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liz's review
Investment Sector: Emerging Markets Submitted by Liz 
5 months ago Tags: DongFeng Automobile Co. Ltd. P.R.China Add Tag |
DongFeng Automobile Co. Ltd.
Public (SHA: 600006)
Company Facts:
DongFeng Automobile Co. Ltd. (DFAC) is an automobile giant in China (Mainland). As the name states it is engaged in Automobile manufacturing business that includes auto research & development, designing, manufacture and sale of automobiles, auto-engine, and auto accessories.
The sole funded DFAC, DongFeng Automobile Company (known as formal China Second DongFeng Automobile Manufacturing Factory), was initially established in 1969. Approved by China economic and trading committee in 1998, DongFeng Automobile Co. Ltd. was officially established. The company is involved in manufacturing below mentioned of three sub-categories
1. light vehicle factory,
2. diesel engine factory,
3. and casting factory.
Outstanding quality products, sophisticate auto sale network, and stable customer resource are the key competitive advantages of DFAC. DFAC, also focuses on research & development of eco-friendly power vehicles and on 6th July 2008, in Wuhan, Hubei Province the company launched China’s first electric power light truck, which is also the first actual zero carbon dioxide emission light truck in China. However, the company declared that it will take time to further develop and adjust accordingly before undertaking mass production and starting with full-fledged actual business operations. Nevertheless, it is regarded as the milestone of Chinese self-developed electric power light truck. Earlier on, DFAC has also successfully researched & developed hydrodynamics vehicle the pure electric power sedan concept car and mixed power vehicle as well.
According to the latest news, DFAC achieved 1.05 percent increase in net profit in the first quarter of 2008, and ranked itself 14th in the industry.
<u>Financial Overview</u>
Related companies (Subsidiaries/Shareholder/collaboration), percentage of share
DongFeng Jiashiduo Oil product Co. Ltd. Shareholder
DongFeng Kangmingsi Engine Co. Ltd. Collaboration, 50%
Nissan (China) Investment Co. Ltd. Indirect shareholder 50%
DongFeng Automobile Group Co. Ltd. Indirect shareholder 50%
WuHan DongFeng Automobile Foreign Trading Co. Ltd. Sub-subsidiaries 100%
XiangFan DongyuLisheng Auto Sale Company Sub-subsidiaries 100%
Zhen Zhou Nissan Auto Sale Co. Ltd Sub-subsidiaries 100%
Chang Zhou DongFeng Auto Sale Co. Ltd. Sub-subsidiaries 90%
DongFeng (WuHan) Auto Accessories Sale and Service Co. Ltd. Sub-subsidiaries 90%
WuHan DongYu Auto Sale Co. Ltd. Sub-subsidiaries 51%
ChangZhou Automobile Co. Ltd. Subsidiaries 83.33%
DongFeng YuLong Auto Sale Co. Ltd. Subsidiaries 51%
ZhengZhou Nissan Automobile Co. Ltd. Subsidiaries 51%
DongFeng XiangFan Special Utilize Automobile Co. Ltd. Subsidiaries51%
Shanghai JiaHua Investment Co. Ltd. Subsidiaries 97%
DongFeng XiangFan Travel Vehicle Co. Ltd. Subsidiaries 90%
DongFeng XianFan Logistic Industry & Trading Co. Ltd. Subsidiaries, 98%
French Reno Motor, Shareholder 44%
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<u>Stock Health </u>
As on 11-Jul-2008
Open: 4.15 High: 4.19 Low: 4.05 Close: 4.11 Vol: 6,141,845:
<u>Key Stats & Ratios</u>
Unit 10,000 Yuan (RMB)
Project (RMB) 1st quarter 2008 2007 2006
Net Income 443549.29 1339264.59 1007124.90
Net Profit margin 14872.36 58225.86 43433.53
Margin ratios 2.99% 3.65% 4.31%
<u>Daily Stats (last one month): </u>
Date OPEN HIGH LOW COLSE VOL
11-JUL-08 4.15 4.19 4.05 4.11 6,141,845
10-JUL-08 4.20 4.33 4.17 4.17 10,542,414
9-JUL-08 4.15 4.30 4.12 4.29 14,794,007
8-JUL-08 4.13 4.16 4.01 4.10 7,656,957
7-JUL-08 3.94 4.11 3.94 4.10 9,293,836
4-JUL-08 3.91 4.00 3.87 3.94 3,862,968
3-JUL-08 3.83 4.03 3.77 3.96 5,788,372
2-JUL-08 3.85 3.91 3.81 3.89 3,371,011
1-JUL-08 3.92 3.93 3.80 3.82 3,346,360
30-JUN-08 3.89 3.95 3.80 3.91 3,008,497
27-JN-08 4.00 4.05 3.83 3.89 7,454,883
26-JUN-08 4.10 4.24 4.07 4.17 8,324,605
25-JUN-08 3.96 4.13 3.90 4.12 8,457,786
24-JUN-08 3.90 3.96 3.86 3.94 4,002,338
23-JUN-08 3.97 3.97 3.88 3.88 3,753,485
20-JUN-08 3.97 4.20 3.81 4.13 8,599,813
19-JUN-08 4.28 4.29 3.91 4.00 6,026,879
18-JUN-08 4.10 4.35 3.99 4.31 6,741,052
17-JUN-08 4.18 4.29 4.03 4.07 4,854,570
16-JUN-08 4.30 4.39 4.16 4.18 3,657,284
13-JUN-08 4.43 4.48 4.29 4.30 3,621,511
12-JUN-08 4.48 4.52 4.31 4.43 4,357,421
11-JUN-08 4.45 4.55 4.38 4.49 4,958,880
10-JUN-08 4.81 4.95 4.57 4.57 7,370,008
6-JUN-08 5.08 5.14 5.06 5.08 2,584,529
According to 24 auto companies’ sales report, car sales ( includes sedan, MPV and SUV) and at first quarter of 2008 it increased by 23.3% in China mainland market, however, in April, this speed got dramatically dropped to10.5%, which has negatively effected the performance of Auto stock cap for sure. Worth mentioning, as a result, the stock price of DFAC has been cut into half from January to April 2008.
Nevertheless, let’s look into the other possible reasons of the slow down in the pace in sales. It is not difficult to find out that the Chinese government’s new policy of shortening the May’s one-week-long holiday into 3 days might be one of the fundamental drives, as many ready-to-buy customers hold money and wait for the May holidays big promotion as it has always been in the past years, the purchasing power has been restrained because there was no official pricing promotion at retailing ends. In addition, it takes time for auto retailers to get rid of those stocks that they reserved on first quarter which was prepared for the May’s big sale, which didn't happen as expected.
Therefore, there is not much to worry about regarding the temporary slow-down in sales as the market demands in automobile sector is still strong, and potential buyers will finally make their move once the decrease in holidays and increase in fuel prices settles down in their minds. Interestingly, it is likely to be a great chance to buy-in auto sector stocks as the price of the stock, for example, DFAC, is at an ideal level and has good margin potential to grow in near future.
The increasing cost in resource and non-ferrous metal, and the pricing competition in the market place are putting immense pressure on the company’s operation. And to answer this more effective and more efficient operation module has been adopted in DFAC in order to reduce the operational costs and enhance the competitive advantages of the company. The recent report shows that company’s first half year of 2008’s net profit has shown an increment in results of RMB 8 million Yuan against the same in the previous year RMB 3.3 million Yuan.
It all is possible due to their active participation to acquire and utilize the new technology available. Its only day before yesterday, on July 12, 2008, Nissan Motor singed an agreement with DFAC to invest USD 227 million in a new auto-engine factory in ZhengZhou, located in the middle of China mainland. DFAC has 51% of the ownership while Nissan Motor has 49%. The factory will focus on manufacturing 3.0 liter diesel engine which will be used in 1 million Nissan light business vehicles by 2012.
In my opinion, short-term investors should pay close attention to DFAC stock as the price maybe will go further down in the near future, but it is likely to be stimulated by the actual capital investment of the ZhengZhou diesel engine factory project. Shareholders should hold the stock and expect a better pay-back rather than sale at this moment. Although the evaluation price of this stock is 7.25 while it is at price of 4.11 on today’s opening, investors should not lose confidence in this stock as there are potential and is predictable.
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