1、MM China Autos and 2) EV parc penetration is set to remain low at 20% by 2030, while the ICE car parc keeps growing. Further, EV makers such as Tesla are outsourcing bodyshop services to other dealers and inde- pendent repair stores, which creates extra revenue opportunities for luxury dealers. Stoc

2、k implications: We look for luxury dealers to benefit from rising aftermarket demand. Among them, Zhongsheng (0881.HK) is well positioned thanks to active efforts to extend warranty periods; Meidong (1268.HK) has high growth potential from after-sales as a younger dealer group; Yongda (3669.HK) can

3、benefit too, but to a lesser extent, because it has 15-20% sales exposure to SAIC brands, and might lose some after-sales business to SAIC-backed Che Xiang Jia. Cango (CANG.N), as a leading auto transaction service platform, could benefit by facilitating aftermarket transactions in lower-tier cities

4、. Fuyao Glass (3606.HK / 600660.SS) has only 20% market share in the China aftermarket, versus 60-70% in OEMs, and has potential to further penetrate the aftermarket. Alibaba (BABA.N) and JD (JD.O) can leverage their large user base, and direct online traffic to their offline aftermarket franchises.

5、 PICC P 2) an aging car parc, as we gauge the average vehicle age in China at five years at the end of 2019, below the US at 12 years and Japan at nine years. Luxury dealers will continue to dominate in the aftermarket: Authorized dealers have been dominating Chinas aftermarket with 50-60% market sh

6、are, we estimate; the remainder is mainly shared across small mom-and-pop repair stores. We expect luxury dealers, such as Zhongsheng and Meidong, to remain the mainstay after-sales channel for luxury cars sold, thanks to higher customer retention, an extended warranty period and greater intention t

7、o preserve used car value. Independent repair chain stores have an opportunity to shine: Meanwhile, thanks to the rapid development of e-commerce and express logistics industries, we expect independent repair chain stores, especially those backed by Internet companies and OEMs, such as Tuhu, Tmall C

8、ar (by Alibaba), Jing Che Hui (by JD) and Che Xiang Jia (by SAIC), to consolidate the industry with an 18ppt market share gain from mass-market dealers and mom-and-pop stores. EV challenge remains distant: EVs have a modularized and thus simpler structure than internal combustion engine (ICE) cars a

9、nd Industry View China Autos Meidong (1268.HK) has high growth potential for after-sales as a younger, fresher dealer group; Yongda (3669.HK) can benefit too, but to a lesser extent, as we estimate it has 15-20% sales exposure to brands under the SAIC Group such as VW and GM, and therefore might los

10、e some after-sales business to SAIC-backed Che Xiang Jia. Zhengtong (1728.HK)s weak new car sales and Baoxin (1293.HK)s stagnant net- work expansion will lead to a lower-than-peer growth in their after- sales business. Cango (CANG.N) as a leading auto transaction service platform, could benefit by f

11、acilitating aftermarket transactions such as personal accident, anti-theft, extended warranty insurance sales, in lower-tier cities. Fuyao Glass (3606.HK / 600660.SS) has only 20% market share in the China aftermarket, versus 60-70% in OEM, and has the potential to further penetrate the aftermarket

12、via subsid- iary TripleX. Cheng Shin Rubber (2105.TW) is likely to face intensi- fying competition in the aftermarket tire business, where it generates 70% of revenue, but may lose market share to Chinese local and Korean players. Alibaba (BABA.N) and JD (JD.O) can leverage their large user base, an

13、d direct online traffic to their offline aftermarket franchises. PICC P 2) extended warranty periods to retain the customer for a longer time; and 3) greater intention to preserve used car value, as the used car market develops over time. Independent repair chain stores have an opportunity to shine:

14、 Meanwhile, thanks to the rapid development of e-commerce and express logistics industries, we expect independent repair chain stores, especially those backed by Internet companies / OEMs / parts makers, such as Tuhu (on its own, invested by Tencent), Tmall Car (backed by Alibaba), Jing Che Hui (bac

15、ked by JD), Che Xiang Jia (backed by SAIC), and TyrePlus (backed by Michelin), to consolidate the industry with an 18ppt market share gain from mass-market dealers and mom-and-pop stores. In the US, independent auto parts retailers AutoZone (AZO.N) and OReilly (ORLY.O, both covered by Simeon Gutman)

16、 enjoyed 5-14% revenue CAGRs in 2000-19, and became 3x the size of the largest auto dealer group AutoNation (AN.N, covered by Armintas Sinkevicius) in the aftermarket business. We look for certain high-quality repair chain stores to outshine mom- M 8 M CompanyTickerCompetitive positioning in afterma

17、rketUpcoming catalysts Zhongsheng (OW)0881.HK l (+) Active promotion of warranty extension insurance plans will retain customers for further 3-4 years. l (+) Rapid expansion of used car business, underpinned by favor- able VAT cut, will add 5-10% extra growth to Zhongsheng in 2020. l (-) Customers f

18、or mass-market brands might switch to indepen- dent repair stores, given 8 average store age. l Mercedes-Benz new car pricing. l Used car transaction volume growth. l After-sales recovery pace in 2H20. Meidong (OW)1268.HK l (+) Younger average store age, at four years, implies Meidongs after-sales g

19、rowth can outdo other listed dealer groups. l (+) Meidong management used to focus on new car business, but will emphasize after-sales KPIs in the future, which suggests room for improvement. l (-) Customers in the lower-tier cities might be more price sensi- tive and choose cheaper alternatives. l

20、BMW new car pricing. l New store expansion progress. l After-sales recovery pace in 2H20. Yongda (OW)3669.HK l (+) Customers in the tier-1/2 cities are less price sensitive, and will stay with dealers after-sales channel for longer. l (-) Yongda sells warranty extension products as an agent, and thu

21、s salespersons might have less incentive to push for sales. l (-) Customers for mass-market brands might switch to indepen- dent repair stores, given older store age. l BMW new car pricing. l Shanghai license plate quota for 2021. l After-sales recovery pace in 2H20. Zhengtong (EW)1728.HK l (+) The

22、potential investment by the state-owned Xiamen ITG, if successful, will improve Zhengtongs working capital and restore normal operations. l (-) Zhengtongs new car volume declined in 2019, and we expect its volume to remain weak in 1H20, which will hurt after-sales growth in the future. l (-) Zhengto

23、ng didnt expand dealer network actively, and may underperform peers who have been gaining market share via acquisitions. l Ability to pay off debt installments. l BMW new car pricing. l After-sales recovery pace in 2H20. Baoxin (EW)1293.HK l (+) Baoxin has 90% revenue exposure to luxury brands, whic

24、h bodes well for its after-sales business. l (-) Baoxins after-sales gross margin declined in 2017-19, and gross profit per store level is lower than Zhongsheng and Yongda, suggesting inferior operating efficiency. l (-) Baoxin didnt expand dealer network actively, and may under- perform peers who h

25、ave been gaining market share via acquisi- tions. l BMW new car pricing. l Cost cutting efficiency. l After-sales recovery pace in 2H20. Cango (EW)CANG.N l (+) Cangos aftermarket revenue has shown resilience despite COVID-19 disruption. l (+) Cango can enjoy higher growth potential in the lower-tier

26、 cities, where insurance policy sales are not yet well penetrated. l (-) Customers in the lower-tier cities might be more price sensi- tive and competition among agents will be fierce. l Progress of launching new types of insurance products. l Number of insurance transactions Cango has facilitated.

27、M MORGAN STANLEY RESEARCH9 M Profit Shifting from New Car Market to Aftermarket 7% CAGR for aftermarket in 2020-25: We believe Chinas automo- tive aftermarket sales will grow at a 7% CAGR in the next five years, 2020-2025, outpacing flattish new car sales, and become a profit driver for auto dealers

28、 and repair stores by 2025. In China, the auto aftermarket or after-sales services are provided by authorized 4S dealers (4S stands for Sales, Service, Spare Parts and Surveys) and independent channels, and the latter include both chain stores and mom-and-pop stores. Authorized dealer stores have be

29、en domi- nating the aftermarket industry over the past decade, and we expect their dominance to continue in the coming years. Meanwhile, inde- pendent chain stores should be able to gain market share, mainly from mass-market dealers and mom-and-pop stores. Exhibit 9: China aftermarket sales to grow

30、at 7% CAGR in 2020-25E 0% 2% 4% 6% 8% 10% 12% 14% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 201820192020E2021E2022E2023E2024E2025E China auto aftermarket sales continue to grow Authorized dealerIndependent chain store Independent mom-and-pop storeChina auto aftermarket sales YoY Rmb trnYoY 1.02 1.12 1.17

31、1.26 1.35 1.44 1.53 1.62 Source: CAAM, Ministry of Transport, Morgan Stanley Research (E) estimates M 10 M Capturing profit shift: We forecast Chinas auto aftermarket rev- enue size to reach Rmb1.6trn by 2025. Although this is only 53% of new car revenue size, thanks to higher margins in the after-s

32、ales busi- ness, we estimate the profit pool from the aftermarket to be 4x that of the new car distribution market, up from 3x only in 2019. Therefore, we look for increasing revenue opportunities from the aftermarket. Exhibit 10: Aftermarket revenue size will be 53% of new car market by 2025. 3.2 3

33、.1 1.1 1.6 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 20192025E New car / After sales market size in 2025E New car revenueAfter sales revenue Rmb trn Source: CAAM, Ministry of Transport, Morgan Stanley Research (E) estimates Exhibit 12: Aftermarket demand recurs during a vehicles life cycle New Car SalesAfterm

34、arketUsed Car Sales Accessories Maintenance Quick Repair Accident Car Repair Auto FinanceAuto Finance Auto Insurance Commission Only Refurbish based on our checks of its warranty extension plan offered by the OEM, pricing for a two-year warranty extension plan (i.e., for the fourth to fifth years) i

35、s Rmb6-7K when purchasing it within one year of a new car purchase. However, to extend the warranty plan for another two years, the pricing more than doubles to Rmb15-16K, due to a higher break-down possibility. This creates revenue opportunities for not only authorized 4S dealers (usually within th

36、e insurance coverage) but also independent repair stores (usually outside the insurance coverage). Exhibit 17: Chinas average vehicle age is younger than that of the US, the UK and Japan 5.4 11.8 9.1 8.7 0 2 4 6 8 10 12 14 ChinaUSUKJapan Average vehicle age by end-2019 Source: CPCA, US Department of

37、 Transportation, UK Department for Transport, Japan Automobile Inspection as later movers into the aftermarket, they need to build a good track record of service quality over time. lChe Xiang Jia (backed by SAIC Group): Che Xiang Jia mainly serves brands under SAIC Group, namely, SAIC-VW, SAIC-GM, S

38、AIC-GM-Wuling, Roewe, Maxus, and so on, as a complement to SAICs 4S dealerships. While Che Xing Jia can enjoy SAICs cus- tomer base and supply chain resources, it has also limited its expo- sure to other car brands. lTyrePlus (backed by Michelin): TyrePlus runs a similar business model to Che Xiang

39、Jia, providing mainly Michelin-brand tire replacement. While TyrePlus has a cost advantage when pur- chasing directly from Michelin, it has also limited its exposure to customers who prefer other tire brands. Independent mom-and-pop repair stores - Negative: Mom-and-pop repair stores used to dominat

40、e the local community because they are convenient and price competitive. However, autho- rized dealers and repair chain stores are regaining market share from mom-and-pop stores, because: 1) mom-and-pop stores have poorer perception of quality guarantees compared with chain stores, as the latter are

41、 usually backed by Internet companies, OEMs, parts makers, and so on, and therefore have better branding; and 2) more car owners will resell their cars as the used car market develops, there- fore they will go for authorized channels for maintenance and repair services, to preserve the used car valu

42、e. Other aftermarket service facilitators: There are also players who do not provide after-sales services to car owners directly, but leverage their competitive advantage in the 2B supply chain, online traffic direction, and so on, to facilitate the auto aftermarket transac- tions. lBangbang (backed

43、 by PICC): Bangbang Auto Sales was founded in 2017 by PICC Property and Casualty Company (PICC P this not only provides more convenient services to Ping Ans customers, but also collects big data on car usage behavior, which can be used to optimize product offerings in the future. lAutozi (cloud plat

44、form): Autozi was founded in 2010, and is a cloud platform provider for the auto aftermarket, to facilitate spare parts procurement, logistics, supply chain financing and so on. It connects parts makers to dealers / repair stores, and makes the B2B procurement more transparent. That said, Autozi sti

45、ll needs to compete with traditional intermediaries for the supplier and customer resources. M MORGAN STANLEY RESEARCH15 M Exhibit 21: Competitive landscape in the China auto aftermarket ChannelCompanyNatureMarket positioning# storesB2B supply chain B2C parts Over 13K partner stores YYY Tmall Car (天

46、猫养车)Backed by Internet giant (Alibaba) Advantages: - Customer traffic sponsored by Tmall - Logistics synergy with Alibaba Disadvantages: - Established in 2019, shorter track record for service quality Target 600 by end-2020; Over 28K partner stores YYY Jing Che Hui (?车会)Backed by Internet giant (JD)

47、 Advantages: - Customer traffic sponsored by JD - Logistics and supply chain synergy with JD Disadvantages: - Less customer base than Tmall Target 3000 by end-2020 (1000 by end-1H20); Over 15K partner stores YYY Che Xiang Jia (车?家) Backed by OEM (SAIC) Advantages: - Authorized by OEM, for multiple b

48、rands under SAIC Group - Complement to SAICs 4S dealerships Disadvantages: - Limited customer/brand exposure 2500 by 2019YYY TyrePlus (米其林驰加)Backed by parts maker (Michelin) Advantages: - Authorized by Michelin - Price competitive over 4s dealers Disadvantages: - Little exposure to other brands than

49、 Michelin 1500 by 2019YY Independent mom- and-pop store FragmentedAdvantages: - Price competitive over 4s dealers Disadvantages: - No quality guarantee - May affect used car value upon resale Y Bangbang (邦邦汽服)Backed by insurance company (PICC) Advantages: - Self-owned B2B supply chain services to reduce intermediaries, for PICC P while its new car sales growth has been fluctuating, parts and 2) it has the capability to improve the operating efficiency