Dongfeng Motor Co., Ltd. recently released its third-quarter results report for Dongfeng Motor Co., Ltd. for its 3Q14 results. Our comments are as follows:
1. The reduction in consolidated business losses has helped improve performance significantly. Although the company's 3Q11 earnings are still derived from the investment income of the Dongfeng Cummins Engine, the reduction in the loss of the consolidated business is the main reason for the significant improvement in performance. In the third quarter, the company’s investment income only increased by 41.0% year-on-year, but its net profit increased by more than 4 times year-on-year, and the company’s consolidated business loss decreased by more than RMB 46 million year-on-year. In the third quarter, the company's gross profit margin increased by 0.9 percentage points year-on-year, and the gross profit margin in various quarters in 2014 was relatively stable, maintaining at over 14%. With the advancement of the company's cost reduction and efficiency improvement and the listing of Zhengzhou Nissan's new vehicles, the company's consolidated business is expected to continue to improve and achieve profitability.
2. New energy vehicles are one of the company's major growth points in the future. The company is the main executor of Dongfeng Group's new energy passenger vehicle business. Its products include new, medium and light new energy passenger vehicles. In August 2014, the company's Xiangyang Wagon Company and Zhejiang Space-time Vehicle launched a pure electric wide-body light passenger cooperation, which is expected to help the company's new energy automotive business grow rapidly and will become one of the major profit growth points. With the cooperation with time and space, the company has successfully transformed itself, revitalized existing assets and increased profitability. According to our estimation, with the space-time cooperation in 2015, the company can increase its net profit by about 300 million yuan.
3. Zhengzhou Nissan will resume its operations and will become the Dongfeng Group's own brand strategy executor. Zhengzhou Nissan is a joint venture established between Dongfeng Motor Corporation and Dongfeng Motor Co., Ltd. (Dongfeng Motor Group Co., Ltd. and Nissan's 50% shareholdings) and state-owned assets of Zhengzhou City. It produces Dongfeng and Nissan dual-brand light commercial vehicles, SUVs and MPVs. Etc., Dongfeng Motor Co., Ltd. holds 51%. Zhengzhou Nissan will be one of the main implementers of Dongfeng Group's own brand business. Dongfeng Kaiput Light Truck, Dongfeng Ruiqi pickup, Dongfeng Aoding SUV and Dongfeng Smart MPV have been introduced. According to related auto media reports, Zhengzhou Nissan is expected to introduce Nissan's previous generation of Qijun SUV technology and launch a brand new Dongfeng own-brand SUV. The main competition models are Great Wall Haval H6 and Changan CS75. We expect that with mature technology, this SUV is expected to become a mainstream self-branded compact SUV, with monthly sales expected to reach 3,000-4,000 units, which will help Zhengzhou's Nissan business grow substantially.
4. Strategic transformation is more important. In the early stage, the company's strategy was to achieve a large scale, launched a wide-body, light-busy, and highly competitive micro-vehicle project with a high market threshold, resulting in a continuous decline in the overall profitability of the company. At present, the company plans to sell the mini-vehicle project, “Broken arm to stop bleedingâ€, and cooperates with space-time auto to launch Yufeng pure electric logistics vehicle. The sale of micro-vehicles and cooperation with time and space show that the company is undergoing a strategic transformation, changing the direction of re-selling heavy profits in the past, and shifting to paying attention to benefits. At the same time, the company has improved its management level. It no longer only pays attention to sales volume, instead, it has to step down purchases, reduce technology costs, and reduce manufacturing costs, and improve product profitability.
5. Risk warning: The competition in the light truck industry has intensified; the progress of new energy vehicle projects in cooperation with time and space is lower than expected; sales of new cars in Zhengzhou Nissan are lower than expected.
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