其在汽车制造商的广告总预算份额仅为 5.5%。经销商会员服务是为汽车经销商提供更有效的销售营销，汽车类垂直网 站正在推进移动端战略以更好的变现流量。 成功的案例。美国的 TrueCar.com 推行的按效付费模式是基于其引导来的消费 者实际购买了汽车而收取一定的佣金，目前的收费标准是向其认证的经销商每 笔交易收取 299 美元。在 2013 年 TrueCar.com 新车销售的市场份额为 2.6%； 而美国最大的汽车经销商集团的市场份额为 1.9%，前十大汽车经销商集团的市 场份额合计为 8.2%。我们预计通过收取销售佣金而不是会员费的模式，基于新 车销量占比为 10%，佣金费率为 1%和平均汽车售价为人民币 10 万元的假设条 件，2014 年的市场容量将扩大 2 倍至人民币 20 亿元。 未来的空间。中国的二手车市场将有巨大的成长空间。基于未来 5 年乘用车的 新车销量保持个位数的增长以及汽车置换率达到 20%的假设条件；我们预计市 场销售容量约为人民币 2 万亿，与目前的新车销售市场等量级，而目前的中国 二手车市场容量约人民币 2800 亿元。 首次覆盖汽车之家（ATHM:US）和易车网（BITA:US）。我们给予汽车之家买入 评级，目标价 49.3 美元；给予易车网买入评级，目标价 48.3 美元。以净利润 计算，汽车之家是行业领军者，其倾注于网站内容的更新和维护以保持用户的 活跃度。易车网则更关注维护与经销商网络的营销。Company Code Rating
Target price (US$)
+/- (%) PE (x) EPS YoY (%)
14E 15E 16E 14E 15E 16E
Autohome ATHM:US BUY 49.3 68% 26.97 19.85 15.33 49.11 35.87 29.48
Bitauto Holdings BITA:US BUY 48.3 40% 25.53 18.39 13.76 39.25 38.85 33.66
Source: SWS Research
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Investment Highlights:
Vertical portals for automobiles gain popularity in China. Consumers are able to research the cars they are interested in purchasing and compare prices more conveniently. Given their ability to generate leads for auto manufacturers and dealers, vertical auto portal sites are becoming an attractive source of information for both buyers and sellers alike.
Centring on service. The current business model centres on advertising and dealer subscription services. As digital media replaces traditional forms of advertisement, automakers are beginning to reallocate adspend in order to better penetrate an increasingly sophisticated consumer. However, the base remains low, with online vertical portals only accounting for 5.5% of automakers’ total advertising budgets in 2013. Dealer subscription services allow dealers to more efficiently market their inventory and services as well as pursue strategies to monetise mobile traffic.
A successful example. California based TrueCar.com generates fees when consumers purchase a car under its pay-for-performance business model. The company charges certified dealers US$299 for each sale to its userbase. In 2013, TrueCar.com accounted for 2.6% of new car sales in the US, while the largest automotive dealer group accounted for 1.9% and the top-ten dealer groups accounted for only 8.2% on aggregate according to Automotive News. By generating commissions on new car sales, rather than just charging subscription fees, the total addressable market for vertical web portals in China rises twofold to Rmb2bn in 2014. This is based on our assumption of a 10% market share in new car sales and a 1% commission rate on an average selling price (ASP) of Rmb100k.
Future growth. We see significant potential for the growth of China’s used-car market, with a blue-sky value of Rmb2tn, similar to the current new-car market. This assumes that passenger vehicle (PV) annual sales in China continues to grow in the single digits and reaches the US level with c.20% of replacement rate over the next five years. Based on an ASP of Rmb54k per units, the current used-car market value is roughly Rmb280bn.
Initiate coverage on Autohome (ATHM:US) and Bitauto (BITA:US). We initiate coverage of Autohome with a BUY recommendation and US$49.3 target price as well as Bitauto with a BUY recommendation and US$48.3 target price. Autohome is the largest Chinese company in the sector in terms net profit and has made significant investments in content and editorials, given its large consumer userbase. Bitauto is more focused sales and marketing, given its extensive dealer relationships.
An evolving marketplace ... 错误！未定义书签。
Room to grow ... 17
Advertising growth ... 7
Subscription dealer network is the cornerstone ... 10
A successful example ... 10
Turnging to transactions ... 15
New car sales momentum continues ... 17
Future growth ... 17
Autohome vs. Bitauto ... 24
Valuation table ... 24
An evolving marketplace
The traditional consumption cycle for an auto consumer is to buy a new car, rely on after-sales service, sell the car after three-seven years and then repeat the cycle. Typically, the buyer shops around and purchases a car from a dealer, however they are unable to select the best potential deal as they do not have visibility across the entire market.
Vertical auto portal sites democratise the process as buyers can perform qualitative and quantitative research easily and make more informed decisions. As consumers become more sophisticated and demand greater access to information, vertical websites become more attractive portals for auto producers and dealers.
The growth of PV sales and the development of China’s used-car market will directly affect the outlook of vertical web portals. Currently their revenue is primarily based on auto producer adspend and dealer subscription fees.
Figure 1: New car business model
Vertical website Consumers Auto parts suppliers Auto producers Dealers / 4S stores
Shop around & buy Sell & after-sales
services Supply Shop around online and exchange information Website business line
Supply Supply Ad services Dealer subscription services Source: SWS Research
Figure 2: Used car business model Vertical website Consumers Used-car certification center Auto parts suppliers Used –car dealers / 4S
stores Shop around & buy
Sell & after-sales services Service Shop around online and exchange information Website business line
Supply Cooperation Ad services & dealer subscription services Source: SWS Research
Room to grow
Autohome and Bitauto generate the majority of their revenue via their advertising and dealer subscription services. Both have reported robust revenue growth, reflecting strong PV demand in China.
Autohome’s website, autohome.com.cn, is experiencing a large and rapidly
growing userbase. Autohome is the largest online auto portal in the market thanks to its advertising income, which accounted for 73.6% of total revenue in 2013. The company is able to attract significant adspend due to its rapidly growing userbase. At present, roughly 80% of China’s automakers are Autohome’s advertising customers. By end-2013, Autohome cooperated with 10.6k dealers.
Meanwhile, as a first mover, Bitauto captured c.50% of the PV dealer market (c.13.6k worth of dealers’ vs c.10.6k for Autohome by end-2013). Leveraging its coverage of existing dealers, Bitauto is able to explore the used-car market via its website taoche.com. Revenue from taoche.com currently accounts for a
small portion of total revenue. However, the company will benefit as China’s used-car market begins to take off. This will enhance its future topline performance.
Figure 3: Rapid growth of Autohome’s and Bitauto’s revenue 71.3% 66.1% 46.2% 36.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 2010 2011 2012 2013 Re ve nue (R m b '0 00 )
Autohome Bitauto Autohome Bitauto
Source: Company data, SWS Research
Figure 4: Autohome’s revenue primarily stemmed from its adverting services
73.6%
26.4%
Advertising services Dealer subscription services
Source: Company data, SWS Research
Figure 5: Bitauto’s diverse revenue distribution
50.2%
34.0%
1.5% 14.3%
Advertising business EP platform business
Source: Company data, SWS Research
Advertising growth
Advertising revenue growth is primarily driven by automakers’ increased use of vertical web portals. In addition, the industry continues to shift its advertising budgets from traditional methods to online media sources.
Auto producers utilise this advertising in order to market sales promotions and new model releases. The automotive content delivery and advertising management platform allows companies to segment their userbase in a variety of ways. This includes users’ geographical location and specific automotive interests. In addition, this enables companies to advertise in places that are likely to gain a positive response.
Furthermore, through the use of marketing campaigns, vertical web portals will organise various types of offline national or local events for auto producers and dealer consumers. In addition, these websites will create user forums in order to complement advertising and dealer subscription services.
Figure 6: Advertising input correlates with sales growth
16.4% 6.0% 5.4% 14.1% 33.3% 5.4% 6.9% 15.7% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2010 2011 2012 2013 G ro w th r ate (Y oY )
Auto industry advertising input PV sales
Source: iResearch, SWS Research
In comparison to traditional offline advertising, online marketing achieved a higher market share. The market share of online advertising rose from 11.4% in 2010 to 20.3% in 2013.
With the rising popularity of the automobile online advertising market, the top-10 advertising buyers (among 100 auto producers) accounted for c.35% of the total market share in recent years.
Figure 7: Advertising input pattern of China’s automobile industry 17,739 18,803 19,819 22,614 2,025 3,220 3,940 4,600 -5,000 10,000 15,000 20,000 25,000 2010 2011 2012 2013 Input o f a ut o indus tr y ( Rm bm )
Total Ads Online Ads
Source: iResearch, SWS Research
Among the online advertising input from auto producers, both portal and marketplace websites were major beneficiaries. Meanwhile, due to a more highly effective performance among automakers, both video and marketplace websites gained increasing market shares of online advertising. However, despite the rapid growth in recent years, vertical web portals occupied just 5.5% of the total advertising budget of automakers.
Figure 8: Online advertising rises
88.6% 82.9% 80.1% 79.7% 11.4% 17.1% 19.9% 20.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 Pe rc en ta ge
Offline Ads Online Ads Online Ad growth rate
Figure 9: Concentration rate of the top-10 advertising buyer is stable 720 1,115 1,446 1,617 33.5% 34.0% 34.5% 35.0% 35.5% 36.0% 36.5% 37.0% -200 400 600 800 1,000 1,200 1,400 1,600 1,800 2010 2011 2012 2013 Input o f a ut o indus tr y ( Rm bm )
Top 10 Ad buyers % of total online Ad (RHS)
Source: iResearch, SWS Research
With real-time bidding (RTB), advertising has gained popularity since 2011. The tendency for automakers to shift advertising budgets from traditional media to online sources will continue. We believe that the advertising income gained through vertical portals will maintain a rapid growth momentum and will be underpinned by the increasing advertising budgets of China’s automakers. In addition, this will increase the low penetration rate of advertising via vertical web portals.
Figure 10: Vertical web portal percentage among online advertising rises
60.3% 58.3% 58.4% 55.3% 25.8% 25.0% 25.0% 27.0% 4.6% 4.6% 5.9% 7.5% 9.2% 12.1% 10.7% 10.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 Pe rc en ta ge
Portal website Vertical website Video website Other websites
Figure 11: Low penetration rate of advertising on vertical web portal 6.9% 10.0% 11.6% 11.3% 3.0% 4.3% 5.0% 5.5% 0.5% 0.8% 1.2% 1.5% 1.1% 2.1% 2.1% 2.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2010 2011 2012 2013 Pe rc en ta ge
Portal website Vertical website Video website Other websites
Source: iResearch, SWS Research
Subscription dealer network is the cornerstone
Dealer subscription services allow dealers to market their inventory and services via a vertical web portal. Dealer subscription services are delivered through an information system on a fixed-fee basis, typically for a period of one year.
Through a web-based interface, dealers can create online showrooms and upload and manage their automobile inventories, pricing and promotional information. In order obtain more detailed information and schedule test drives, potential auto buyers can interact with dealer subscribers either online or via toll free numbers.
Figure 12: Number of PV dealers in China
27,796 0% 1% 2% 3% 4% 5% 6% -5,000 10,000 15,000 20,000 25,000 30,000 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 D ea le r a m ou nt PV dealers QoQ (RHS)
Vertical web portals also offer some basic features for free. However, with regards to user inquiries, registered dealers have a lower priority over subscribed dealers. Therefore, the upside of subscription services will stem from the value-added services such as ranking and listing services.
Mobile strategies are an efficient way to monetise mobile traffic. Mobile applications (apps) are able to increase transaction demand and enhance general sales leads. With regards to Bitauto, the company’s mobile strategy was well-received by customers and users. In 3Q13, approximately 24% of sales leads were generated through mobile platforms. By improving existing mobile apps and developing more in the future, the company will engage more mobile users and can easily monetise consumer traffic.
Figure 13: Bitauto’s holds more subscription dealers
743 10,617 3,512 13,600 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 2010 2011 2012 2013 Subs cr ipt io n de al er s Autohome Bitauto
Source: Company data, SWS Research
Figure 14: Subscription fee stablises
23.6 30.3 36.2 36.0 10 15 20 25 30 35 40 2010 2011 2012 2013 Subs cr ipt io n f ee (R m b '0 00 ) Autohome Bitauto
A successful example
California based TrueCar plans to make an IPO debut on the Nasdaq market. The company operates its branded platform via its TrueCar.com website. In
2013, TrueCar generated revenue of US$134.0m and recorded a net loss of US$25.1m. Transaction revenue accounted for 89% of the total revenue. This primarily consisted of fees paid by TrueCar’s certified dealers. TrueCar generates fees when consumers purchase a car under its pay-for-performance business model.
TrueCar enables consumers to find information related to the sales of other vehicles (including the make, model and price) within the local area. TrueCar refer to this system as “upfront pricing information”. In terms of certified dealers, the company provides information as to where these vehicles are available. TrueCar benefits its network of certified dealers by enabling them to attract informed, in-market consumers in a cost-effective and accountable manner, thereby generating increased car sales.
Figure 15: TrueCar’s revenue
15,831 38,149 76,330 79,889 133,958 141.0% 100.1% 4.7% 67.7% 0% 20% 40% 60% 80% 100% 120% 140% 160% 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 2009 2010 2011 2012 2013 Re ve nu e ( U S$ '0 00 )
Revenues Growth rate (YoY)
Source: TrueCar.com, SWS Research
Figure 16: TrueCar’s net profit and adjusted Ebitda
-80,000 -70,000 -60,000 -50,000 -40,000 -30,000 -20,000 -10,000 0 10,000 20 09 20 10 20 11 20 12 20 13 U S$ '0 00
Net profit Adjusted Ebitda
Figure 17: What others paid on TrueCar.com
Source: TrueCar.com, SWS Research
Figure 18: Price trend from nearby 4S dealerships
Source: TrueCar.com, SWS Research
Under TrueCar’s pay-for-performance business model, the company earns a fee only when a consumer purchases a car. TrueCar charges certified dealers US$299 for each sale to its userbase.
Figure 19: TrueCar’s monetisation per unit
297 291 297 -2.0% 2.1% -3% -2% -2% -1% -1% 0% 1% 1% 2% 2% 3% 250 260 270 280 290 300 2011 2012 2013 U S$
According to the National Automobile Dealers Association (NADA), in 2013, the overall industry average advertising expense (across all forms of media) was US$616/car. By targeting in-market consumers through TrueCar’s website, dealers can improve their operating cost efficiencies by lowering selling expenses and inventory carrying costs. TrueCar’s network of c.7,000 dealers consists primarily of new car franchises operating in every US state. TrueCar views the average monthly unique visitor amount as a key indicator of its growth. This represents the strength of the brand and the visibility of car buying services to the member base of its marketing partners. The number of average monthly unique visitors increased from c.1.7m in 2012 to c.2.8m (+67.6% YoY) in 2013. TrueCar attributes the growth to increased television and digital advertising campaigns that have led to increased brand awareness and increased traffic from its marketing partners.
Figure 20: TrueCar’s dealer network
4,916 5,306 6,651 7.9% 25.3% 0% 5% 10% 15% 20% 25% 30% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2011 2012 2013 A m ount s
Franchise dealer count Growth rate (YoY)
Source: TrueCar.com, SWS Research
Figure 21: TrueCar’s average monthly unique visitors rises
1,322,815 1,659,435 2,780,849 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 2011 2012 2013 A ve ra ge m ont hl y uni que v is ito rs
Average monthly unique visitors Growth rate (YoY)
According to NADA, 15.5m new cars were sold in the US in 2013. According to
Automotive News, the largest automotive dealer group accounted for just
1.9% of new vehicle sales, while the top ten dealer groups accounted for an aggregate of just 8.2% during the same period. In 2013, TrueCar users that purchased cars from certified dealers accounted for c.2.6% of all new car sales in the US. Since its founding in 2005, TrueCar’s users have purchased over 1.1m cars from certified dealers, c.400k of these cars were sold in 2013.
Figure 22: TrueCar’s user purchased c.400k units of new cars in 2013
239,470 222,683 399,919 -7.0% 79.6% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2011 2012 2013 Un its
Sales units Growth rate (YoY)
Source: TrueCar.com, SWS Research
Turning to transactions
Transactions will largely increase vertical web portal’s ability to monetise leads. In its existing business model, the dealers or sales, service, spare parts and survey (4S) dealerships gained leads via subscription fees from vertical web portals; this was not gained via transactions. If vertical web portals incorporate transactions, the dealers or 4S dealerships will be able to gain the leads via the higher willingness of consumers to buy a car. This can be screened by vertical web portals. Consequently, these websites will be able to charge commission from these transactions. As a result, this can generate over four times upside for vertical portals.
The shift to transactions is in the early stages for vertical auto web portals in China. The main obstacle is the low penetration rate from leads to transactions. Both dealers and 4S dealerships consider the fixed subscription fee as a marketing expense. This is due to the fact that it is difficult for these companies to analyse the probability of a lead tuning into a transaction. In terms of online new car sales, the success of promotional activities on 11 November 2013 enabled vertical web portals to evolve into the business of transactions. Taking Autohome as the example, roughly 20% of leads entered into a transaction. This improved the value of the vertical portal. However, Autohome did not charge commission from the transactions during this time.
Figure 23: Evolving marketplace Vertical website Consumers Dealers / 4S stores
Sell, buy and after-sales services Free for information exchange Subscription fee/monetise the leads Charge commissions from transactions Source: SWS Research
Figure 24: Online new car sales promotional activities on 11 November 2013
70 14 0 10 20 30 40 50 60 70 80 Leads Transactions A m ount '0 00 Source: SWS Research
In order to gain increased car sales, vertical web portals will screen these leads with high visibility. This improves the rate of leads to transactions. Commissions from transactions are much larger than subscription fees. Under the assumption of a 10% market share of new car sales from vertical web portals and 1% of commission rates based on the selling price, we forecast the total commission from new car sales to reach Rmb2bn in 2014. This is two times higher than subscription fees in 2013.
Figure 25: Forecast of commission from new car sales
2013 2014E 2015E 2016E
Passenger vehicles market in China
Sales units (m) 18 20 22 24
ASP (Rmb '000) 100 100 100 100
Market (Rmbbn) 1,800 1,980 2,178 2,396
Forecasts on purchase via vertical website
Market share 10%
Market (Rmbbn) 180 198 218 240
Commission rate 1%
Commission (Rmbbn) 1.8 2.0 2.2 2.4
Source: SWS Research
Figure 26: Scenario analysis on the market share in 2014
Forecast for 2014
Market share Commission rate
0.5% 1% 2% 3% 10% 1.0 2.0 4.0 5.9 20% 2.0 4.0 7.9 11.9 30% 3.0 5.9 11.9 17.8 50% 5.0 9.9 19.8 29.7 Source: SWS Research
Figure 27: Scenario analysis on the market share in 2015
Forecast for 2015
Market share Commission rate
0.5% 1% 2% 3% 10% 1.1 2.2 4.4 6.5 20% 2.2 4.4 8.7 13.1 30% 3.3 6.5 13.1 19.6 50% 5.4 10.9 21.8 32.7 Source: SWS Research
New car sales momentum continues
From the significant growth seen in 2009-10, China’s auto sales growth decelerated to 2.7% YoY in 2011 (5.4% for PV) and 4.2% YoY in 2012 (6.9% for PV). However, during the first 10 months of 2013, total auto sales grew 13.5% YoY and PV sales rose 15.0% YoY. Given the constraints posed by increased traffic congestion and air pollution, we expect PV sales to post a 10.5% Cagr over the next three years.
Figure 28: PV sales growth in China 15.4% 49.4% 16.0% 30.8% 7.1% 52.9% 5.4% 15.7% 0% 10% 20% 30% 40% 50% 60% 1999 2001 2003 2005 2007 2009 2011 2013 Passenger vehicles
Source: CEIC, SWS Research
Given the low penetration rate, declining prices and continued wealth creation, the domestic auto market has considerable potential for growth. We attribute the low penetration rate to China’s large population and developing transport infrastructure. We are optimistic towards the potential growth outlook of automobile sales.
Under our bull case scenario, we forecast auto ownership per 1,000 people to witness a 16.4% Cagr in 2013-16. In addition, PV sales are expected to see a 15.8% Cagr and total auto sales will enjoy a 15.6% Cagr during the same period.
Figure 29: Bull case three-year Cagr of 15.8%
Auto sales PV sales Total auto ownership Ownership per 1,000ppl Scrapping ratio
2013E 23.4 19.0 127.6 94 4.7%
2016E 36.2 29.4 201.0 146 4.7%
3Y Cagr 15.6% 15.8% 16.4% 15.8%
Auto sales PV sales Total auto ownership Ownership per 1,000ppl Scrapping ratio
2012 19.3 15.5 109.3 81 3.8%
2013E 23.4 19.0 127.6 94 4.7%
2014E 27.1 22.0 148.7 109 4.7%
2015E 31.3 25.5 173.0 126 4.7%
2016E 36.2 29.4 201.0 146 4.7%
Note: Auto and PV sales (m), Ownership per 1000ppl (units). Source: CAAM,CEIC, SWS Research
Under our base case scenario, we forecast auto ownership per 1,000 people to witness a 13.8% Cagr in 2013-16. In addition, PV sales are expected to see a 10.5% Cagr and total auto sales will enjoy a 10.3% Cagr during the same period.
Figure 30: Base case three-year Cagr of 10.5%
Auto sales PV sales Total auto ownership Ownership per 1000p Scrapping ratio
2013E 21.8 17.7 126.0 93 4.7%
2016E 29.2 23.8 185.6 134 4.7%
3Y Cagr 10.3% 10.5% 13.8% 13.2%
Auto sales PV sales Total auto ownership Ownership per 1000p Scrapping ratio
2012 19.3 15.5 109.3 81 3.8%
2013E 21.8 17.7 126.0 93 4.7%
2014E 24.2 19.6 144.2 105 4.7%
2015E 26.7 21.7 164.1 119 4.7%
2016E 29.2 23.8 185.6 134 4.7%
Note: Auto and PV sales (m), Ownership per 1000ppl (units). Source: CAAM,CEIC, SWS Research
Under our bear case scenario, we forecast auto ownership per 1,000 people to witness a 11.8% Cagr in 2013-16. In addition, PV sales are expected to see a 5.2% Cagr and total auto sales will enjoy a 5.1% Cagr during the same period.
Meanwhile, ASPs have continued to decline, thus increasing affordability. In addition, luxury models have seen an increased amount of narrow discounts.
Figure 31: Bear case three-year Cagr of 5.2%
Auto sales PV sales Total auto ownership Ownership per 1000p Scrapping ratio
2013E 20.9 16.9 125.1 92 4.7%
2016E 24.2 19.7 174.8 127 4.7%
3Y Cagr 5.1% 5.2% 11.8% 11.2%
Auto sales PV sales Total auto Ownership Ownership per 1000p Scrapping ratio
2012 19.3 15.5 109.3 81 3.8%
2013E 20.9 16.9 125.1 92 4.7%
2014E 22.1 18.0 141.3 103 4.7%
2015E 23.3 18.9 158.0 115 4.7%
2016E 24.2 19.7 174.8 127 4.7%
Note: Auto and PV sales (m), Ownership per 1000ppl (units). Source: CAAM,CEIC, SWS Research
Figure 32: PV ASP discount index from “Cheshi.com”
40 50 60 70 80 90 100 04/ 2004 10/ 2004 04/ 2005 10/ 2005 04/ 2006 10/ 2006 04/ 2007 10/ 2007 04/ 2008 10/ 2008 04/ 2009 10/ 2009 04/ 2010 10/ 2010 04/ 2011 10/ 2011 04/ 2012 10/ 2012 04/ 2013 10/ 2013 Se llin g p ric e in de x ( 10 0)
Total Mini Small Medium High-end Luxury
Figure 33: PV ASP trend 100,000 110,000 120,000 130,000 140,000 150,000 160,000 170,000 01/ 2007 07/ 2007 01/ 2008 07/ 2008 01/ 2009 07/ 2009 01/ 2010 07/ 2010 01/ 2011 07/ 2011 01/ 2012 07/ 2012 01/ 2013 07/ 2013 01/ 2014 Se lli ng p ri ce (R m b/ un it)
Sedan SUV Passenger vehicles
Source: CEIC, SWS Research
Future growth
Supported by the rising ownership of private vehicles, China’s used car market has significant room for development. In addition, China’s ownership of passenger vehicles was almost half of that of the US. However, the sales volume of used cars was 12.4% of the total US sales of used cars.
In 2011, registered vehicles in the US reached c.250m units (c.200m were light vehicles). While the ownership of automobiles in China reaches c.137m units in 2013, private vehicles are expected to reach c.100m units.
Figure 34: US light vehicles were close to 200m units in 2011
76.1% 3.3%
16.3%
3.1% 1.0% 0.3%
Light duty vehicle, short wheel base Motorcycle
Light duty vehicle, long wheel base Truck, single-unit 2-axle 6-tire or more
Truck, combination Bus
The US’s annual sales volume of used cars reached 42m units in 2013 (2.5x higher than new light vehicle sales). Meanwhile, China’s annual sales volume of used cars was 5.2m units in 2013 (30% of new passenger vehicle sales in China).
We see significant potential for growth in China’s used-car market, with a blue-sky value of Rmb2tn. Based on an ASP of Rmb54k/unit, the current used-car market value is c.Rmb280bn. In particular, Sedan’s contributed 58.6% to the total used car market in China, while Sports Utility Vehicles (SUV’s) accounted for 3.2%. Furthermore, just 25% of used cars were traded by commission; the remainder were traded by direct sales.
Assuming that the current sales volume of new passenger vehicles reaches c.18m units in China and assuming a single-digital growth rate, China’s ownership of passenger vehicles will be parallel to that in the US over the next five years. If China adopts a similar sales structure to the US, China’s used car market may experience eight times upside in comparison to the US.
Figure 35: Sales volume of used cars were over 2.5x vs new light vehicle sales in the US
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 Sa le s v ol um e ( un its '0 00 )
Used car New car (Light vehicles)
Source: WardsAuto, CNW, Research
Figure 36: Sales volume of used cars were 30% of new passenger vehicle sales in China
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 Sa le s v ol um e ( un its '0 00 )
Figure 37: Sedan’s accounted for 58.6% of used car sales in China in 2013 58.6% 3.2% 14.9% 12.8% 10.5%
Sedan SUV Bus Truck Others
Source: Wind, Research
Figure 38: Just 25% of used cars traded by commission in 2012
74.7% 25.3%
Direct trading Commission trading
Source: Wind, Research
The peak duration of vehicle replacement is within the third and seventh year of car ownership. The percentage of replacement was 13.1% between the third and fourth year, 20.1% between the fourth and fifth year, 18.4% between the fifth and sixth year and 16% between the sixth and seventh year. The latest strong period of PV sales were in 2009-10. Therefore, replacement demand is expected to accelerate in the coming years.
Furthermore, 72% of used cars traded in China were used for a period of three to 10 years in 2012. Meanwhile, used cars traded in the US were used (until replaced) for 10 years on average in 2013. This represents the increased trading value of cars in the automobile lifecycle in China.
Figure 39: The peak duration of vehicle replacement is in third and the seventh year.
0% 20% 40% 60% 80% 100% 0% 5% 10% 15% 20% 25% < Y ea r 1 Ye ar 1 -2 Ye ar 2 -3 Ye ar 3 -4 Ye ar 4 -5 Ye ar 5 -6 Ye ar 6 -7 Ye ar 7 -8 Ye ar 8 -9 Ye ar 9 -1 0 > Y ea r 10 Ve hi cl e r ep la ce m en t ( % )
% of vehicle replacement Accumulated percentage
Source: SWS Research
Figure 40: 72% of used cars traded in China were used for three to 10 years in 2012
21.2%
72.0% 6.8%
Below three years Three to 10 years Over 10 years
Source: Wind, Research
Given the significant ownership of private vehicles, used car sales were less volatile in the US. The less volatile the sales, the better it is for the dealer’s network.
Figure 40: Sales of used cars were less volatile in the US -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 G ro w th r ate (Y oY )
Used car New car (Light vehicle)
Source: WardsAuto, CNW, Research
Figure 42: Sales of used cars were as volatile as new cars in China
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 G ro w th r ate (Y oY )
Used car New car (Passenger vehicles)
Source: Wind, Research
Autohome vs Bitauto
There are three large auto vertical web portals. Autohome is the largest player in terms of net profit and its major contribution stems from its advertising income. Autohome’s major competitor is Bitauto. Bitauto has developed and maintained good corporation with dealer networks. In addition, Xcar is another competitor; however, the company is currently unlisted.
Figure 43: Industry analysis
Competitive rivalry in the industry: Medium There are three large auto portal websites: Autohome is the largest player in terms of net profit. The company’s major contribution stems from advertising income. Autohome’s major competitor is Bitauto. This company is good at maintaining and cooperating with dealer networks. In addition, Xcar is another major portal, however, the company is not listed.
Threat of new entrants: Medium There are substantial barriers to setting up a portal website for the auto sector.
Competition increases for portal websites.
Potential competition from platform giants with a substantial userbase.
Threat of substitutes: Low Online advertising market share rises.
More consumers make a online search before buying a new car.
Bargaining power of suppliers:
High
Vertical portals need to pay for the traffic introduced by third party search platforms.
Source: SWS Research
Autohome and Bitauto adopt a similar human resource structure. However, by end-2013, Bitauto’s number of employees was almost double of that of Autohome (2215 employees for Bitauto vs 1191 employees for Autohome). In order to maintain a good cooperation with dealer networks, over half of employees for both companies were involved in sales and marketing activities. Bitauto placed more resources in its sales and marketing function. However, given its efforts to maintain its substantial amount of active online users, Autohome invested more into content and editorial functions. In order to enhance user experience and increase the car sales, both companies paid more attention to product development.
In terms of margins, there is a significant difference between Autohome and Bitauto. However, both companies’ gross margin indicated similar improvements. Having said this, the companies operating margins represented a significant difference. The major reason for this stemmed from their difference in sales and marking expenses.
Figure 44: Autohome’s employee distribution by end-2013
53% 17%
23% 7%
Sales and marketing Content and editorial
Product development Management and administrative
Source: Company data, SWS Research
Figure 45: Bitauto’s employee distribution by end-2013
57% 13%
20% 10%
Sales, marketing and customer support Editorial and creative
Product development General and administrative
Figure 46: Product development expenses maintained high growth 165.3% 90.5% 23.0% 94.1% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2011 2012 2013 G ro w th r ate (Y oY ) Autohome Bitauto
Source: Company data, SWS Research Figure 47: Gross margin comparison
66.8% 79.3% 67.5% 76.7% 60% 62% 64% 66% 68% 70% 72% 74% 76% 78% 80% 82% 2010 2011 2012 2013 G ro ss m ar gi n Autohome Bitauto
Source: Company data, SWS Research
Figure 48: Operating margin comparison
38.0% 45.6% 14.8% 17.4% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2010 2011 2012 2013 O pe rat in g m ar gi n Autohome Bitauto
Although it is difficult to directly compare the operating expenses of the two companies, we forecast a significant gap caused by sales and marketing expenses. Bitauto paid more to gain traffic from third-party search platforms, while Autohome generated traffic via its own substantial userbase.
Figure 49: Autohome’s expenses distribution
19.3% 15.6% 17.7% 20.2% 7.1% 10.7% 11.4% 6.8% 2.5% 3.8% 5.9% 6.7% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2010 2011 2012 2013 Ex pe ns e r ati o
Sales & marketing expenses G&A expenses
Source: Company data, SWS Research
Figure 50: Bitauto’s expenses distribution
46.3% 51.9% 52.7% 52.0% 6.5% 5.5% 5.1% 7.3% 0% 10% 20% 30% 40% 50% 60% 70% 2010 2011 2012 2013 Ex pe ns e r ati o
Selling and administrative expenses Product development expenses
Source: Company data, SWS Research
Figure 51: Valuation table
Company Code Rating
Target price (US$) +/- (%) PE (x) EPS YoY (%)
14E 15E 16E 14E 15E 16E
Autohome ATHM:US BUY 49.3 68% 26.97 19.85 15.33 49.11 35.87 29.48
Bitauto Holdings BITA:US BUY 48.3 40% 25.53 18.39 13.76 39.25 38.85 33.66
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