SAIC Motor attended our Access China conference on 10 January. The followingare the key takeaways from investor meetings:

SAIC expects China passenger vehicle (PV) sales volume to grow by about 3-4%YoY in 2018 and commercial vehicle (CV) to decline by 6-8% YoY. In total, Chinavehicle sales volume will grow 2-3% YoY in 2018. The company thinks ASP willcontinue to go up given mix improvement.

SAIC expects the SUV segment to remain the growth driver and will make uphalf of total PV sales in the next 2-3 years. To benefit from the faster growth, thecompany will launch more SUVs in FY18E, and expects SUV to account for atleast 30% of its total sales. Meanwhile, management thinks price competition inthe SUV segment will intensify, especially for low-end SUVs.

SAIC sold 60k new energy vehicles (NEV) in 2017 and target to double that thisyear. To support this goal, the company will launch 7 NEV models, 4 of which willbe pure electric cars and 3 will be plug-in hybrids. SAIC will continue to be a localbrand leader in NEV technologies, such as for the battery management system,and will implement a flexible strategy in R&D while complying to the nationalstandard. Going forward, the company will also widen its battery supplier base.

SAIC is one of the biggest auto financing groups in China. By 2020E, itsauto financing business will probably contribute c. RMB6.5bn net profit (FY16:RMB3bn). The company's auto finance business is mainly operated by twosubsidiaries, namely the 100%-owned SAIC Finance and the SAIC GMAC JV. Thetotal loan balance at yearend 2017 is c. RMB200bn.

SAIC sold 520k local brand vehicles and expects to sell 650k-700k units in2018. The gross profit margin of the local brand is around 20%. Excluding R&D,operating profit improved in 9M17. The company expects profitability to continueto improve going forward.

Deutsche Bank view

In 2017, SAIC achieved 6.8% YoY vehicle sales growth. Going forward, weexpect SAIC Motor's sales momentum to be sustained with further product miximprovement. On a high base, we envision a stable earnings growth trajectory forthe company, which should support its generous dividend payout.

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