Changan Auto Navigates through Industry Pressures, NEV Business and Huawei Partnership to Drive Growth

CHANGAN AUTO(000625)：NAVIGATING THROUGH PROFIT MARGIN PRESSURE

Changan Auto posted ex-one-off attributable net profit (ANP) of Rmb28mn in 2Q23. After excluding disruptive elements in the financial reports, the comparable net profit stands at around Rmb1.4bn. The 1H23 performance is understandable considering industry price competition and adjustments in the financial reporting. Changan Auto's substantial growth in the new energy vehicle (NEV) business in 2H23 and the positive trajectory of its brand position make it our top pick in the A-share auto OEM sector. The per-vehicle profit for Changan Auto's self-owned internal combustion engines (ICEs) is Rmb4.7k, placing the profitability of ICEs within the normal range of the industry currently. The proportion of NEVs reached 22% in 2Q23, with Deepal S7 steadily gaining sales momentum. Deepal joins hands with Huawei's Intelligent Automotive Solution (IAS) Business Unit (BU) by signing a framework agreement for intelligent cooperation. Changan Auto's 2023 profit for self-owned brands (fuel-powered vehicle business, excluding Deepal Technology) is expected to be Rmb7.97bn, and the annual loss for Deepal Technology is expected to be Rmb3bn, corresponding to combined net profit of about Rmb6.5bn. We reiterate the "BUY" rating.

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