China Autos & Auto Parts Robust Sales, but Margin Pressure, Stiff Competition and Product Mix...

July 18, 2013

China Autos & Auto Parts Robust Sales, but Margin Pressure, Stiff Competition and Product Mix Downtrend

What's Changed Rating, PT and Earnings See table at right

We raise our 2013 PV sales growth forecast to 13%, but the key themes of tougher competition and the downtrend in product mix mean that OEM margins are under great pressure, especially for SUVs. We stay UW on Great Wall, upgrade to EW on Brilliance and stay EW on DFM.

Industry growing fast, with tough competition: Overall PV sales rebounded to 17% YoY growth in 1H13; we expect the momentum to continue, with 13% growth for 2013. Key themes we highlight amid this higher-growth outlook include 1) Japanese brands market share recovery, 2) SUV competition further intensifying, especially in low-end SUVs with more global brands moving the mix downward, and 3) luxury localization speeding up, with more entry luxury models to better meet the shift in customer demands.

Stock ideas: We lift our earnings forecasts for GWM, DFM, Brilliance and Minth against the backdrop of a fast-growing industry. We upgrade Brilliance to EW on solid sales growth and benefits from BMW’s rising mix of localized models. We stay UW on GWM with a cautious view of tougher competition in the low-end SUV market, and the risk of a product mix reshuffle upward. We stay EW on DFM on the Japanese JV’s recovery and PSA JV growth, balanced by margin pressure and the low CV business. We also remain EW on Minth on stable growth from oversea expansion and further client diversification. We stay OW on Zenix despite lower earnings forecasts, as we think it will be back to growth in 2014 thanks to a product mix upgrade and greater aftermarket exposure.

Summary of key changes

Ticker CompanyPrevious Rating

RatingPrevious

PTNew PT

Upside to PT

0489.HK Dongfeng EW EW 9.80 10.60 11%

1114.HK Brilliance UW EW 6.90 8.30 -9%

2333.HK Great Wall UW UW 18.40 29.00 -19%

ZX.N Zenix OW OW 4.80 3.60 44%

0425.HK Minth EW EW 12.00 14.00 2%

Company

2013E 2014E 2013E 2014E 2013E 2014E

Dongfeng 7.2 7.1 9,056 9,198 -7% -13%

Brilliance 13.1 11.3 2,753 3,188 -7% -12%

Great Wall 11.6 10.4 7,420 8,250 3% -2%

Zenix 2.9 2.4 274 324 n.a n.a

Minth 11.8 10.6 991 1,107 3% 1%

P/E MS New (NP) vs. Consensus

Based on July 17, 2013 share prices E = Morgan Stanley Research estimates, Source: Morgan Stanley Research

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.

For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Morgan Stanley Asia Limited+ Sheng Zhong

[email protected] +852 2239 7821

Frank Xu [email protected] +852 2848 8191

M O R G A N S T A N L E Y R E S E A R C H

A S I A / P A C I F I C

Industry View

In-Line

2


July 18, 2013 China Autos & Auto Parts

Summary & Conclusion

Sales in 1H13 strongly rebounded from two consecutive halves of single-digit growth: 1) SUVs led the growth, with market share rising to above 17% in 1H13. 2) The low/mid market is still the key growth driver for the overall industry, and the segment is more concentrated. 3) The small and upper mid segment is losing share.

We estimate 13% YoY sales growth for 2013, with the below key themes:

Japanese brands will recover and gain market share, with faster new product launch and a rich product pipeline.

SUV competition will get tougher, especially in the low end SUV segment with global brands quickly moving downward in terms of product mix.

Luxury localization will speed up in new brands and models, to move the product mix down to more entry level models to better meet customer demands.

Stock Ideas:

Brilliance: We upgrade to EW from UW as the stock price has corrected by 15%, plus we like the solid BMW JV localized models growth in 1H13. We believe the Brilliance BMW JV will continue to benefit from the luxury localization trend, but the next catalyst could be new model localization in 2015. We raise our PT from HKD6.90 to HKD8.30, representing 12.0x 2013e and 10.3x 2014e P/E, with limited downside.

Dongfeng: We remain EW, but lift 2013-14 earnings forecasts by 21% and 18%. Our PT is HK$10.6, implying 8.0x/7.8x 2013e/2014e P/E. We believe Dongfeng will benefit from the Japanese JVs’ recovery and PSA growth. However, we are cautious about the company’s low profit margin, and are 7%/13% below consensus on 2013-14 earnings.

Great Wall: We are raising our PT to HK$29.0 on a higher earnings outlook, but we remain UW because of our cautious view on much tougher competition in the SUV market, especially in low end SUVs as more global brands move their product mix downwards quickly in 2H13 and 2014. Besides, Great Wall’s aggressive product upgrade and mix reshuffle looks risky to us. The stock is trading at 11.6 2013e, 10.4x 2014e P/E and 3.1x 2013e P/B, not attractive enough to buy.

Minth: We remain EW, but lift our earnings forecasts by 8%/6%/7% for 2013-15. We believe Minth’s stable growth will be ensured by its improving penetration in overseas markets and more diversified client mix. Also, its strong balance sheet also guarantees Minth strong capabilities in terms of new product R&D. Our new PT of HKD14.00, implying 12.0x 2013e, 10.8x 2014e P/E and 1.6x 2013e P/B, provides limited upside potential.

Zenix: We keep our OW rating but cut our PT to US$3.6 with 37%/33% lower earnings forecasts for 2013-14. The commercial vehicle market, especially for heavy duty trucks, is in a down-cycle, which hurts Zenix’s earnings. We expect the company to be back to growth in 2014 with an ongoing product mix upgrade and growing business exposure to the aftermarket. Current valuations are 2.9x 2013e, 2.4x 2014e P/E and 0.3x P/B.

Exhibit 1

Summary of Key Earnings Changes

1H13 2H13E 2013E 2014E 2013E 2014E 1H13 2H13E 2013E 2014E 2013E 2014E

Dongfeng 66,017 76,958 142,975 151,184 15% 6% 4,129 4,927 9,056 9,198 0% 2%

Brilliance 2,976 3,218 6,194 6,254 1% 1% 1,342 1,410 2,753 3,188 20% 16%

Great Wall 26,020 28,184 54,204 67,881 26% 25% 3,745 3,675 7,420 8,250 30% 11%

Zenix 2,131 1,630 3,761 4,176 -24% 18% 138 137 274 324 -24% 18%

Minth 2,417 2,566 4,983 6,016 15% 21% 521 471 991 1,107 18% 12%

Growthmn. RMB

Revenue Growth Net Profit

E = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research

3



1H2013 Review: Strong Recovery Led by Booming SUV Growth

Exhibit 2

Mass Market: 1H13 Growth Rebound to 16% YoY

27% 24%17%

-3%

20%

79%

51%

23%

10% 7%11% 11%

17%

0

2,000

4,000

6,000

8,000

1H-07

2H-07

1H-08

2H-08

1H-09

2H-09

1H-10

2H-10

1H-11

2H-11

1H-12

2H-12

1H-13

'000 Units

PV Sales YoY

Source: CAM, Morgan Stanley Research

Exhibit 3

1H13 YoY Growth: SUV Led PV Market Growth

-12.9%

1.3%

19.5%

5.9%

15.9%

36.0%

48.5%

34.3%

44.7%

Low Small (A00)

Upper Small (A0)

Low Middle (A)

Upper Middle (B)

Luxury

MPV

Low SUV

Upper SUV

Luxury SUV


Exhibit 4

Dealer Inventory Is Healthy in 1H13

4844

39 4249

60

38 4143

Total Brands Global Brands Local brands

Days

2H12 1H13 Jun-13 Healthy Dealer Inventory days

Healthy Dealer Inventory Days = One Month


Mass market sales rose strongly by 17% in 1H13: China PV sales rebounded to mid-teen growth in 1H13, marking the best half-year results since 2010. The market size reached 7.7mn units.

SUV led the growth: SUVs continue to be the leading growth segment in 1H13. SUV sales boomed by 40% YoY to over 1.3mn units, accounting for 17.3% of the total PV market, versus 14.8% in 2012. Almost all the market share winners this year were on the back of new/successful SUV models: CS35 for Chang’An, Haval for Great Wall, 3008 for PSA, Kuga and Ecosport for Ford.

Low/mid market maintained strong growth and is more concentrated: The low/mid segment achieved ~20% growth even on a high base in 1H13, and contributed half of overall PV growth. All the top 10 best selling models are from global brands, including VW, GM, Hyundai, Nissan and Ford, which contributed 37% of the low/mid segment in 1H13, improving from 33% in 2012 – segment concentration further improved. Fast growth in the low/mid segment is mainly from: 1) booming demand from lower tier cities and 2) postponed demand from past two years, in our view.

Small and upper mid segment losing share: 1) The small segment’s market share is shrinking, largely owing to the less attractive models available in the market and downward pressure on prices from the low/mid segment; 2) the upper/mid segment’s market share is squeezed by pressure from the SUV market, as well as the luxury market moving downward in terms of product mix and price range.

Inventory is healthy in 1H13: Dealers’ inventory rose slightly in June to 43 days versus 41 days in May. However, compared with last year, 1H13 inventory stayed at a more reasonable level of around 40 days on average for both global and local brands.

4



2013 Outlook: Fast Volume Growth, Tougher Competition

Exhibit 5

1H13 PV Monthly Sales: Growth Slowing Down Slightly Since March

56.2%

-5.5%

16.5%14.6%11.7%11.6%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

'000 Units

2012 2013 YoY


Exhibit 6

2013 PV Sales Forecast: Adjust to 13% YoY Growth

6.8%

47.8%

34.8%

8.6% 11.0% 13.0%

02468

1012141618

2008 2009 2010 2011 2012 2013E

Millio

ns

0%

10%

20%

30%

40%

50%

60%

PV Sales YoY %

E = Morgan Stanley Research estimates; Source: CAM Morgan Stanley Research

Exhibit 7

1H and 2H % of Year Total: 2H Stronger Than 1H Historically, but We Forecast Flat 1H and 2H in 2013

0%

10%

20%

30%

40%

50%

60%

70%

2008 2009 2010 2011 2012 2013

1H 2H

Source: CAM, Morgan Stanley Research estimates for 2013 2H

Overall PV industry sales will grow 13% YoY in 2013 in our view: After a strong 1H13, we adjust full-year growth to 13%, implying 9% YoY growth in 2H13. Seasonally, 2H is stronger than 1H, however we expect sales in 2013 to be equal in 1H and 2H, reflecting the impact of a slower macro economy and tighter car financing.

Key themes of PV industry in 2H13 and 2014:

1. Japanese brands will recover and gain market share thanks to 1) faster new product launches with a rich pipeline (see Exhibit 8), 2) vehicles tailored to the China market and the synchronized global launch of products such as the Honda Crider and the coming new Accord, and 3) better leveraging of JVs’ resources in China, for example, by fulfilling product portfolios with the same segment models but differentiating in positioning, pricing and so on to maximize sales.

2. SUV competition is getting tougher: The SUV market expanded very quickly in 1H13, by 40% YoY, but we highlight that almost all the players’ shares in SUVs are being diluted, except for those that launched brand new SUV models, such as Ford. With more SUV models to be launched in 2H13 and 2014, we believe competition will be tougher, especially as lots of global brands plan to launch lower priced SUVs in 2014.

3. We expect luxury brands’ localization to speed up in 2013, with more new models, especially entry luxury models, being introduced. Local luxury cars will come from not only the G3 but also new makers such as Volvo, JLR, Cadillac and Infiniti. The luxury brands’ shift in product mix to more entry level models will better meet customer demands.

Implications for stocks: We prefer the OEMs, which stand to benefit from the luxury localization trend, but given the relatively slow luxury market and capacity limitations till the end of this year, and BMW’s new localization model in 2015, we upgrade Brilliance to EW from UW.

5



Exhibit 8

Japanese Brands: Strong New Models Pipeline to Kick Off Market Share Recovery

New Teana

2015E2014E2013E

New FitCrider

New X-Trail

New Yaris

New City

New Qashqai

New Accord

Jade

New Spirior

New Livina

Murano Entry Level

New Vios

New Highlander

New RAV 4

New Corolla

Source: Morgan Stanley Research based on Company Data Exhibit 9

Low SUV: Top Players’ Shares Were Being Diluted in 1H13 versus CY2012

0%

5%

10%

15%

20%

25%

30%

35%

40%

Gre

at W

all

Chery

BYD

Zotye

Auto

Zhon

ghua

Lifan

Auto

Huatai

Haim

a Aut

o

Hunan

Cha

ngfe

ng

Huang

hai A

uto

Y2012 1H2013


Exhibit 10

Luxury Cars: More Entry Level Models in the Localization Pipeline Will Drive Growth

A3 Sedan

Sedan

SUV

E Class LWB

3 Series SWB

Q3

Evoque

QX50L

German 3 Non-G3

GLA

B Class

Free Lander

XC60

S60

XF

Q50

ATSXTS

Source: Morgan Stanley Research Exhibit 11

Upper SUV: Most Top Players Losing Share in 1H13 versus CY2012

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

SAIC-VW BAICHyundai

DFHonda DF-Nissan DF YuedaKia

FAW-Toyota

GZ-Toyota

Y2012 1H2013


Exhibit 12

2013-2014 Key SUV Model Launch

Segment Brand Model Time Segment Brand ModelLow SUV Ford Ecosport Mar. Low SUV PSA 2008

Great Wall H2 2H VW SVW SUVJAC S5 Mar. GAC Linian SUV

Heyue SUV 2H Honda Fit SUVGeely SX7 Mar. Chevrolet Trax

EX8 2H BYD S7FAW Besturn X80 May Kia Small SUVLotus T5 2H Haima S5Zotye T200 2H FAW Tianjin Small SUVVenucia Venucia SUV Qoros Qoros 3 Cross

Upper SUV Ford Kuga Jan Upper SUV Ford EdgePSA 3008 Jan BAIC B90Audi Q3 Mar. Great Wall H8Hyundai New Tucson Mar. Fiat FreemontMazda CX-5 Jun. Jeep Compass

CX-7 2H PatriotSkoda Yeti Jun.Toyota New RAV4 2HMitsubishi Pajero Sport

2013 2014

Source: Company Data, Morgan Stanley Research

6



Dongfeng Motor (0489.HK, Equal-weight, HK$9.59, PT HK$10.60)

We remain EW but lift our earnings estimates and PT on a more positive outlook for Japanese JVs’ recovery plus PSA’s outperformance: We raise our 2013-14 earnings forecasts by 21% and 18%, implying growth at low single digits in the next two years, compared our previous estimate of a 10% YoY decline. We expect Dongfeng’s Japanese JVs to recover from the 2H12 low base with some new product launches. In addition, negative sentiment about Japanese cars due to the island issue should further fade, 12 months after it began. However, we are still 7% / 13% below consensus on 2013-14 and remain EW on the stock as the cheap valuation is justified given the unattractive growth outlook.

1H13 results preview: We expect net profit of Rmb4.13bn for 1H13, down 23% YoY but rebounding by 11% HoH. This implies a YoY flattish 2Q after earnings hit bottom by declining 47% YoY in 1Q. Our 1H13 forecast has factored in these points: 1) PV growth below the market but recovered from 2H12 low: 1H13 PV sales volume will rise 3% YoY (versus the overall PV market +17% YoY) and 17% HoH to 970k units, we estimate. The Nissan and Honda JVs dragged down growth by declining 13% and 7% YoY, respectively. PSA has outperformed thanks to strong new models; the Citroen C4L and Peugeot 3008 contributed most of the incremental volume. 2) Margin stays low: We estimate DF’s GP margin hit bottom in 2H12, but recovery will be long and erratic. We project FY13 to remain low at around 19% owing to a stale product mix. 3) Local brands and CV under pressure: Company guidance showed a negative outlook for local PV brands and the CV segment. Fengshen will continue to make over a 900mn Rmb loss this year though sales volume will grow 47% YoY to 89k units, in our view, but the breakeven point would be as high as 150-200k units.

2H and FY13 outlook: We estimate DF will see 32% earnings YoY growth in 2H13 as Japanese JVs drive the recovery. We think PV volume will grow 27% in 2H and estimate the full year at 2.02mn units, slightly below company guidance of 2.05mn. We expect limited downside to profitability and we are positive on the volume and market share recovery. However, we remain cautious on earnings growth as DF’s low level of profit per unit will continue. We estimate full-year earnings will largely remain YoY flat at 9.06bn Rmb, 7% below consensus expectations.

Exhibit 13

Dongfeng Half-Year Net Profit Forecast: Slow Recovery After 2H12 Bottom

-23%

32%27%

-19%4%

149% 155%

21%

-10%4%

-8% -19%

0

1,500

3,000

4,500

6,000

7,500

1H0

8

2H0

8

1H0

9

2H0

9

1H1

0

2H1

0

1H1

1

2H1

1

1H1

2

2H1

2

1H13

E

2H13

E

Rmb mn

Net profit YoY

Source: Company data, Morgan Stanley Research; E = Morgan Stanley Research estimates. Exhibit 14

Dongfeng Half-Year Margin Outlook: Stay Low in 2013 Given Lower Product Mix

17.9%

19.9%

22.7%

20.3% 19.9% 20.2% 19.6% 18.9% 19.0%

8.39%

5.9%

9.4%

13.9%

9.8%

12.4%

9.6%11.1%

9.0% 8.9% 9.2%

6.52% 6.6% 7.0%

10.6%

7.4%9.2%

6.8%7.9%

6.6% 6.3% 6.4%

17.3%16.3%

18.8%

8.9%

4.5%

1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13E 2H13E

Gross margin Operating margin Net margin

Source: Company data, Morgan Stanley Research; E = Morgan Stanley Research estimates. Exhibit 15

Dongfeng: Sales Volume Has Recovered Sequentially, but Profit Per Unit Hit Bottom in 1Q13

263

343389

426472

501467

511555

511 533581 590 586

497 493

565

642

3.2

5.1 5.2

3.8

7.3

4.5 4.65.2

5.9

4.7

3.7

4.6 4.5

3.54.0

2.5

4.2

6.0

(50)

100

250

400

550

700

1Q0

9

2Q0

9

3Q0

9

4Q0

9

1Q1

0

2Q1

0

3Q1

0

4Q1

0

1Q1

1

2Q1

1

3Q1

1

4Q1

1

1Q1

2

2Q1

2

3Q1

2

4Q1

2

1Q1

3

2Q

13E

k units

0.0

2.0

4.0

6.0

8.0

10.0k Rmb

Sales Volume (LHS) Net Profit per Unit (RHS)

Source: Company data, Morgan Stanley Research; E = Morgan Stanley Research estimates.

7



Exhibit 16

Dongfeng: Margin Trend

7.2%9.2%

11.9% 10.9% 10.1% 9.1% 8.7% 8.6%

5.6%6.8%

9.0% 8.0% 7.3% 6.3% 6.1% 6.0%

18.7%18.8%18.9%19.2%20.1%21.5%

19.1%16.8%

0

30

60

90

120

150

180

2008 2009 2010 2011 2012 2013E 2014E 2015E

Rmb bn

Revenue Gross margin

Operating margin Normalized net Margin

Source: Company data Morgan Stanley Research, E = Morgan Stanley Research estimates.

Exhibit 17

Dongfeng: Net Profit Forecast

3,955 6,250 10,981 10,481 9,092 9,056 9,198 9,413

58.0%

2.3%1.6%-0.4%-13.3%

-4.6%

75.7%

21.7%

2008 2009 2010 2011 2012 2013E 2014E 2015E

Rmb Mn

Normalized net profit YoY

Source: Company Data, Morgan Stanley Research, E = Morgan Stanley Research estimates

Exhibit 18

Dongfeng: Semi Annual Earnings Forecast

Rmb Mn 1H12 2H12 1H13E 2H13E 1H13E 2H13E 1H13E 2H13E 2012 2013E YoY

Revenue 68,059 55,977 66,017 76,958 -3% 37% 18% 17% 124,036 142,975 15.3%Cost of sales (54,720) (45,440) (53,540) (62,360) -2% 37% 18% 16% (100,160) (115,900) 15.7%Gross profit 13,339 10,537 12,477 14,598 -6% 39% 18% 17% 23,876 27,076 13.4%Other income 1,566 1,563 1,409 1,746 -10% 12% -10% 24% 3,129 3,155 0.8%Distribution costs (3,063) (3,653) (3,697) (4,310) 21% 18% 1% 17% (6,716) (8,007) 19.2%Administrative expenses (1,831) (2,106) (2,047) (2,327) 12% 11% -3% 14% (3,937) (4,374) 11.1%Other operating expenses (2,449) (1,323) (2,245) (2,652) -8% 100% 70% 18% (3,772) (4,896) 29.8%Operating profit 7,562 5,018 5,899 7,055 -22% 41% 18% 20% 12,580 12,954 3.0%Net finance costs (158) (130) (160) (93) 1% -29% 23% -42% (288) (252) -12.4%Income from associates 232 174 186 100 -20% -42% 7% -46% 406 286 -29.6%Profit before tax and MI 7,636 5,062 5,925 7,063 -22% 40% 17% 19% 12,698 12,988 2.3%

Income tax expense, net (1,872) (1,047) (1,481) (1,766) -21% 69% 41% 19% (2,919) (3,247) 11.2%Net profit after tax 5,764 4,015 4,443 5,297 -23% 32% 11% 19% 9,779 9,741 -0.4%

Minority interests (393) (294) (314) (370) -20% 26% 7% 18% (687) (684) -0.4%

Net profit 5,371 3,721 4,129 4,927 -23% 32% 11% 19% 9,092 9,056 -0.4%

Recurrent Net Profit 5,371 3,721 4,129 4,927 -23% 32% 11% 19% 9,092 9,056 -0.4%

EPS (Rmb) 0.62 0.43 0.48 0.57 -23% 32% 11% 19% 1.06 1.05 -0.4%

Gross margin 19.6% 18.8% 18.9% 19.0% -0.7% 0.1% 0.1% 0.1% 19.2% 18.9% -0.3%Other income % of revenue 2.3% 2.8% 2.1% 2.3% -0.2% -0.5% -0.7% 0.1% 2.5% 2.2% -0.3%Distribution costs % of revenue 4.5% 6.5% 5.6% 5.6% 1.1% -0.9% -0.9% 0.0% 5.4% 5.6% 0.2%

Admin expenses % of revenue 2.7% 3.8% 3.1% 3.0% 0.4% -0.7% -0.7% -0.1% 3.2% 3.1% -0.1%

Other expenses % revenue 3.6% 2.4% 3.4% 3.4% -0.2% 1.1% 1.0% 0.0% 3.0% 3.4% 0.4%

Operating margin 11.1% 9.0% 8.9% 9.2% -2.2% 0.2% 0.0% 0.2% 10.1% 9.1% -1.1%

Net finance costs 0.2% 0.2% 0.2% 0.1% 0.0% -0.1% 0.0% -0.1% 0.2% 0.2% -0.1%

Effective tax rate 24.5% 20.7% 25.0% 25.0% 0.5% 4.3% 4.3% 0.0% 23.0% 25.0% 2.0%

Net margin 7.9% 6.6% 6.3% 6.4% -1.6% -0.2% -0.4% 0.1% 7.3% 6.3% -1.0%

YoY HoH

Source: Company data, Morgan Stanley Research; E = Morgan Stanley Research estimates.

8



Exhibit 19

Dongfeng: Financial Summary Income Statement Financial Analysis(Rmb Mn) 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E

Revenue 124,036 142,975 151,184 156,139 Growth (%)

Cost of sales (100,160) (115,900) (122,710) (126,940) Turnover -5.6% 15.3% 5.7% 3.3%

Gross profit 23,876 27,076 28,474 29,199 Operating Profit -12.5% 3.0% 1.1% 2.0%

Other income 3,129 3,155 3,409 3,630 Net Profit -13.3% -0.4% 1.6% 2.3%

Distribution costs (6,716) (8,007) (8,845) (9,670)

Administrative expenses (3,937) (4,374) (4,894) (5,531) Margins (%)

Other operating expenses (3,772) (4,896) (5,046) (4,268) Gross Margin 19.2% 18.9% 18.8% 18.7%

Operating profit 12,580 12,954 13,098 13,361 Operating Margin 10.1% 9.1% 8.7% 8.6%

Finance costs (288) (252) (209) (174) Net Margin 7.3% 6.3% 6.1% 6.0%

Income from associates 406 286 302 312

Profit before tax and MI 12,698 12,988 13,191 13,499 Efficiency

Income tax expense, net (2,919) (3,247) (3,298) (3,375) Asset Turnover (X) 1.08 1.10 1.08 1.04

Minority interests (687) (684) (695) (711) Inventory Days 41 41 41 41

Net profit 9,092 9,056 9,198 9,413 Receivables Days 60 60 60 60

EPS (Rmb) 1.06 1.05 1.07 1.09 Payable Days 103 103 103 103

MW EPS (Rmb) 1.06 1.05 1.07 1.09

Return (%)

Balance Sheet ROA 7.9% 7.0% 6.6% 6.3%

(Rmb Mn) 2012 2013E 2014E 2015E ROE 16.9% 14.7% 13.2% 12.1%

Non-current assets 40,419 45,466 49,742 53,515

PPE 25,823 29,153 31,903 34,085 Gearing (X)

Lease prepayments 2,468 3,342 4,216 5,090 Asset/Equity 2.1 2.1 2.0 1.9

Intangible assets 3,602 3,879 4,091 4,231 Total Liabilities/Equity 1.1 1.0 0.9 0.9

Investments in associates 1,578 1,578 1,578 1,578 Total IB Debt/Equity 0.1 0.1 0.1 0.1

Available-for-sale financial assets 338 373 412 456 Net Interest Coverage (17.8) (27.2) (22.5) (19.3)

Other long-term assets 6,610 7,141 7,542 8,075

Current assets 74,391 83,961 90,588 96,676 Valuations (X)

Inventories 11,386 13,175 13,949 14,430 P/E 9.1 7.2 7.1 6.9

Trade and bills receivables 20,554 23,692 25,053 25,874 P/BV 1.5 1.1 0.9 0.8

Prepay, deposits and others 7,899 9,105 9,628 9,943 EV/EBITDA 6.3 5.5 5.0 4.5

Due from jointly-controlled entities 1,403 1,617 1,710 1,766 Dividend Yield (%) 1.1% 1.1% 1.1% 1.2%

Other financial assets 0 0 0 0

Cash and cash equivalents 33,032 36,371 40,248 44,662

Other current assets 117 0 0 0 Financial AnalysisCurrent liabilities 55,064 61,454 63,959 65,232 (Rmb Mn) 2012 2013E 2014E 2015E

Trade payables 28,303 32,751 34,675 35,871 Cash fr oper. activi 307 13,237 13,588 14,055

Other payables 17,473 20,202 21,382 22,115 Cash fr inv. activi (2,918) (7,294) (7,312) (7,145)

Provisions 1,738 2,042 2,346 2,650 Cash fr fin. activities (4,882) (2,604) (2,399) (2,496)

Current portion of borrowings 6,391 5,301 4,396 3,437 Inc in cash & bank equival (7,493) 3,339 3,877 4,414

Other current liabilities 1,159 1,159 1,159 1,159 Cash & bank equival b/f 31,381 23,888 27,227 31,104

Non-current liabilities 2,113 1,886 1,699 1,499 Cash & bank equival c/f 23,888 27,227 31,104 35,518

Interest-bearing borrowings 1,328 1,101 914 714

Deferred income tax liabilities 94 94 94 94 E = Morgan Stanley Research estimates

Other long-term liabilities 691 691 691 691 Source: Company data, Morgan Stanley Research

Minority interests 3,715 4,399 5,094 5,806

Shareholders' equity 53,918 61,687 69,579 77,654

Registered capital 8,616 8,616 8,616 8,616

Reserves 13,323 13,323 13,323 13,323Retained profits 31,979 39,748 47,640 55,715 Source: Company Data, Morgan Stanley Research

9



Exhibit 20

Dongfeng: Earnings Revisions

(Rmb mn) YoY Chng YoY Chng YoYActual Old New % Old New %

EPS (Rmb) 1.06 -13.3% 0.87 1.05 20.6% -0.4% 0.90 1.07 18.2% 1.6%

Volume (Unit)Passenger Vehicle 1,739,311 5.2% 1,792,636 2,022,738 12.8% 16.3% 1,839,311 2,101,845 14.3% 3.9%Commcercial Vehicle 415,946 -21.0% 424,589 427,254 0.6% 2.7% 406,151 408,721 0.6% -4.3%Total vehicle 2,155,257 -1.1% 2,217,225 2,449,992 10.5% 13.7% 2,245,462 2,510,566 11.8% 2.5%

Revenue (Rmb mn)PV segment 96,042 1.2% 101,177 113,171 11.9% 17.8% 106,655 121,251 13.7% 7.1%CV segment 26,831 -24.4% 29,247 28,467 -2.7% 6.1% 27,802 27,057 -2.7% -5.0%

Total 124,036 -5.6% 131,869 142,975 8.4% 15.3% 137,564 151,184 9.9% 5.7%

Gross Profit (Rmb mn)PV segment 19,958 -4.8% 18,935 22,885 20.9% 14.7% 19,764 23,778 20.3% 3.9%CV segment 3,450 -32.2% 3,688 3,595 -2.5% 4.2% 3,503 3,414 -2.5% -5.0%

Total 23,925 -9.9% 22,871 27,076 18.4% 13.2% 23,799 28,474 19.6% 5.2%

Gross margin PV segment 20.8% -1.3% 18.7% 20.2% 1.5% -0.6% 18.5% 19.6% 1.1% -0.6%CV segment 12.9% -1.5% 12.6% 12.6% 0.0% -0.2% 12.6% 12.6% 0.0% 0.0%

Total 19.3% -0.9% 17.3% 18.9% 1.6% -0.4% 17.3% 18.8% 1.5% -0.1%

Operating Profit (Rmb mn) PV segment 11,196 -9.7% 9,536 11,896 24.8% 6.3% 9,924 12,109 22.0% 1.8%CV segment 1,246 -44.8% 1,363 1,328 -2.5% 6.6% 1,292 1,259 -2.6% -5.2%

Total 12,580 -12.5% 10,679 12,954 21.3% 3.0% 10,996 13,098 19.1% 1.1%

OP margin PV segment 11.7% -1.4% 9.4% 10.5% 1.1% -1.1% 9.3% 10.0% 0.7% -0.5%CV segment 4.6% -1.7% 4.7% 4.7% 0.0% 0.0% 4.6% 4.7% 0.0% 0.0%

Total 10.1% -0.8% 8.1% 9.1% 1.0% -1.1% 8.0% 8.7% 0.7% -0.4%

Net Profit (Rmb mn) 9,092 -13.3% 7,512 9,056 20.6% -0.4% 7,784 9,198 18.2% 1.6%

Net margin 7.3% -0.6% 5.7% 6.3% 0.6% -1.0% 5.7% 6.1% 0.4% -0.3%

2014E2013E2012

Source: Company data, Morgan Stanley Research, E = Morgan Stanley Research estimates Exhibit 21

Dongfeng: Residual Income Valuation (Rmb mn) BEYOND EXPLICIT FORECAST (TRANSITION)

F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022e F2023e

Shareholders' Equity (BOP) 61,687 69,579 77,654 78,327 81,313 84,329 87,373 90,442 93,533 96,706 105,943

Net Income 9,056 9,198 9,413 10,033 10,112 10,402 10,697 10,996 11,298 11,603 11,803

Return on Equity 14.7% 13.2% 12.1% 12.8% 12.4% 12.3% 12.2% 12.2% 12.1% 12.0% 11.1%

Residual Income 3,462 2,772 2,157 1,969 1,978 1,958 1,939 1,922 1,905 1,890 1,760

Beginning Shareholders' Equity (BOP 2013) 53,918 Risk Free Rate 3.3%

Sum of PVRI (BOP 2013) 10,303 Beta 113.0%

Intrinsic Value of Equity (Rmb mn) (BOP 2013) 64,221

Equity Risk Premium

4.5%

No. of Shares ('mn) 8,616 China Risk Premium 2.0%

IV Per Share (12 Month), Ex. Div 10.6 Cost of Equity 10.4%

EXPLICIT FORECAST

Source: Company data, Morgan Stanley Research; e = Morgan Stanley Research estimates.

10



Risk-Reward Snapshot: Dongfeng (0489.HK, HK$9.59 EW, TP HK$10.60)

Deteriorating Profitability in the Price, Recovering Japanese Brands Limit the Downside

WARNINGDONOTEDIT_RRS4RL~0489.HK~

HK$10.60 (+11%)HK$ 9.59

HK$6.60 (-31%)

HK$15.00 (+56%)

0

2

4

6

8

10

12

14

16

18

Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

HK$

Price Target (Jul-14) Historical Stock Performance Current Stock Price

Price Target HK$10.60 Derived from base-case Residual Income scenario.

Bull Case HK$15.00

10.0x Bull Case 13e EPS

Growth to recover on Japanese JVs: Dongfeng’s two Japanese JVs quickly recover from the boycott of Japanese cars. However, strong volume and market share expansion will come from lower product mix and with low-quality earnings growth.

Base Case HK$10.60

8.0x Base Case 13e EPS

Growth capped by weakening new model launches, fading high-margin JVs: Dongfeng’s Japanese JVs start to recover market share, but profitability remains low. Earnings decline will be limited compared to our previous estimate but sluggish growth outlook limits more premium on multiples.

Bear Case HK$6.60

6.0x Bear Case 13e EPS

Sluggish sales in 2013-14e on collapse in demand: Worse-than-expected sales across the board as overall industry demand collapses in 2013 with a sharp cut in ASP amid market share fights.

Bear to Bull: Profitability of PV Business Is the Key Driver

-2.30

-0.80

-0.90

2.900.50

1.00

Bear 6.60

Target 10.60

Bull 15.00

Current9.59

Better/Weaker PV Sales Better/Worse CV SalesMore/Less Cost

Reduction

All values are in HK$ Source: Thomson Reuters, Morgan Stanley Research

Investment Thesis

We expect DFM’s profitability to stay low in 2013-14: earnings will remain at single-digit growth though volume will recover.

We see low-quality growth in 2013-14 as profit-rich JVs with Nissan and Honda start to fade.

We also project more margin contraction on tougher competition / pricing discounts due to aggressive capacity expansion in auto industry.

Risk-reward caps upside given decelerating growth but current valuation is not demanding, in our view.

Key Value Drivers

Volume growth especially for Japanese JVs.

Increasing localization to offset raw materials cost pressure.

Faster ramp-up in loss-making own-brand business.

Potential Catalysts

Localization of Infiniti may help upgrade the product mix.

Risks to Our Price Target

Upside – 1) Faster-than-expected recovery from Japanese brands. 2) Stronger-than-expected market reaction to new Japanese model launches;

Downside –1) Tougher-than-expected PV market competition leads to share loss, especially in the SUV segment. 2) Lower utilization drives down profitability.

11



Brilliance China (1114.HK, HK$9.10, Equal-weight, PT HK$8.30)

We raise our earnings forecasts and lift our PT to HK$8.30. We upgrade to Equal-weight on normalizing valuation and limited downside: We expect the Brilliance JV with BMW to grow fast amid the trend of more private purchases of low and mid luxury vehicles. We think the 15% stock price correction in 2Q13 plus solid BMW sales volume growth in 1H13 make the current valuation less risky. Raising our PT from HKD6.90 to HKD8.30 implies 12.0x 2013e and 10.3x 2014e P14 net profit /E, with limited downside. We lift our 2013- forecasts by 9% / 9% to Rmb2.75 / Rmb3.19bn, implying a 17% 2013-15 CAGR. But we think the BWM JV’s profitability will still be on a downward trend given that 1) no new localization model in the next 18 months leads to limited growth power, and 2) the outlook for the new local brand Zinoro is unclear: returns on the big R&D investment on the brand remain invisible in the next two years. We are 7% / 12% below consensus for 2013/14.

1H13 results preview: We expect Brilliance’s 1H13 earnings to rise slightly by 1% YoY but rebound 39% HoH on a low 2H12 base to Rmb1.34bn. Our forecast has factored in: 1) Solid BMW JV sales momentum: We think 1H13 Brilliance-BMW sales volume will rise 26% YoY and 28% HoH to over 100k units. The product mix is good in 1H13, as the SWB 3 Series did not contribute sales until May and growth was mainly driven by the 5 Series: +33% YoY and 11% HoH. 2) Margins are under pressure given that the big R&D investment in Zinoro continues. We expect Rmb1.5bn R&D expenditure from the BMW JV on the new local brand Zinoro this year, 2.2% of revenue. Thus, we estimate the BMW JV’s net margin to drop by 2.3ppt to 7.8% in 1H13.

2H and FY13 outlook: We expect a lower product mix from the BMW JV in 2H13 as SWB 3 Series volume will pick up. We believe more entry-level models will accelerate volume growth in 2H13 to 35% YoY, and revenue to rise 20% YoY. For the full year 2013, we estimate 210k units in total, 5% higher than company guidance of 200k units. After factoring in the Rmb1.5bn expenditure on Zinoro, we estimate 2H13 net profit to grow 46% YoY and 5% HoH due to a low 2012 base. We see limited downside risk to Brilliance’s earnings given solid volume growth on current models and clear investment projections on Zinoro. However, for further upside we believe the company needs new BMW model localization plans and more visibility on Zinoro’s first model launch. (See Exhibit 23 for the stock price versus BMW’s localization plan.)

Exhibit 22

Brilliance: We Expect Earnings Growth to Slow

2,301

3,188

1,271

1,812

2,753

3,782

43%

27%

20%16%

19%

2010 2011 2012 2013E 2014E 2015E

Rmb: mn

Net Profit YoY Changes

E = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research Exhibit 23

Brilliance BMW: Further Upside Needs More Localization Plans for BMW Models

10,000

14,000

18,000

22,000

26,000

30,000

Jan

-08

Ap

r-0

8

Jul-0

8

Oct

-08

Jan

-09

Ap

r-0

9

Jul-0

9

Oct

-09

Jan

-10

Ap

r-1

0

Jul-1

0

Oct

-10

Jan

-11

Ap

r-1

1

Jul-1

1

Oct

-11

Jan

-12

Ap

r-1

2

Jul-1

2

Oct

-12

Jan

-13

Ap

r-1

3

0.00

2.00

4.00

6.00

8.00

10.00

12.00

HSI-HK Brilliance

New 3 Series

X1

5 Series Li

Dispose of Zhonghua

Source: Company data, Morgan Stanley Research Exhibit 24

Brilliance BMW: 3 Series and X1 contribute more to Sales and will mainly Drive Growth in 2013

-

15,000

30,000

45,000

60,000

75,000

1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13E2H13E

Unit

III Series V Series X1

E = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research

12



Exhibit 25

Brilliance: Financial Summary

Income statement Balance SheetRmb Mn 2012A 2013E 2014E 2015E Rmb Mn 2012A 2013E 2014E 2015ETurnover 5,916 6,194 6,254 6,316 Non-current assets 9,640 12,735 16,266 20,371 Cost of sales (5,220) (5,512) (5,566) (5,621) Fixed asset, net 1,442 1,482 1,524 1,562 Gross profit 696 681 688 695 Land lease prepayments 63 61 60 58 Other revenues 50 62 63 63 Intangible asset 362 523 661 778 SG&A (878) (919) (928) (937) Construction in progress 304 323 337 347 Profit from operations (131) (176) (178) (179) Investments in JCEs 6,236 9,089 12,296 15,870 Interest income 74 57 70 60 Investments in associates 604 625 757 1,124 Interest expense (174) (159) (211) (210) Deposits for an investment 600 600 600 600 Profit from Asso Co & JCEs 92 101 212 446 Other long term assets 11 11 11 11 Profit from BMW JV 2,434 2,853 3,206 3,574 LT advances to an affilicated Co. 20 20 20 20 Profit before tax 2,295 2,676 3,100 3,691 Taxation (58) - - - Current Assets 6,417 6,592 6,262 5,967 Minority interests 64 77 88 91 Cash and Equivalents 837 1,160 799 467 Net profit 2,301 2,753 3,188 3,782 ST bank deposits 58 58 58 58 Basic EPS (RMB) 0.46 0.55 0.63 0.75 Pledged bank deposits 1,055 1,207 1,198 1,194

Notes receivables 258 270 273 275 Financial Analysis Notes receivable fr affiliated Co. 1,044 1,093 1,104 1,115

2012A 2013E 2014E 2015E accounts receivable net 205 215 217 219

Valuation due from affiliated companies 380 398 402 406 P/E 16.7 13.1 11.3 9.6 Other receivables 478 500 505 510 P/B 3.8 2.8 2.3 1.8 Inventories 838 885 894 903 EV/EBITDA 14.1 11.2 9.7 8.3 Advances to affiliated Co. 750 785 793 801 Dividend Yield 0.0% 0.0% 0.0% 0.0%

Current Liabilities 6,857 7,451 7,464 7,491

Profitability short term bank loans 1,119 1,281 1,271 1,266 Net Margin 38.9% 44.4% 51.0% 59.9% notes payable 1,691 1,935 1,921 1,913 Gross Margin 11.8% 11.0% 11.0% 11.0% accounts payable 1,495 1,579 1,594 1,610 EBITDA Margin 42.8% 47.6% 54.9% 64.3% due to affiliated companies 1,625 1,701 1,718 1,735

customer advances 62 65 65 66 Returns other payables 457 478 483 488 ROE 32.9% 27.5% 25.0% 23.7% accrued expenses and other curren 53 55 56 56 ROIC -0.3% -0.6% -0.2% -0.1% taxes payable 135 135 135 135 ROA 14.3% 14.2% 14.2% 14.4% advances from affiliated companies 204 204 204 204

Efficiency Lt Liabilities 2 2 2 2 Asset turnover 0.37 0.32 0.28 0.24 Convertible bonds due 2011 - - - - Inventory Days 59 59 59 59 Net Current Assets (440) (859) (1,202) (1,524) Receivable Days 123 123 123 123 Total Assets 16,058 19,327 22,529 26,337 Payable Days 118 128 126 124 Net Assets 9,198 11,874 15,062 18,844

Cash flow statement MINORITIES (816) (893) (893) (893) Rmb Mn 2012A 2013E 2013E 2013ECash inflow fr. oper. activities (45) (15) (15) (15) Represented By:Cash used fr. investing activities 363 (571) (571) (571) Share capital 396 396 396 396 Cash (outflow)/inflow fr. fin. activities (110) 1,012 1,012 1,012 Share premium 2,467 2,467 2,467 2,467 Inc/(dec) in cash & cash equiv. 251 324 324 324 Reserves 7,152 9,905 13,093 16,875 Cash & cash equiv. at beginning of the Year 586 837 837 837 Shareholders' equity 10,015 12,767 15,955 19,738 Cash & cash equiv. at end of theYear 837 1,160 1,160 1,160

Source: Company data, Morgan Stanley ResearchE = Morgan Stanley Research


13



Exhibit 26

Brilliance: Half-Year Estimates Breakdown

(Rmb Mn) 1H12 2H12 1H13E 2H13E 1H13E 2H13E 1H13E 2H13E 2012 2013E 2013E

Turnover 2,810 3,106 2,976 3,218 6% 4% -4% 8% 5,916 6,194 5%

Cost of Sales (2,449) (2,771) (2,640) (2,873) 8% 4% -5% 9% (5,220) (5,512) 6%

Gross Profit 361 335 336 345 -7% 3% 0% 3% 696 681 -2%

Other Revenue 19 31 25 37 32% 17% -20% 48% 50 62 23%

Selling Expenses (201) (338) (253) (312) 26% -8% -25% 23% (539) (564) 5%

Administration Expenses (169) (170) (167) (188) -1% 11% -2% 13% (339) (355) 5%

Operating Profit 10 (142) (58) (118) -666% -17% -59% 101% (131) (176) 34%

Financial Cost (102) (72) (60) (100) -42% 38% -18% 68% (174) (159) -9%

Interest, Net 37 37 27 30 -27% -21% -28% 9% 74 57 -24%

Profits of Associates 62 30 70 31 13% 4% 134% -55% 92 101 10%

Share of profit from JV 1,375 1,059 1,355 1,498 -1% 41% 28% 11% 2,434 2,853 17%

Profit before Tax and MI 1,375 1,059 1,355 1,498 -1% 41% 28% 11% 2,295 2,676 17%

Minority Interests 4 60 8 69 105% 15% -87% 764% 64 77 21%

Net Profit 1,332 969 1,342 1,410 1% 46% 39% 5% 2,301 2,753 20%

EPS (Rmb) 0.265 0.194 0.269 0.282 1% 46% 39% 5% 0.457 0.546 20%

Gross margin 12.9% 10.8% 11.3% 10.7% -1.6% -0.1% 0.5% -0.6% 11.8% 11.0% -0.8%

Other Revenue/sales 0.7% 1.0% 0.8% 1.1% 0.2% 0.1% -0.2% 0.3% 0.9% 1.0% 0.1%

Selling expenses/sales 7.2% 10.9% 8.5% 9.7% 1.3% -1.2% -2.4% 1.2% 9.1% 9.1% 0.0%

Admin expenses/sales 6.0% 5.5% 5.6% 5.8% -0.4% 0.4% 0.1% 0.2% 5.7% 5.7% 0.0%

Operating margin 0.4% -4.6% -2.0% -3.7% -2.3% 0.9% 2.6% -1.7% -2.2% -2.8% -0.6%

Net margin 47.4% 31.2% 45.1% 43.8% -2.3% 12.6% 13.9% -1.3% 38.9% 44.4% 5.6%

Volume 120,496 121,072 142,846 150,438 19% 24% 18% 5% 243,355 293,284 21%Light bus 39,704 41,088 40,710 42,323 3% 3% -1% 4% 82,506 83,033 1%

Deluxe & Grace MPV 7,920 7,122 7,710 7,528 -3% 6% 8% -2% 16,040 15,238 -5%Mid-priced 31,784 33,966 33,000 34,795 4% 2% -3% 5% 66,466 67,795 2%

Brilliance BMW 80,792 79,984 102,136 108,114 26% 35% 28% 6% 160,849 210,250 31%III Series 24,562 15,288 29,956 35,797 22% 134% 96% 19% 39,850 65,753 65%V Series 46,431 55,668 61,549 55,949 33% 1% 11% -9% 102,172 117,498 15%X1 9,799 9,028 10,631 16,369 n.a n.a 18% 54% 18,827 27,000 43%

ASP (Rmb'000)Light bus 71 76 73 76 3% 1% -3% 4% 72 75 4%Brilliance BMW 323 376 341 335 6% -11% -9% -2% 349 338 -3%

Turnover (Rmb Mn)Light bus 2,810 3,106 2,976 3,218 6% 4% -4% 8% 5,916 6,194 5%Brilliance BMW 26,108 30,043 34,840 36,170 33% 20% 16% 4% 56,151 71,010 26%

Net profit (Rmb Mn)Brilliance BMW 2,621 2,029 2,711 2,996 3% 48% 34% 11% 4,650 5,706 23%

Net Margin (%)Brilliance BMW 10.0% 6.8% 7.8% 8.3% -2.3% 1.5% 1.0% 0.5% 8.3% 8.0% -0.2%

YoYYoY HoH

Source: Morgan Stanley Research; e = Morgan Stanley Research estimates.

14



Exhibit 27

Brilliance: Earnings Revision YoY Diff YoY Diff YoY

Actual % Old New % % Old New % %

EPS (Rmb) 0.46 26% 0.50 0.55 10% 20% 0.58 0.63 10% 16%

Sales volume (Units)Granvia MPV 16,040 -14% 18,699 15,238 -19% -5% 19,634 15,543 -21% 2%Deluxe & Mid-priced 66,466 4% 66,932 67,795 1% 2% 70,279 69,151 -2% 2%

Light bus 82,506 0% 85,631 83,033 -3% 1% 89,913 84,694 -6% 2%

III Series 39,850 -4% 80,457 65,753 -18% 65% 92,525 75,615 -18% 15%V Series 102,172 53% 99,087 117,498 19% 15% 113,950 135,122 19% 15%X1 18,827 n.a 50,000 27,000 -46% 43% 75,000 50,000 -33% 85%

Brilliance BMW 160,849 49% 229,543 210,250 -8% 31% 281,475 260,738 -7% 24%

ASP (Rmb'000)Light bus 76 -2% 77 75 -3% -2% 76 74 -3% -1%Brilliance BMW 349 1% 316 338 7% -3% 309 327 6% -3%

Turnover (Rmb Mn)Light bus 6,285 -2% 6,612 6,194 -6% -1% 6,873 6,254 -9% 1%Brilliance BMW 56,151 50% 72,595 71,010 -2% 26% 86,850 85,222 -2% 20%

Operating profit (Rmb Mn)Light bus (131) -185% 25 (176) -800% 34% 26 (178) -780% 1%Brilliance BMW 7,073 106% 4,942 5,706 15% -19% 5,632 6,412 14% 12%

OP margin (%)Light bus -2.1% -4.5% 0.4% -2.8% -3.2% -0.8% 0.4% -2.8% -3.2% 0.0%Brilliance BMW 12.6% 3.4% 6.8% 8.0% 1.2% -4.6% 6.5% 7.5% 1.0% -0.5%

Net profit (Rmb Mn)Light bus (231) 222% (68) (279) 313% 21% 26 (319) -1319% 14%Brilliance BMW 4,650 35% 4,942 5,706 15% 23% 5,632 6,412 14% 12%Net profit 2,301 27% 2,515 2,753 9% 20% 2,915 3,188 9% 16%

Net margin (%)Light bus -3.7% -2.6% -1.0% -4.5% -3.5% -0.8% 0.4% -5.1% -5.5% -0.6%Brilliance BMW 8.3% -0.9% 6.8% 8.0% 1.2% -0.2% 6.5% 7.5% 1.0% -0.5%

2012A 2013E 2014E

Source: Company Data, Morgan Stanley Research Exhibit 28

Brilliance: Residual Income Valuation (Rmb mn)

F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022eShareholders' Equity (BOP) 12,767 15,955 19,738 16,026 16,518 17,108 17,806 18,622 19,569 20,660 Net Income 2,753 3,188 3,782 4,551 4,024 4,086 4,161 4,250 4,355 4,478

Return on Equity 21.6% 20.0% 19.2% 28.4% 24.4% 23.9% 23.4% 22.8% 22.3% 21.7%Residual Income 1,713 1,862 2,125 2,501 2,360 2,371 2,384 2,401 2,422 2,446

Beginning Shareholders' Equity (BOP 2013) 10,015 Risk Free Rate 3.3%Sum of PVRI (BOP 2013) 18,512 Beta 113.0%Intrinsic Value of Equity (Rmb mn) (BOP 2013) 28,527 Equity Risk Premium 4.5%No. of Shares (Mn) 5,024 Sovereign Risk Premium 2.0%IV Per Share (12 Month), Ex. Div 8.30 Cost of Equity 10.4%

BEYOND EXPLICIT FORECAST (TRANSITION)EXPLICIT FORECAST


15



Risk-Reward Snapshot: Brilliance (1114.HK, HK$9.10, EW, PT HK$8.30)

Risk-Reward View: Price Skewed to the Downside


HK$8.30 (-9%)

HK$ 9.10

HK$7.00 (-23%)

HK$12.00 (+32%)

0

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14


HK$


Price Target HK$8.30 Derived from our residual income, base-case scenario.

Bull Case HK$12.00

15.0x 2013e Bull-case EPS

Strong BMW JV contribution and margin expansion: Robust volume growth in BMW JV, due to resilient demand in luxury segment, expecting X3 will be next localization model and lift the mix and margin.

Base Case: HK$8.30

12.0x 2013e Base-case EPS

Likely downturn in product mix though volume growth keeps strong Although BMW JV has entered the sweet spot, with solid volume since the X1 and new-generation 3 series was introduced in 2012, lower mix and higher new plant expense detract from profitability.

Bear Case HK$7.00

9.0x 2013e Bear-case EPS

Cooling demand spurs heavy price cuts: Sluggish volume growth kicks off new round of price cuts in both BMW JV and light bus unit, leading to margin squeeze and top-line slippage.

Bear to Bull: BMW JV Is the Key Earnings Contributor

-0.20-0.20

-0.90

1.00

0.60

2.10

Bear 7.00

Target 8.30

Bull 12.00

Current9.10

Lower / higher R/M priceBetter/Weaker Light Bus

SalesBMW JV Investment

Income

All values are in HK$ Source: Morgan Stanley Research, Thomson Reuters

Investment Thesis

We upgrade Brilliance Auto to EW after recent price correction and our upwardly revised earnings forecast. We believe current valuation at 12.5x 2013e, 10.8x 2014e P/E could justify Brilliance’s growth: 17% earnings CAG for 2013-15.

The stock is not a buy yet, until we get more visibility on next localization plans for the BMW model and Zinoro new product plans.

Key Value Drivers

Aggressive capacity expansion of Brilliance BMW through 2014 plus competitive new localized models will lead to strong volume growth.

Potential Catalysts

Huge capacity expansion and R&D investment in the new BMW plant will lead to expense hikes in the next two years.

The luxury carmakers could push their global oversupply into China, triggering fierce price competition and leading to higher expenses for Brilliance BMW.

Key Risks

Upside – Faster-than-expected BMW model localization to stimulate sales; rebound in bus market to benefit Jinbei light bus business. Downside – Slowing down China luxury car market to hurt volume growth; Government policies could curtail premium car consumption.

16



Great Wall Motor (2333.HK, HK$35.70, Underweight, PT HK$29.00)

Raising PT to HK$29.00 on higher earnings forecast, but remain UW as aggressive product upgrade and mix reshuffle looks risky to us: We raise our 2013 and 2014 earnings forecasts on Great Wall by 33% and 32%, respectively, as strong SUV growth momentum exceeds our expectation and company guidance. Our new forecast implies 30% earnings growth in 2013 to Rmb7.4bn and 14% CAGR in 2013-15. We are now 4% ahead of consensus on 2013 and in-line in 2014. We lift our PT to HK$29.00, implying 9.4x 2013e, 8.4x 2014e P/E and 2.6x 2013e P/B, representing 19% downside on the current stock price. We reiterate our UW rating on Great Wall given our cautious view on the upcoming new launches: Haval H2 in 3Q13 and Haval H8 in early 2014, while the sedan segment faces margin pressure on lack of new products.

1H13 results preview: We expect Rmb3.75bn net profit for 1H13, up 59% YoY and 12% HoH, which represents 2Q net profit of Rmb1.85bn, +47% YoY but -3% QoQ. Our forecast has factored in: 1) Strong volume growth driven by SUV segment: 1H13 sales volume will grow 40% YoY to 368k units, running well above the company’s full year target of 700k units. SUV segment continue to lead the growth, rising 78% YoY, sedans also rose 30% thanks to C50 contributed on a low 2012 base, but pick-ups declined slightly by 1%. 2) Improving margin on higher mix: We expect 1H13 GP margin to reach a historical high of 28.1%, +1.7ppt YoY, as high margin SUV segment sales volume percentage will exceed 50%, vs. ~40% in 1H12.

2H and FY13 outlook: We expect high growth from Great Wall to cool down in 2H13 due to a high base in 2H12, while new SUV model launch this year is delayed: Haval H2 by year-end and H8 till early 2014. Thus, we expect sales volume growth slow to 7% in 2H13 and earnings to rise 10% YoY. Looking into 2014, we remain cautious on the company’s aggressive product line upgrade by launching Haval H8, which ASP is over 50% premium over current H Series models and will be facing very different competition landscape with global brands. Furthermore, we are concerned about the company’s profitability on the sedan segment giving diminishing focus and new product pipeline. We view current valuation of 11.3x 2013e, 10.1x 2014e P/E and 3.1x 2013e P/B as not attractive enough to buy the stock and with our new forecasts; we stay UW on Great Wall.

Exhibit 29

GWM: 1H Growth Remains Strong, 2H Slowdown due to High Base and Delay of New Products

1,831 1,812 1,614 2,354 3,339 3,745 3,675-12%

10%

59%

30%

107%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2H10 1H11 2H11 1H12 2H12 1H13E 2H13E

Rmb mn

Net profit YoY Growth

Source: Company data, Morgan Stanley Research; e = Morgan Stanley Research estimates

Exhibit 30

GWM: Semi-annual margin Outlook

25.1%26.1%

23.8%

26.3% 27.3% 28.1% 27.4%

13.3%14.9%

11.7%

15.5% 15.2% 14.6%

13.5% 12.8%

10.2%

12.9% 13.4% 13.0%

17.0%

14.4%

2H10 1H11 2H11 1H12 2H12 1H13E 2H13E

GrossMargin

OperatingMargin

Net Margin

Source: Company data, Morgan Stanley Research; e = Morgan Stanley Research estimates.

Exhibit 31

GWM: We expect Margin to Peak in 2013 for SUVs

22.9%

25.1% 25.1%

23.7%

28.3%

30.4% 29.7% 29.9% 31.8% 29.7%29.0%

20.6%21.7% 21.6% 21.6%

19.6%18.9%

23.6% 23.1% 22.8%

23.5%

2009 2010 2011 2012 2013e 2014e 2015e

Pickups SUV Sedan

Source: Thomson Reuters, Morgan Stanley Research

17



Exhibit 32

GWM: Net Profit Forecasts

0.51.0

2.73.4

7.48.3

9.7

5.7

18%

169%

66%

95%

27% 30%

11%

2008 2009 2010 2011 2012 2013e 2014e 2015e

Rmb bn

Net profit YoY


Exhibit 33

GWM: Margin Outlook

20.2%

24.7% 24.9%26.9% 27.7% 26.4% 26.3%

6.0%

12.8% 13.2%15.3% 15.7%

13.9% 13.5%

6.1%

11.7% 11.4%13.2% 13.7%

12.2% 11.8%

20.7%

6.5%

7.8%

2008 2009 2010 2011 2012 2013e 2014e 2015e

Gross Margin Operating Margin Net Margin


Exhibit 34

Great Wall: Semi-annual Earnings Forecasts

Rmb Mn 1H12 2H12 1H13E 2H13E 1H13E 2H13E 1H13E 2H13E 2012 2013E YoYRevenue 18,288 24,872 26,020 28,184 42% 13% 5% 8% 43,160 54,204 26%Operating costs (13,476) (18,085) (18,720) (20,451) 39% 13% 4% 9% (31,562) (39,171) 24%Gross Profit 4,811 6,787 7,301 7,733 52% 14% 8% 6% 11,598 15,033 30%Business tax and surcharges (664) (931) (972) (1,007) 47% 8% 4% 4% (1,595) (1,979) 24%Selling Expense (634) (1,023) (901) (1,403) 42% 37% -12% 56% (1,656) (2,304) 39%Administrative expenses (687) (1,056) (1,013) (1,209) 47% 14% -4% 19% (1,744) (2,222) 27%Operating Profit 2,827 3,777 4,414 4,114 56% 9% 17% -7% 6,604 8,528 29%Finance (costs)/ income 48 57 26 75 -46% 30% -55% 192% 105 101 -5%Non-operating Income 52 169 69 174 33% 3% -59% 153% 221 243 10%Non-operating Expense (7) (36) (12) (31) 67% -12% -65% 151% (43) (44) 2%Impairment loss on assets (62) (13) (15) (68) -77% 420% 11% 369% (75) (83) 10%Gains from changes in fair value (8) 19 7 4 -183% -81% -63% -49% 10 10 0%Investment Income 7 12 18 2 156% -81% 43% -87% 19 20 4%Profit before tax 2,855 3,986 4,506 4,269 58% 7% 13% -5% 6,841 8,775 28%

Income Tax (479) (640) (758) (559) 58% -13% 18% -26% (1,119) (1,316) 18%Profit after tax 2,377 3,345 3,748 3,710 58% 11% 12% -1% 5,722 7,458 30%

Minority interests (23) (6) (4) (35) -83% 449% -39% 803% (30) (39) 30%

Net profit 2,354 3,339 3,745 3,675 59% 10% 12% -2% 5,692 7,420 30%

Basic EPS (Rmb) 0.77 1.10 1.23 1.21 59% 10% 12% -2% 1.87 2.44 30%

Gross margin 26.3% 27.3% 28.1% 27.4% 1.7% 0.1% 0.8% -0.6% 26.9% 27.7% 0.9%Distribution costs % of revenue 3.5% 4.1% 3.5% 5.0% 0.0% 0.9% -0.6% 1.5% 3.8% 4.3% 0.4%

Admin expenses % of revenue 3.8% 4.2% 3.9% 4.3% 0.1% 0.0% -0.4% 0.4% 4.0% 4.1% 0.1%

Operating margin 15.5% 15.2% 17.0% 14.6% 1.5% -0.6% 1.8% -2.4% 15.3% 15.7% 0.4%

Net finance costs -0.3% -0.2% -0.1% -0.3% 0.2% 0.0% 0.1% -0.2% -0.2% -0.2% 0.1%

PBT Margin 15.6% 16.0% 17.3% 15.1% 1.7% -0.9% 1.3% -2.2% 15.9% 16.2% 0.3%

Effective tax rate 16.8% 16.1% 16.8% 13.1% 0.1% -3.0% 0.7% -3.7% 16.4% 15.0% -1.4%

Net margin 12.9% 13.4% 14.4% 13.0% 1.5% -0.4% 1.0% -1.4% 13.2% 13.7% 0.5%

HoHYoY

Source: Company data, Morgan Stanley Research, E = Morgan Stanley Research estimates

18



Exhibit 35

Great Wall: Financial Summary Income statement Balance sheetRmb Mn 2012 2013E 2014E 2015E Rmb Mn 2012 2013E 2014E 2015ERevenue 43,160 54,204 67,881 82,387 Non-current assetsCost of sales (31,562) (39,171) (49,988) (60,750) Long-term equity investment 42 45 48 48 Gross profit 11,598 15,033 17,893 21,637 Fixed assets 9,019 11,615 13,914 16,333 Selling expenses (1,656) (2,304) (2,988) (3,800) Construction in progress 4,990 5,000 5,011 5,021 Administrative expenses (1,744) (2,222) (2,919) (3,625) Intangible assets 2,214 2,890 3,545 4,264 Operating profit 6,604 8,528 9,460 11,142 Goodwill 2 2 2 2 Financial expenses, net 105 101 134 152 Other assets 455 521 594 680 Share of profits/(losses) of associ 2 3 163 180 Subtotal 16,722 20,072 23,114 26,348 Others 130 144 SubtotalProfit before tax 6,841 8,775 9,757 11,474 Current assetsTax (1,119) (1,316) (1,464) (1,721) Cash and cash equivalents 6,337 8,353 9,451 12,879 Minority interests (30) (39) (43) (50) Bills receivable 14,791 17,127 22,355 26,582 Net profit 5,692 7,420 8,250 9,702 Accounts receivable 691 1,046 1,199 1,523 Recurrent Net profit 5,749 7,420 8,250 9,702 Prepayments 392 392 392 392 Proposed dividend 1,708 2,226 2,475 2,911 Other receivables 870 1,132 1,393 1,705 Basic EPS (Rmb) 1.87 2.44 2.71 3.19 Inventories 2,695 4,307 5,497 6,504 Basic EPS (Rmb) 1.87 2.44 2.71 3.19 Other current assets 72 72 72 72

Subtotal 25,848 32,429 40,358 49,656

Financial analysis Total assets 42,569 52,500 63,472 76,004 2012 2013E 2014E 2015E

Growth (%) Current liabilitiesRevenue 43.4% 25.6% 25.2% 21.4% Bills payable 4,342 6,142 7,357 8,941 Operating profit 66.5% 29.1% 10.9% 17.8% Accounts payable 8,697 10,627 13,669 16,611 Net profit 66.1% 30.3% 11.2% 17.6% Advances from customers 3,195 3,195 3,195 3,195 Recurrent Net profit 65.1% 29.1% 11.2% 17.6% Tax payable 537 734 882 1,139

Other payables 1,220 1,496 1,921 2,334 Margin (%) Others current liabilities 1,328 2,002 2,511 3,195 Gross margin 26.9% 27.7% 26.4% 26.3% Subtotal 19,319 24,197 29,535 35,416 Operating margin 15.3% 15.7% 13.9% 13.5%Net margin 13.2% 13.7% 12% 12%

Other non-current liabilities 1,607 1,466 1,325 1,184 Return (%) Subtotal 1,607 1,466 1,325 1,184 ROA 13.4% 14.1% 13.0% 12.8% Total liabilities 20,926 25,663 30,860 36,600 ROE 34.0% 34.5% 30.9% 29.9%

Minority interests 129 129 129 129 Gearing (%) Shareholders’ EquityAsset/Equity 2.0 2.0 2.0 1.9 Share capital 3,042 3,042 3,042 3,042

Reserves and Undistributed profits 18,478 23,672 29,447 36,239 Foreign currency translation differen (6) (6) (6) (6)

Valuation (X) Shareholders' equity 21,514 26,708 32,483 39,275 P/E 10.5 11.6 10.4 8.9P/B 2.8 3.2 2.6 2.2

EV/EBITDA 8.8 9.7 8.7 7.6 Cash flow statement SummaryDividend yield (%) 2.9% 2.6% 2.9% 3.4% Rmb Mn 2012 2013E 2014E 2015E

Net cash from operating activities 4,337 8,453 8,082 11,188Efficiency Net cash from investing activities (3,936) (4,449) (4,440) (4,941)Asset turnover (X) 1.0 1.0 1.1 1.1 Net cash from financing activities (1,104) (1,988) (2,544) (2,819)Inventory turnover 31 40 40 39 Net inc/dec in cash and cash equival. (703) 2,016 1,098 3,428A/C receivable days 131 122 127 125 Cash and cash equival.at YB 6,306 5,596 7,611 8,709A/C payable days 151 156 154 154 Effect of Foreign exchange, net (8) 0 0 0

Cash & cash equival. at YE 5,596 7,611 8,709 12,137 Source: Company data, Morgan Stanley Research; e = Morgan Stanley Research estimates.

19



Exhibit 36

Great Wall: Semi-annual Business Breakdown

Rmb Mn 1H12 2H12 1H13E 2H13E 1H13E 2H13E 1H13E 2H13E 2012 2013E YoYEPS (Rmb) 0.77 1.10 1.23 1.21 59.1% 10.1% 12.1% -1.8% 1.87 2.44 30%

Sales Volume (Units)Total 262,018 357,350 367,833 381,742 40.4% 6.8% 2.9% 3.8% 621,543 749,575 21%Pickups 68,307 67,919 67,513 74,802 -1.2% 10.1% -0.6% 10.8% 136,694 142,315 4%SUV 104,584 178,956 186,605 195,818 78.4% 9.4% 4.3% 4.9% 279,956 382,423 37%Sedan 87,443 107,656 113,715 111,121 30.0% 3.2% 5.6% -2.3% 199,256 219,199 10%

ASP (Rmb'000)Pickups 57.0 58.3 58.0 57.2 1.8% -1.9% -0.5% -1.4% 57.4 57.6 0%SUV 80.6 75.6 79.5 82.7 -1.4% 9.3% 5.1% 4.0% 78.5 81.1 3%Sedan 53.0 55.9 53.0 51.9 0.0% -7.2% -5.2% -2.1% 53.5 53.8 1%Total 65.2 66.2 67.4 68.7 3.3% 3.9% 1.8% 2.0% 65.5 68.4 4%

Revenue (Rmb mn)Pickups 3,891 3,959 3,916 4,279 0.6% 8.1% -1.1% 9.3% 7,850 8,195 4%SUV 8,432 13,534 14,835 16,192 75.9% 19.6% 9.6% 9.1% 21,966 31,027 41%Sedan 4,634 6,017 6,027 5,765 30.1% -4.2% 0.2% -4.3% 10,651 11,792 11%Total 18,288 24,872 26,020 27,927 42.3% 12.3% 4.6% 7.3% 43,160 54,204 26%

Gross profit (Rmb mn)Pickups 934 927 940 993 0.6% 7.2% 1.4% 5.7% 1,861 1,933 4%SUV 2,530 4,045 4,747 5,120 87.7% 26.6% 17.4% 7.8% 6,575 9,867 50%Sedan 1,019 1,286 1,326 1,225 30.1% -4.8% 3.1% -7.6% 2,305 2,551 11%Total 4,811 6,501 7,301 7,733 51.7% 18.9% 12.3% 5.9% 11,313 15,033 33%

Gross MarginPickups 24.0% 23.4% 24.0% 23.2% 0.0% -0.2% 0.6% -0.8% 23.7% 23.6% -0.1%SUV 30.0% 29.9% 32.0% 31.6% 2.0% 1.7% 2.1% -0.4% 29.9% 31.8% 1.9%Sedan 22.0% 21.4% 22.0% 21.2% 0.0% -0.1% 0.6% -0.8% 21.6% 21.6% 0.0%Total 26.3% 26.1% 28.1% 27.7% 1.7% 1.6% 1.9% -0.4% 26.2% 27.7% 1.5%

Operating profit 2,827 3,777 4,414 4,114 56.1% 8.9% 16.9% -6.8% 8,528 9,460 11%OP Margin 15.5% 15.2% 17.0% 14.7% 1.5% -0.5% 1.8% -2.2% 19.8% 17.5% -2.3%

Profit Before Tax 2,855 3,986 4,506 4,269 57.8% 7.1% 13.1% -5.3% 6,841 8,775 28%PBT Margin 15.6% 16.0% 17.3% 15.3% 1.7% -0.7% 1.3% -2.0% 15.9% 16.2% 0.3%

Net Profit 2,354 3,339 3,745 3,675 59.1% 10.1% 12.1% -1.8% 5,692 7,420 30%Net margin 12.9% 13.4% 14.4% 13.2% 1.5% -0.3% 1.0% -1.2% 13.2% 13.7% 0.5%

HoHYoY

Source: Company Data, Morgan Stanley Research Exhibit 37

Great Wall: Residual Income Valuation (Rmb mn)

F2013e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2018e 2019e 2020e 2021eShareholders' Equity (BOP) 26,708 32,483 39,275 51,662 59,981 67,726 74,506 79,948 83,726 87,675 132,381 143,722 Net Income 7,504 8,342 9,802 11,094 13,256 14,811 16,319 17,706 18,897 19,821 20,092 22,889

Return on Equity 28.1% 25.7% 25.0% 21.5% 22.1% 21.9% 21.9% 22.1% 22.6% 22.6% 15.2% 15.9%Residual Income 5,191 5,484 6,338 7,026 7,905 8,598 9,304 9,988 10,616 11,149 11,011 9,177

Beginning Shareholders' Equity (BOP 2013) 21,514 Risk Free Rate 3.3%

Sum of PVRI (BOP 2013) 42,012 Beta 112.4%

Intrinsic Value of Equity (Rmb mn) (BOP 2013) 63,526 Equity Risk Premium 4.5%No. of Shares ('mn) 3,042 Sovereign Risk Prem 2.0%IV Per Share 29.0 Cost of Equity 10.4%

BEYOND EXPLICIT FORECAST (TRANSITION)EXPLICIT FORECAST

Source: Morgan Stanley Research; e = Morgan Stanley Research estimates.

20



Exhibit 38 Great Wall: Earnings Revision (Rmb mn) YoY Chng YoY Chng YoY YoY

New Old New % Old New % NewEPS (Rmb) 1.87 53.7% 1.84 2.44 32.8% 30.3% 2.06 2.71 31.8% 11.2% 3.19 17.6%

Volume (Units)Pick-up 136,694 12.3% 135,595 142,315 5.0% 4.1% 147,957 160,022 8.2% 12.4% 180,385 12.7%SUV 279,956 90.0% 346,095 382,423 10.5% 36.6% 393,774 463,630 17.7% 21.2% 563,698 21.6%Sedan 199,256 6.3% 202,435 219,199 8.3% 10.0% 228,537 250,086 9.4% 14.1% 239,131 -4.4%Others Vehicle 5,637 -8.5% 3,436 5,637 64.1% 0.0% 3,436 5,637 64.1% 0.0% 5,637 0.0%

Total 621,543 34.3% 687,561 749,575 9.0% 20.6% 773,704 879,375 13.7% 17.3% 988,851 12.4%

ASP (Rmb '000)Pick-up 57.4 1.3% 56.8 57.6 1.4% 0.3% 56.3 58.0 3.0% 0.7% 58.4 0.7%SUV 78.5 1.4% 73.3 81.1 10.7% 3.4% 73.6 89.5 21.6% 10.3% 97.3 8.7%Sedan 53.5 5.5% 53.3 53.8 0.9% 0.6% 53.1 53.7 1.0% -0.3% 53.9 0.5%Others Vehicle 46.5 -24.3% 47.3 45.6 -3.7% -1.8% 46.5 44.8 -3.7% -1.8% 43.9 -1.8%

Total 65.5 7.6% 64.0 68.4 6.8% 4.4% 64.1 73.3 14.3% 7.1% 79.4 8.4%

Revenue Pick-up 7,850 13.8% 7,702 8,195 6.4% 4.4% 8,332 9,281 11.4% 13.3% 10,530 13.5%SUV 21,966 92.7% 25,357 31,027 22.4% 41.3% 28,967 41,487 43.2% 33.7% 54,840 32.2%Sedan 10,651 12.1% 10,797 11,792 9.2% 10.7% 12,139 13,420 10.6% 13.8% 12,900 -3.9%Others Vehicle 262 -30.8% 163 257 58.1% -1.8% 160 252 57.9% -1.8% 248 -1.8%Parts and components 2,432 27.2% 2,931 2,932 0.1% 20.6% 3,298 3,440 4.3% 17.3% 3,868 12.4%

Total 43,160 43.4% 46,949 54,204 15.5% 25.6% 52,896 67,881 28.3% 25.2% 82,387 21.4%

Gross profitPickups 1,861 7.3% 1,873 1,933 3.2% 3.9% 1,982 2,147 8.3% 11.1% 2,396 11.6%SUV 6,575 94.2% 6,929 9,867 42.4% 50.1% 7,909 12,322 55.8% 24.9% 15,915 29.2%Sedan 2,305 3.1% 2,431 2,551 4.9% 10.6% 2,711 2,630 -3.0% 3.1% 2,436 -7.3%Others Vehicle 33 -30.8% 20 32 58.1% -1.8% 20 32 57.9% -1.8% 31 -1.8%

Total 11,313 50.9% 11,810 15,033 27.3% 32.9% 13,250 17,893 35.0% 19.0% 21,637 20.9%

GP margin Pick-up 23.7% -1.4% 24.3% 23.6% -0.7% -0.1% 23.8% 23.1% -0.7% -0.5% 22.8% -0.4%SUV 29.9% 0.2% 27.3% 31.8% 4.5% 1.9% 27.3% 29.7% 2.4% -2.1% 29.0% -0.7%Sedan 21.6% -1.9% 22.5% 21.6% -0.9% 0.0% 22.3% 19.6% -2.7% -2.0% 18.9% -0.7%Others Vehicle 12.5% 0.0% 12.5% 12.5% 0.0% 0.0% 12.5% 12.5% 0.0% 0.0% 12.5% 0.0%

Total 26.2% 1.3% 25.2% 27.7% 2.6% 1.5% 25.0% 26.4% 1.3% -1.4% 26.3% -0.1%

Operating Profit 6,604 66.5% 6,388 8,528 33.5% 29.1% 7,154 9,460 32.2% 10.9% 11,142 17.8%OP margin 15.3% 2.1% 13.6% 15.7% 2.1% 0.4% 13.5% 13.9% 0.4% -1.8% 13.5% -0.4%

Net profit 5,692 66.1% 5,587 7,420 32.8% 30.3% 6,262 8,250 31.8% 11.2% 9,702 17.6%Net margin 13.2% 1.8% 11.9% 13.7% 1.8% 0.5% 11.8% 12.2% 0.3% -1.5% 11.8% -0.4%

2012 2013E 2015E2014E

Source: Company Data, Morgan Stanley Research, E = Morgan Stanley Research estimates

21



Risk-Reward Snapshot: Great Wall (2333.HK, HK$35.70, UW, PT HK$29.00)

Risk-Reward View: Stay Cautious to the Aggressive Mix Upgrade


HK$29.00 (-19%)

HK$ 35.70

HK$24.00 (-33%)

HK$38.00 (+6%)

0

5

10

15

20

25

30

35

40

45


HK$

Price Target (Jul-14) Historical Stock Performance Current Stock Price Price Target $29.00 Derived from our base-case scenario based on a residual income

model.

Bull Case $38.00


Strong sales across the board on surging SUV demand and best positioned, strong model lineup: Sales trends up with improving product mix – higher-end H7 SUV and mid-low end H2 to take help the company’s further volume growth. Margin further remains high and stable by rising economies of scale.

Base Case $29.00


SUV faces competition from global brands: Decent volume growth in 2013-14 on a respectable SUV model lineup. However, aggressive mix upgrade to H7/H8 to compete with global players looks risky to us and we remain cautious on GWM.

Bear Case $24.00


Tougher competition hits bottom line: Domestic demand collapses amid weak macro economy, leading to declining ASP, lower economies of scale, sharp margin squeeze.

Bear to Bull: SUV Volume Growth Is Key

-0.50-3.00

-1.50

2.00

4.00

3.00

Bear 24.00

Target 29.00

Bull 38.00

Current35.70

Better/Weaker SedanBU Sales

Better/Worse SUVSales

Better/Worse ProductMix

All values are in HK$ Source: Morgan Stanley Research, Thomson Reuters

Investment Thesis

We expect GMW to deliver steady secular sales volume growth.

We are confident in the competitiveness of its higher-margin new model lineup.

Company’s SUV launches for 2013 delayed: H2 to year end and H8 to early 2014.

Key Value Drivers

Decent volume ramp-up across the board, especially in the SUV segment.

Further penetration of overseas market by expanding distribution network and manufacturing base.

Potential Catalysts

Haval H2 will be launched in late 2013, quick ramp-up to monthly volume of 7-8k units as company planed will further strengthen growth.

Haval H8, targeted at high-end SUV segment, will be launched by early 2014, helping the company to compete at a higher level.

Key Risks

Upside – 1) Great Wall successfully protects its leading position in the SUV market, thanks to a unique balance in quality/price. 2) Quick ramp-up of H2 and H8, to further drive up SUV margin though under massive competition.

Downside – 1) Price war in the SUV market because of tough competition among Chinese local brands, while global brands further move down price range to join the low-end market competition. 2) Worse-than-expected growth for the PV market, drag down GWM’s sedan sales.

22



Zenix Auto: (ZX.N, US$2.50, Overweight, PT US$3.60)

Lowered earnings forecasts, Profit will drop further in 2013 but expect recovery in 2014: We believe that the company’s earnings power will further deteriorate as the Chinese market for commercial vehicles, especially heavy duty trucks (HDTs), is still deep in a down-cycle. With recovery slower than expected, we now forecast Zenix’s revenue to remain YoY flat at Rmb3.76bn, in-line with company guidance of Rmb3.8bn. Net profit will further drop by 24% YoY to Rmb274mn in 2013 after a 20% dip in the previous year, 6% below company guidance of Rmb290mn. We have cut our 2013 and 2014 EPS forecasts for Zenix by 37% and 33%, respectively, and expect the company will be back on growth in 2014. Our new earnings forecast imply 2013-15e CAGR of 17% and current valuation is at 2.9x 2013e, 2.4x 2014e P/E and 0.3x P/B.

Cut target price from US$4.80 to US$3.60, remain OW given limited downside to earnings and low valuation: Our new target implies 45% upside potential and a valuation of 4.2x 2013e P/E, 3.5x 2014e P/E and 0.5x 2013e P/B. We believe that Zenix is undervalued as it is a small-cap US-listed stock under massive pressure from the industry downturn. We remain OW on this name in view of this compelling valuation. We think the ongoing product mix upgrade to tubeless and aluminum wheels should resolve uncertainties about further growth. In addition, we believe Zenix should continue to outpace the market with growing business exposure to the less volatile aftermarket.

2Q13 results preview: We expect 2Q13 revenue to rise 15% YoY thanks to the 40% sales volume rebound in HDT market. However, declining demand in the aftermarket will continue to impact on Zenix’s top-line as the industry has been in a down cycle for well over two years. In addition, we believe net profit will be hurt by sluggish margin recovery due to lower product mix to other CV segments (GP margin -3.0ppt YoY but +2.4ppt QoQ to 23% in 2Q13), plus the expense ratio should remain high. Thus, we estimate 2Q earnings of Rmb95mn, +123% QoQ but down 23% YoY.

Exhibit 39

Zenix: Revenue Growth Slows, Margin will Recover

2,139 3,200 4,094 3,738 3,761 4,176 4,618

25.4% 26.6% 25.2%23.2% 23.8%

10.5% 11.2%

7.3% 7.8% 8.3%

23.6% 23.0%

13.2%14.8% 15.2%

12.8%

9.9%8.6%

10.2% 11.0%

9.7%

2009 2010 2011 2012 2013E 2014E 2015E

Rmb mn

Total Revenue Gross Margin OP Margin Net Margin


Growing Revenue % from Tubeless and Aluminum

68% 65%56% 57% 56% 55% 54%

40%

2%

39%38%39%39%

31%28%

2% 2% 2% 2%

2%2%3%2%3%2%

2% 3%

2009 2010 2011 2012A 2013E 2014E 2015E

Aluminumwheels

WheelComponent

Off-road steelwheels

Tubeless steelwheels

Tubed steelwheels


Zenix: Net Profit back to Growth in 2014

324 386183 328 452 362 274

18.9%

39.7%

78.7%

38.0%

-20.0% -24.1%

18.3%

2009 2010 2011 2012 2013E 2014E 2015E

Rmb mn

Net Profit YoY


23



Exhibit 42

Zenix: Financial Summary Income Statement Balance Sheet Rmb Mn 2012A 2013E 2014E 2015E Rmb Mn 2012A 2013E 2014E 2015ERevenue 3,738 3,761 4,176 4,618 Current assetsCOGS (2,796) (2,898) (3,207) (3,518) Inventories 364 700 443 810Gross Profit 942 863 969 1,101 Trade and bill receivables 545 382 899 518

Prepayment and other receivables 268 339 376 416Net exchange loss 1 (3) (3) (2) Pledged bank deposits 71 93 128 115Selling and distribution costs (252) (263) (288) (314) Bank balances and cash 827 791 1,376 1,578R & D expenses (91) (91) (97) (110) Total current assets 2,245 2,895 3,809 4,019Administrative expenses (138) (147) (159) (175)Operating profit 479 371 437 516 Non current assets

Property, plant and equipment 1,406 1,537 1,607 1,657Finance costs (51) (48) (56) (63) Total intangible asset 491 441 457 478Profit before income tax 429 323 382 454 Total non-current assets 1,897 1,978 2,064 2,135Income tax expense (67) (48) (57) (68)Profit after taxation 362 274 324 386 Current liabilitiesMinority Interest 0 0 0 0 Trade and bill payables 848 708 1,190 892Net Profit 362 274 324 386 Other payables 212 244 271 300EPS (Rmb) 7.01 5.32 6.29 7.47 Amounts due to related parties 0 0 0 0

Bank borrowings 700 1,300 1,480 1,660Financial Analysis Total current liabilities 1,771 2,260 2,949 2,861

2012A 2013E 2014E 2015EGrowth (%) Non-current liabilitiesRevenue -9% 1% 11% 11% Bank borrowings 0 0 0 0Gross Profit -13% -8% 12% 14% others 92 89 89 89Net Profit -20% -24% 18% 19% Total non-current liabilities 92 89 89 89

Margins (%) Minority interests 0 0 0 0GP Margin 25.2% 23.0% 23.2% 23.8%OP Margin 12.8% 9.9% 10.5% 11.2% Equity attributable to shareholder 2,280 2,524 2,835 3,204Net Margin 9.7% 7.3% 7.8% 8.3% Non-controlling interests 0 0 0 0

Total equity 2,280 2,524 2,835 3,204Return (%)ROA 14.9% 10.7% 9.7% 9.9% Cash Flow StatementROE 18.7% 12.0% 12.9% 13.6% Rmb Mn 2012A 2013E 2014E 2015E

Profit before tax 429 323 382 454Gearing (%) Depreciation of PPE 120 142 156 170Total Liabilities/Asset 45% 48% 52% 48% Changes in working capital 368 (353) 212 (294)Total debt/Equity 31% 52% 52% 52% Income tax (80) (48) (57) (68)Net debt/Equity 6% -20% -4% -3% others 56 59 66 77

Cash inflow fr. oper. activities 897 122 759 338EfficiencyAsset Turnover (x) 0.2 0.2 0.2 0.2 Purchases of PPE (217) (226) (226) (220)Inventory Days 72 67 65 65 Others (159) (47) (59) (16)Receivables Days 56 45 56 56 Cash used fr. investing act. (431) (272) (285) (236)Payable Days 108 98 108 108Cash Days 20 14 13 13 Cash (outflow)/inflow fr. fin. (368) 114 111 101

Inc/(dec) in cash & equiv. 98 (37) 584 203Valuation Cash & cash equiv. at BOP 731 829 791 1,376P/E 2.7 2.9 2.4 2.0 Cash & cash equiv. at EOP 829 791 1,376 1,578P/B 0.4 0.3 0.3 0.2EV/EBITDA 1.3 2.3 1.3 1.1 E = Morgan Stanley Research estimatesDividend Yield (%) 1.9% 1.7% 2.1% 2.4% Source: Company data, Morgan Stanley Research

Source: Company data, Morgan Stanley Research E = Morgan Stanley Research estimates Exhibit 43

Zenix: Residual Income Valuation Rmb Mn

F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022eShareholder's Equity 2,524 2,835 3,204 3,084 3,315 3,563 3,829 4,114 4,421 4,748Net Income 274 324 386 450 444 453 463 473 485 497

ROE 12.0% 12.9% 13.6% 14.1% 14.4% 13.7% 13.0% 12.4% 11.8% 11.2%Residual Income 18 54 82 107 114 98 82 64 45 24

Beginning Shareholders' Equity (BOP 2013) 2,280 3.3%Sum of PVRI (BOP 2013) (1,291) Beta 120%Intrinsic Value of Equity 989 Equity Risk Premium 4.5%No. of Shares (mn) 52 Sovereign Risk Premium 2.0%Intrinsic Value per Share (USD) 3.60 Cost of Equity 10.7%

Risk Free Rate

Beyond Explicit Forecast (Transition)Explicit Forecast


24



Exhibit 44

Zenix: Earnings Estimate Revisions

Rmb mn % Chng YoY % Chng YoY YoY

Actual Old New Old New New

EPS (Rmb) 7.01 8.44 5.32 -37.0% -24.1% 9.33 6.29 -32.6% 18.3% 7.47 18.9%

Revenue

Aftermarket 1,830 2,040 1,840 -9.8% 0.5% 2,317 2,093 -9.7% 13.7% 2,375 13.5%

OEM 1,304 1,342 1,309 -2.5% 0.4% 1,430 1,408 -1.5% 7.6% 1,507 7.0%

Oversea 605 687 613 -10.8% 1.4% 748 676 -9.7% 10.2% 736 8.9%

Tubed steel wheels 2,131 2,180 2,122 -2.7% -0.4% 2,357 2,293 -2.7% 8.1% 2,480 8.2%

Tubeless steel wheels 1,451 1,527 1,447 -5.3% -0.3% 1,726 1,633 -5.4% 12.9% 1,845 13.0%

Aluminum wheels 0 186 37 -80.3% n.a 228 86 -62.2% 136.3% 121 40.4%

Total 3,738 4,068 3,761 -7.5% 0.6% 4,495 4,176 -7.1% 11.0% 4,618 10.6%

Profit

Gross Profit 942 1,040 863 -17.0% -8.4% 1,150 969 -15.8% 12.2% 1,101 13.6%

Operating Profit 479 561 371 -33.8% -22.6% 622 437 -29.7% 17.8% 516 18.1%

Net Profit 362 436 274 -37.0% -24.1% 481 324 -32.6% 18.3% 386 18.9%

Margin

GP Margin 25.2% 25.6% 23.0% -2.6% -2.3% 25.6% 23.2% -2.4% 0.2% 23.8% 0.6%

OP Margin 12.8% 13.8% 9.9% -3.9% -3.0% 13.8% 10.5% -3.4% 0.6% 11.2% 0.7%

Net Margin 9.7% 10.7% 7.3% -3.4% -2.4% 10.7% 7.8% -2.9% 0.5% 8.3% 0.6%

2012A 2013E 2014E 2015E


Exhibit 45

Zenix: Quarterly Results Summary Rmb: mn 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13E QoQ YoY 2012 2013E YoY

Revenue 1,044 1,131 762 800 830 1,301 56.7% 15.0% 3,738 3,761 0.6%

Cost of sales 758 837 585 615 659 1,002 52.1% 19.6% 2,796 2,898 3.7%

Gross profit 286 294 178 185 171 299 74.6% 1.8% 942 863 -8.4%

Other operating income 5 2 6 4 4 1 -76.1% -49.9% 17 12 -31.5%

Net exchange loss 0 -1 -1 2 -2 1 -130.7% -141.2% -1 3 -371.3%

Selling and distribution costs 67 76 52 57 62 94 51.8% 23.1% 252 263 4.4%

R&Dexpenses 22 28 21 21 20 33 61.1% 17.2% 91 91 0.6%

Administrative expenses 32 35 33 39 34 49 45.3% 43.0% 138 147 6.3%

Operations Profit 171 159 80 69 58 125 115.8% -21.2% 479 371 -22.6%

Finance costs 13 13 13 12 8 15 88.9% 15.8% 51 48 -4.9%

Profit (loss) before taxation 158 146 67 57 50 110 120.1% -24.5% 429 323 -24.7%

Income tax expense (credit) 23 23 11 10 7 15 102.5% -34.9% 67 48 -27.6%

Profit (loss) after taxation 135 123 56 47 43 95 123.2% -22.6% 362 274 -24.1%

Net profit 135 123 56 47 43 95 123.2% -22.6% 362 274 -24.1%

Margins

GP Margin 27.4% 26.0% 23.3% 23.1% 20.6% 23.0% 2.4% -3.0% 25.2% 23.0% -2.3%

Selling Expense/Revenue 6.4% 6.7% 6.8% 7.2% 7.4% 7.2% -0.2% 0.5% 6.7% 7.0% 0.3%

R&D Expense/Revenue 2.1% 2.5% 2.7% 2.6% 2.4% 2.5% 0.1% 0.0% 3.2% 3.2% -0.1%

Admin Expense/Revenue 3.0% 3.1% 4.3% 4.9% 4.1% 3.8% -0.3% 0.7% 3.7% 3.9% 0.2%

OP Margin 16.4% 14.0% 10.5% 8.7% 7.0% 9.6% 2.6% -4.4% 12.8% 9.9% -3.0%

PBT Margin 15.1% 12.9% 8.8% 7.2% 6.0% 8.5% 2.4% -4.4% 11.5% 8.6% -2.9%

Effective Tax Rate 14.3% 15.8% 16.1% 18.1% 14.8% 13.6% -1.2% -2.2% 15.6% 15.0% -0.6%

Net Margin 13.0% 10.9% 7.4% 5.9% 5.1% 7.3% 2.2% -3.5% 9.7% 7.3% -2.4% Source: Company data, Morgan Stanley Research, E = Morgan Stanley Research estimates

25



Risk-Reward Snapshot: Zenix (ZX.N, US$2.50, OW, PT US$3.60)

Risk-Reward View: Upside as China Switches to Tubeless/Aluminum

WARNINGDONOTEDIT_RRS4RL~ZX.N~

$3.60 (+44%)

$ 2.50

$1.90 (-24%)

$5.60 (+124%)

0

1

2

3

4

5

6

7


$


Price Target US$3.60 Derived from base-case scenario based on RI valuation

Bull Case US$5.60


20% earnings CAGR in 2013-15e, driven by top-line CAGR of 15%, as high FAI growth supports strong downstream demand, and gross profit margin is higher than in our base case, thanks to mix improvement and better control of unit costs.

Base Case US$3.60


11% earnings CAGR in 2013-14e, driven by 9% top-line CAGR, as CV market benefits from moderate FAI growth, and profitability improves thanks to extending product line and improving product mix. Capacity expands at 18.5% CAGR in 2012-14e.

Bear Case US$1.90


Low single-digit earnings CAGR in 2013-15e, driven by top-line CAGR of 5%, as macro tightening limits downstream investment, and margin is lower than in base case on cost hike and fiercer competition.

Bear to Bull: Tubeless Wheels Are the Key

-0.50

-0.90 -0.10-0.20

0.50

1.000.20

0.30

Bear 1.90

Target 3.60

Bull 5.60

Current2.50

Better/WeakerTubed steel

wheels

Better/WeakerTubeless steel

wheels

Better/WeakerOff-road steel

wheels

Better/WeakerAluminum

wheels

All values are in U.S. Dollars Source: Morgan Stanley Research, Thomson Reuters

Investment Thesis: Why OW

Our price target implies 4.2x 2013e P/E, 3.5x 2014e P/E and 0.5x 2013e P/B, discounts of more than 50% to global peers.

Current valuation does not fully reflect the upside potential, in our view, mainly due to concerns about how long the down-cycle will last in China’s commercial vehicle (CV) market, especially for HDTs.

Zenix should benefit from its strong R&D and well-established distribution network.

Key Value Drivers

Tubed steel wheels: Base-case revenue CAGR of 5% in 2013-15e.

Tubeless steel wheels: Base-case revenue CAGR of 9% in 2013-15e.

Aluminum wheels: Kickoff in 1H13, will contribute ~Rmb180mn to Zenix’s total revenue.

Potential Catalysts

Zenix is to become the first company in China to introduce aluminum wheels for CVs, likely in 2H12.

Plan to convert more non-exclusive dealers to exclusive dealers could help Zenix gain share in aftermarket.

Key Risks

Medium-term slowdown pressures CV market.

Relatively low barriers to entry, especially in the aftermarket.

Failure of cost control with product line extension and geographic expansion.

26



Minth Group (0425.HK, HK$13.78, Equal-weight, PT HK$14.00)

We lift our earnings outlook on better margin and more positive overseas revenue contribution; raise PT to HK$14.00 but stay at EW: We raise our 2013, 2014 and 2015 earnings forecast by 8%, 6% and 7%, respectively, as the rebounding auto market in North America will contribute to Minth’s overseas revenue. In addition, GP margin will be better than expected thanks to lower raw material costs and company’s penetration to premium brands. We remain EW and are now 3% and 1% above consensus on 2013 and 2014 earnings, respectively. Our new PT of HK$14.00, implying 12.0x 2013e, 10.8x 2014e P/E and 1.6x 2013e, P/B provides limited upside potential.

Though the current valuation is not attractive on our estimates, we would reiterate that the strong fundamentals have not changed on three factors: 1) Strong balance sheet: The company has net cash of more than Rmb4.1bn as of end-2012, accounting for ~43% of its total market cap. Moreover, Minth’s current ratio is healthy at 3.0, and its gearing ratio is low at 15.6%. 2) High payout ratio: Minth has proposed a 2012 year-end dividend of HK$0.385 per share vs. HK$0.271 in 2011. This implies a payout ratio of almost 40%, the most generous proposal since 2006, and a dividend yield of 3.5%. 3) Solid earnings outlook: We now forecast 16% earnings CAGR in 2013-15, thanks to a 22% top-line CAGR and good expense management. We believe that Minth’s GP margin is still on a downward trend in the long term given tough competition in the domestic market and the industry’s low barriers to entry. However, we expect FY13 to record a slight rebound on a low 2012 base and its GP margin will be more stabilized in 2014-15 and still stand well above the industry average of ~20%.

1H13 results preview: We expect 1H net profit to rise 20% YoY, to Rmb521mn, on 14% YoY revenue growth, and gross margin rebound to 33.5% vs. 31.5% in 2H12. Full year 2013 we expect +18% YoY earnings growth to Rmb991mn as top-line growth of 15% and GP margin +0.4ppt to 33.5%, plus SG&A expense as a percentage of revenue will remain stable at 11.2%.

Exhibit 46

Minth: Earnings Outlook, 2009-15E

621 811 787 841 991 1,107 1,324

30.5%

11.6%

17.9%

6.8%

-2.9%

19.6%

46.5%

2009 2010 2011 2012 2013E 2014E 2015E

Rmb mn

Net profit Growth YoY


Solid Revenue Growth, but Margin under Pressure

2,545 3,576 3,889 4,330 4,983 6,016 7,366

31.9%

23.7%

15.4%

32.7%33.5%33.1%35.0%

36.6%38.1%

18.3%16.7% 16.8% 16.2%

21.2%

2009 2010 2011 2012 2013E 2014E 2015E

Turnover Gross Margin Operating Margin


Increasing Overseas Market Contribution

15.4%23.5% 26.5% 30.3% 35.8% 41.5% 47.4%

84.6%76.5% 73.5% 69.7% 64.2% 58.5% 52.6%

2009 2010 2011 2012 2013e 2014e 2015e

Oversea Domestic

Source: Company data, Morgan Stanley Research E = Morgan Stanley Research estimates

27



Exhibit 49

Minth: Financial Summary Income Statement Financial Analysis RMB mn 2012A 2013E 2014E 2015E 2012A 2013E 2014E 2015ETurnover 4,330 4,983 6,016 7,366 Growth (%)Cost of goods sold (2,896) (3,312) (4,047) (5,016) Turnover 11.3% 15.1% 20.7% 22.4%Gross profit 1,434 1,671 1,969 2,351 Operating Profit 1.8% 15.7% 16.4% 16.3%Selling expenses (130) (159) (186) (228) Net Profit 6.8% 17.9% 11.6% 19.6%Administrative expenses (347) (399) (481) (589) Other Expense (R&D) (232) (274) (325) (398) Margins (%)Operation profit 725 839 976 1,135 Gross 33.1% 33.5% 32.7% 31.9%Other Income 106 146 177 216 Operating Profit 16.7% 16.8% 16.2% 15.4%Interest Income 63 88 81 78 Net Profit 19.4% 19.9% 18.4% 18.0%Interest Expense (27) (41) (42) (42) Share of profits of an assoc. 30 34 40 46 Return (%)Other expenses 147 163 144 216 ROA 9.0% 9.4% 9.5% 10.2%Profit before taxation 1,044 1,230 1,376 1,649 ROE 13.8% 14.6% 14.9% 16.1%Taxation (148) (184) (206) (247) Profit after taxation 896 1,045 1,169 1,402 Gearing (%)Minority interests (55) (54) (63) (78) Total Liabilities/Equity 35.3% 39.1% 38.5% 38.2%Profit for the year 841 991 1,107 1,324 Total IB debt/Equity 21.5% 20.4% 18.5% 16.6%Dividends (238) (332) (336) (406) Net Interest Coverage (x) 33.4 25.7 29.3 34.4 Basic EPS (in RMB) 0.78 0.92 1.03 1.23 Net gearing -39.4% -30.4% -25.8% -22.0%MW EPS (in RMB) 0.78 0.92 1.03 1.23

Balance Sheet Valuations (x)RMB mn 2012A 2013E 2014E 2015E P/E 9.2 11.8 10.6 8.9 Non-current assets P/BV 1.1 1.6 1.4 1.3 PPE 1,889 2,408 2,867 3,274 EV/EBITDA 8.6 11.2 9.5 8.1 Land use rights 457 502 546 589 Dividend Yield (%) 3.1% 2.8% 2.9% 3.5%Intangible assets 33 35 34 32 Investment in a subsidiary 102 102 102 102 EfficiencyInterest in an associate 132 167 206 252 Asset Turnover (x) 0.50 0.50 0.54 0.60Other non-current assets 257 67 67 67 Inventory Days 58.0 55.5 56.8 56.1Subtotal 2,870 3,279 3,821 4,314 Receivables Days 70.0 70.5 70.3 70.4

Payable Days 49.0 46.5 47.8 47.1Current assetsInventories 697 797 974 1,207 Trade and bills receivables 1,323 2,428 2,937 3,634 Pledged bank deposits 285 285 285 285 Bank and cash balances 4,130 3,772 3,628 3,523 Other current assets 69 39 40 41 Subtotal 6,504 7,321 7,864 8,691

Total Assets 9,374 10,600 11,685 13,005 Cash Flow StatementRMB mn 2012A 2013E 2014E 2015E

Current liabilities Net cash fr. operating activities 602 412 900 1,011 Trade and bill payables 837 1,298 1,550 1,874 Net cash fr. investing activities (665) (508) (699) (705) Short-term bank loans 1,271 1,514 1,514 1,514 Net cash fr. financing activities 398 (262) (346) (411) Other current liabilities 58 54 54 54 Net (dec)/inc in cash & cash equival 335 (358) (144) (105) Subtotal 2,167 2,865 3,117 3,441 Cash & cash equival at YB 3,792 4,130 3,772 3,628

Cash & cash equival at YE 4,130 3,772 3,628 3,523 Non-current liabilitiesDeferred tax liabilities 40 40 40 40 Source: Company data, Morgan Stanley ResearchTotal liabilities 2,393 2,905 3,157 3,481 E = Morgan Stanley Research estimateMinority interests 208 262 325 403

Source: Company data, Morgan Stanley Research E = Morgan Stanley Research estimates. Exhibit 50

Minth: Residual Income Valuation (Rmb mn)

F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022e F2023eShareholders' Equity (BOP) 7,433 8,203 9,121 10,948 12,266 13,504 14,611 15,538 16,236 16,669 16,808 Net Income 857 995 1,145 1,333 1,545 1,714 1,882 2,043 2,190 2,315 2,414

Return on Equity 11.5% 12.1% 12.6% 12.2% 12.6% 12.7% 12.9% 13.1% 13.5% 13.9% 14.4%Residual Income 374 429 576 502 547 596 651 711 774 836 895

Beginning Shareholders' Equity (BOP 2013) 6,774 Risk Free Rate 3.3%Sum of PVRI (BOP 2013) 4,201 Beta 84.7%Intrinsic Value of Equity (Rmb mn) (BOP 2013) 10,975 Market Risk Premium 4.5%No. of Shares (mn) 1,078 China Risk Premium 2.0%Intrinsic Value Per Share (HKD) 14.0 Cost of Equity 9.1%

EXPLICIT FORECAST BEYOND EXPLICIT FORECAST (TRANSITION)


28



Exhibit 51

Minth: Interim Result Summary

Rmb Mn 1H11 2H11 1H12 2H12 1H12 2H12 1H12 2H12 2012 2013E 2012 2013ETurnover 1,811 2,079 2,120 2,210 17% 6% 2% 4% 4,330 4,983 11% 15%Cost of goods sold (1,162) (1,365) (1,382) (1,514) 19% 11% 1% 10% (2,896) (3,349) 15% 16%

Gross profit 649 714 738 696 14% -3% 3% -6% 1,434 1,634 5% 14%Distribution & selling expenses (68) (63) (56) (74) -17% 17% -11% 31% (130) (150) -1% 15%

Administrative expenses (141) (170) (159) (188) 13% 11% -6% 19% (347) (397) 12% 15%

Other Expense (R&D) (83) (126) (103) (129) 23% 3% -19% 26% (232) (267) 11% 15%

Operation profit 357 355 421 304 18% -14% 19% -28% 725 820 2% 13%Other income 60 73 34 72 -44% -1% -54% 116% 106 146 -20% 38%

Interest Income 32 38 38 29 20% -22% 1% -23% 68 88 -3% 30%

Interest Expense (4) (11) (11) (16) 147% 42% -7% 52% (27) (41) 71% 53%

Share of profits of an associate 15 19 16 14 1% -24% -17% -8% 30 34 -13% 15%

Shares of losses (profit) of JCE 15 4 14 11 -7% 161% 229% -21% 25 28 30% 15%

Profit before taxation 470 493 545 499 16% 1% 11% -8% 1,044 1,138 8% 9%

Taxation (63) (73) (80) (67) 27% -7% 11% -16% (148) (171) 9% 16%

Profit after taxation 407 420 464 432 14% 3% 11% -7% 896 968 8% 8%

Minority interests (19) (21) (30) (25) 59% 22% 44% -16% (55) (50) 39% -10%

Net profit 388 399 434 407 12% 2% 9% -6% 841 918 7% 9%

EPS 0.36 0.37 0.40 0.38 12% 2% 9% -6% 0.78 0.85 7% 9%

Gross margin 35.8% 34.3% 34.8% 31.5% -1.0% -2.8% 0.5% -3.3% 33.1% 32.8% -1.9% -0.3%

Distribution costs % of revenue 3.7% 3.0% 2.7% 3.3% -1.1% 0.3% -0.4% 0.7% 3.0% 3.0% -0.4% 0.0%

Admin expenses % of revenue 7.8% 8.2% 7.5% 8.5% -0.3% 0.4% -0.7% 1.0% 8.0% 8.0% 0.0% 0.0%

Other expenses % revenue 4.6% 6.1% 4.8% 5.8% 0.2% -0.2% -1.2% 1.0% 5.4% 5.4% 0.0% 0.0%

Operating margin 19.7% 17.1% 19.8% 13.8% 0.1% -3.3% 2.8% -6.1% 16.7% 16.4% -1.6% -0.3%

Other income 3.3% 3.5% 1.6% 3.3% -1.7% -0.2% -1.9% 1.7% 2.4% 2.9% -1.0% 0.5%

Other Gains and Losses (FX) -0.3% 0.6% 1.6% 3.8% 1.9% 3.2% 1.0% 2.2% 2.7% 1.2% 2.5% -1.5%

Interest Income 1.8% 1.8% 1.8% 1.3% 0.0% -0.5% 0.0% -0.5% 1.6% 1.8% -0.2% 0.2%

Interest Expense -0.2% -0.5% -0.5% -0.7% -0.3% -0.2% 0.0% -0.2% -0.6% -0.8% -0.2% -0.2%

Share of profits of an associate 0.9% 0.9% 0.7% 0.6% -0.1% -0.3% -0.2% -0.1% 0.7% 0.7% -0.2% 0.0%

Share of loss of JCEs 0.8% 0.2% 0.6% 0.5% -0.2% 0.3% 0.4% -0.2% 0.6% 0.6% 0.1% 0.0%

Profit before taxation 26.0% 23.7% 25.7% 22.6% -0.3% -1.1% 2.0% -3.1% 24.1% 22.8% -0.6% -1.3%

Effective tax rate 13.5% 14.8% 14.8% 13.5% 1.3% -1.3% 0.0% -1.3% 14.1% 15.0% 0.0% 0.9%

Net margin 21.4% 19.2% 20.5% 18.4% -1.0% -0.8% 1.3% -2.1% 19.4% 18.4% -0.8% -1.0%

YoY HoH YoY

Source: Company Data, Morgan Stanley Research (E) estimates Exhibit 52

Minth: Earnings Estimate Revisions Rmb Mn Chng YoY Chng YoY Chng YoY

Acutal Old New % Old New % Old New %

EPS (Rmb) 0.78 0.85 0.92 8.1% 17.8% 0.97 1.03 6.1% 11.6% 1.14 1.23 7.3% 19.6%

Revenue 4,330 4,983 4,983 0.0% 15.1% 5,873 6,016 2.4% 20.7% 6,978 7,366 5.6% 22.4%

Domestic 3,019 3,200 3,200 0.0% 6.0% 3,520 3,520 0.0% 10.0% 3,872 3,872 0.0% 10.0%

Oversea 1,311 1,783 1,783 0.0% 36.0% 2,353 2,496 6.1% 40.0% 3,106 3,494 12.5% 40.0%

Gross Profit 1,434 1,634 1,671 2.3% 16.5% 1,896 1,969 3.9% 17.8% 2,216 2,351 6.1% 19.4%

Operating Profit 725 820 839 2.3% 15.7% 934 976 4.6% 16.4% 1,069 1,135 6.2% 16.3%

Net Profit 841 918 991 8.1% 17.9% 1,043 1,107 6.1% 11.6% 1,234 1,324 7.3% 19.6%

Gross margin 33.1% 32.8% 33.5% 0.7% 0.4% 32.3% 32.7% 0.5% -0.8% 31.8% 31.9% 0.2% -0.8%

Operating margin 16.7% 16.4% 16.8% 0.4% 0.1% 15.9% 16.2% 0.3% -0.6% 15.3% 15.4% 0.1% -0.8%

Net margin 19.4% 18.4% 19.9% 1.5% 0.5% 17.8% 18.4% 0.6% -1.5% 17.4% 18.0% 0.5% -0.4%

2012 2014E 2015E2013E

Source: Company Data, Morgan Stanley Research E = Morgan Stanley Research estimates

29



Risk-Reward Snapshot: Minth Group (0425.HK, HK$13.78, EW, PT HK$14.00)

Risk-Reward View: Robust Growth Steps Largely Priced-in


HK$14.00 (+2%)HK$ 13.78

HK$10.50 (-24%)

HK$17.00 (+23%)

0

2

4

6

8

10

12

14

16

18


HK$


Price Target HK$14.00 Derived from base-case scenario.

Bull Case HK$17.00


Vibrant sales growth with cost cut. Robust volume growth in both domestic and overseas markets; raw material prices peak, with more cost savings from lean management.

Base Case HK$14.00

12.0 Base Case 13e EPS

Strong top-line growth as overseas market outperforms: Revenue grows strongly at 22% CAGR through 2013-15 on robustoverseas market growth thanks to solid expansion in North America, Europe and Asia.

Bear Case HK$10.50


Sales decline with margin off sharply. Volume squeeze on fading domestic demand as well as sluggish overseas demand; raw material prices rise further amid significant ASP cut.

Bear to Bull: Overseas Market Drives Growth

-1.50

-1.70-0.30

1.30

1.400.30

Bear 10.50

Target 14.00

Bull 17.00

Current13.78

Better/Weaker DomesticSales

Better/Worse OverseaBusiness Lower/Higher R/M Pricing

All values are in HK$

Source: Morgan Stanley, Thomson Reuters

Investment Thesis

China’s leading supplier of decorative, trim, and car body structural parts with fine-tuned quality and competitive cost edge.

Solid overseas expansion in North America, Europe and Asia on strong support from Japanese partners and healthy balance sheet.

Attractive growth opportunities driven by further penetration into global markets.

We expect a 16% net profit CAGR in 2013-15, driven by a 22% top-line CAGR supported mainly by fast growing overseas market.

Key Value Drivers

Robust volume growth prospects based on new clients.

Substantial export potential on strong R&D ability and cost advantage, along with increasing global outsourcing trend.

Revenue ramping up further from new products.

Potential Upside Risks/Catalysts

Fast-expanding client base and wider market coverage to diversify operational risks and capture more growth opportunities.

Potential M&A opportunities, given company’s ample cash on hand.

Key Downside Risks

Significant slowdown in China’s passenger car industry.

Loss of clients. RMB appreciation.

30



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Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Sheng Zhong. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.

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Important US Regulatory Disclosures on Subject Companies Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Baoxin Auto Group, Sinotruk (Hong Kong) Limited. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Sinotruk (Hong Kong) Limited, WeiChai Power. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Brilliance China Automotive, China Zenix Auto International, Great Wall Motor Company Limited, Sinotruk (Hong Kong) Limited, WeiChai Power, Zhongsheng Group Holdings. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Baoxin Auto Group, Sinotruk (Hong Kong) Limited, Zhongsheng Group Holdings. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Baoxin Auto Group, Brilliance China Automotive, China Zenix Auto International, Great Wall Motor Company Limited, Sinotruk (Hong Kong) Limited, WeiChai Power, Zhongsheng Group Holdings. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: Baoxin Auto Group, Sinotruk (Hong Kong) Limited, Zhongsheng Group Holdings. Morgan Stanley & Co. LLC makes a market in the securities of China Zenix Auto International. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.

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Global Stock Ratings Distribution (as of June 30, 2013)

For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

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Coverage Universe Investment Banking Clients (IBC)

Stock Rating Category Count % ofTotal Count

% of Total IBC

% of Rating Category

Overweight/Buy 1020 36% 410 39% 40%Equal-weight/Hold 1263 44% 485 47% 38%Not-Rated/Hold 109 4% 24 2% 22%Underweight/Sell 469 16% 123 12% 26%Total 2,861 1042 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months.

Analyst Stock Ratings Overweight (O or Over) - The stock's total return is expected to exceed the total return of the relevant country MSCI Index, on a risk-adjusted basis over the next 12-18 months. Equal-weight (E or Equal) - The stock's total return is expected to be in line with the total return of the relevant country MSCI Index, on a risk-adjusted basis over the next 12-18 months. Not-Rated (NR) - Currently the analyst does not have adequate conviction about the stock's total return relative to the relevant country MSCI Index on a risk-adjusted basis, over the next 12-18 months. Underweight (U or Under) - The stock's total return is expected to be below the total return of the relevant country MSCI Index, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.

Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index. .

Stock Price, Price Target and Rating History (See Rating Definitions)

32



33



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Industry Coverage:China Autos & Auto Parts

Company (Ticker) Rating (as of)Price* (07/17/2013)

Cedric Shi Sinotruk (Hong Kong) Limited (3808.HK)

U (07/31/2008) HK$3.71

WeiChai Power (2338.HK) E (09/06/2012) HK$24.05Sheng Zhong Baoxin Auto Group (1293.HK) O (01/18/2012) HK$4.88Brilliance China Automotive (1114.HK)

U (03/18/2005) HK$9.1

China Yongda Automobiles Services (3669.HK)

E (07/12/2013) HK$7.01

China Zenix Auto International (ZX.N)

O (03/12/2012) US$2.5

China Zhengtong Auto Services (1728.HK)

E (05/08/2013) HK$3.55

Dongfeng Motor Group (0489.HK) E (01/09/2012) HK$9.59Great Wall Motor Company Limited (2333.HK)

U (12/05/2012) HK$35.7

Minth Group Limited (0425.HK) E (03/21/2013) HK$13.78Zhongsheng Group Holdings (0881.HK)

O (01/18/2011) HK$7.87

Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted.

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