Guangzhou Automobile 2238

[winston]

Not vested. From Phillips:-

Valuation

We forecast GAC's 2010E, 2011E net profit to RMB 4.326 billion(YOY+113%) and 5.491 billion(YOY+17.1%) respectively, EPS to RMB 0.84、0.89, equivalent to a 9.3x and 9.0x P/E.

As for the valuation, we mainly chose comparable auto list in emerging market. the present South Korea auto companies` P/E ratios reaches 8, Hong Kong at 12 and India at 7.2.

Our 12-months target price HK$10.53 is based on 10 P/E x 2011E EPS, hold rating for 10.8% upside.


Risk

1） Continuing deteriorated economy dampens car demand.
2） Competition through price-cuts and new model launch may accelerate.
3） Raw material price may go up.
4) Market acceptance of its new models.