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Market punishes the traditionaland the concept spinners alike
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The recent nosedive in China’s stock market erased the fine line between carmakers that rely on traditional product marketing and those that rely on hype and concept stories.
In the end, all their shares collapsed.
Mainstream domestic blue-chip carmakers have never been considered high fliers in the market. Their price-to-earning ratios, at around 10, are second lowest after banks. Their prices surged about 40 percent this year before the crash, less than half the bull market’s average gain.
The irony is that these under-performing companies have delivered pretty good sales figures this year.
SAIC sold 2.86 million vehicles in the first half of this year. That was flat growth, but it managed to keep the company its market dominance. Chang’an delivered 1.46 million units, up 11 percent from a year earlier, while Great Wall sales rose 28.5 percent on highly profitable SUV models. JAC made further inroads in the SUV segment, with a more than fivefold increase in sales driving its total car deliveries up 78.8 percent.
These companies even offer relatively high dividends.
But nothing is enough to assuage investors who feel they have been burned. One angry SAIC investor confronted company Chairman Chen Hong at the annual shareholders’ meeting last month, calling the company’s stock “junk.”
“If it is really a junk stock, then sell it,” said Chen.
The company paid out the largest dividends in its history last year and is promising a payout of 13 yuan per 10 shares this year. That’s equivalent to about half of SAIC’s annual net profit.
In China, talking about value when a market is down is preaching to deaf ears. Most investors focus on share gains rather than dividend payments.
As the era of high growth in China’s car sales draws to an end, the stock market has found another reason to give the carmaking industry the cold shoulder. It lacks the “thrill” of more flamboyant segments of the market in boom mode.
The only auto companies that seem to arouse much interest from investors worldwide these days are those selling the big picture.
Tesla, for example, saw its share price shoot up more than 20-fold in two years after successfully peddling its vision of melding electric carmaking with the Silicon Valley way of thinking. But the love affair with investors has been volatile. Last week, shares in the profitless, twelve-year-old start-up had their biggest one-day drop in five months.
In China, there is equally grand ambition to steer the nation toward electric cars. That supports the high valuation of industry leader BYD, whose PE ratio is more than 200 times, even after the crash.
The same high valuation is given to Internet entertainment operator Letv, whose Super Electric Automotive Eco-System, or SEE project, helped its stock price surge fivefold from the end of last year to an historic high in May.
Even more than a decade after the dotcom crash, the word “Internet” still has a Midas touch, and the Internet is where many carmakers are headed.
All auto industry analysts remain bullish on the “Internet Plus” concept, at least for the foreseeable future. The open and fast-changing online world really tickles the fancy of a traditional industry.
Online-to-offline, one-stop service is one of the much-vaunted possibilities. Though online car shopping is yet to become just a mouse click away because of its high complexity, aftermarket products have found moderate success in the cyber realm.
Leading this concept are Zhejiang Jinggu and Shandong Longji Machinery, with PEs of 278 and 62, respectively.
Their stock prices shot up this year before the market rout wiped out about half of their market capitalization.
Investing in concept-driven companies has proven to be a wild roller-coaster ride. By comparison, sticking with traditional and stable carmakers is like sitting in spinning teacups.
No matter how the market plays out in the second half of this year, many an investor will think this expensive amusement park too interesting to ignore.
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