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Global Research

New entry level models driving faster than expected PSA market share gain: The strong
reception of entry level models such as compact sedan Peugeot 301 and Citroen Elysee and
sub-compact SUV Peugeot 2008 has driven DPCAs better than expected 24% YoY volume
growth in 1H14. We believe the above models, together with Peugeot 408 and 308 (compact
sedan) and Citroen C3-XR (compact SUV) to be launched in 2H14/2015, will drive volume
growth in 2H14/2015. We lift our DPCA sales volume forecast to 703k units (+28% YoY),
slightly higher than the companys revised target of 700k units.
Improving competitiveness of Nissans SUV portfolio, but sedan products face rising
competition: The better than expected reception of the X-trail has driven earnings revisions
for Dongfeng in 1H14. The new Qashqai, with a similar look to the successful new X-trail,
should be another boost to Nissan SUV sales in 2015. However, we believe Nissans sedan
products are in a weaker product cycle compared with its competitors and face rising
competition. Recent comments from Nissan CFO Joseph Peter on high inventory levels in
China (c2.7 months as at 1H14) lead us to expect greater pressure on sales volumes in 3Q14.
Upward earnings revisions to pause in 2H14: We raise our earnings by 9%/17% for 2014-
15e. 2014 consensus earnings have been lifted by 10% over the past three months, which we
believe mostly factors in the strong X-trail sales and DPCAs stronger than expected sales.
Since Nissan intends to reduce inventory at the dealer level in 3Q14 and the new model launch
of DF Nissan/Honda will be concentrated on the year-end, we think upward earnings revisions
will pause in 2H14. We downgrade our rating to Neutral as we believe inventory
rationalisation by DF Nissan could drive lower volume growth and add pressure to the share
price in 3Q14, which could provide a better entry point to the stock.
Downgrade to N; raise target to HKD15.4 from HKD13.6: Our ROE-based target price is
based on 8.7x 2014e PE. While the market has become more positive on the sales performance
of DPCA and Nissan X-trail, we see pressure on Nissans sedan products. We expect 1H14
earnings to grow 9% YoY to RMB6,021m. We have not included the potential accounting
gain from the PSA investment in our forecast. Catalysts include monthly sales volumes and
interim results in late August.
Dongfeng Motor (489 HK)
Downgrade to N: Entering the pit lane
New entry level models driving PSA market share gain
High inventory level at Nissan could result in lower volume
growth in 3Q14
Downgrade to N from OW, but raise target price to HKD15.4
from HKD13.6, based on 8.7x PE (vs 8.2x previously)
Mid Cap
Autos
Equity China
Company report

Index^ HSCEI
Index level 11,119
RIC 0489.HK
Bloomberg 489 HK
Source: HSBC
Neutral
Target price (HKD) 15.40
Share price (HKD) 13.94
Forecast dividend yield (%) 1.9
Potential return (%) 12.4
Note: Potential return equals the percentage
difference between the current share price and
the target price, plus the forecast dividend yield
Dec 2013 a 2014 e 2015 e
HSBC EPS 1.02 1.41 1.66
HSBC PE 10.8 7.9 6.7
Performance 1M 3M 12M
Absolute (%) 0.4 34.8 31.0
Relative^ (%) -6.7 18.6 13.9
Note: (V) = volatile (please see disclosure appendix)
Enterprise value (CNYm) 26711
Free float (%) 33
Market cap (USDm) 15,559
Market cap (HKDm) 120,580
Source: HSBC
1 August 2014
Carson Ng*
Analyst
The Hongkong and Shanghai Banking
Corporation Limited
+852 2996 6625
carsonksng@hsbc.com.hk

View HSBC Global Research at:
http://www.research.hsbc.com
*Employed by a non-US affiliate of
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to FINRA
regulations
Issuer of report: The Hongkong and
Shanghai Banking
Corporation Limited
Disclaimer &
Disclosures
This report must be read
with the disclosures and
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,
which forms part of it


2
Dongfeng Motor (489 HK)
Autos
1 August 2014


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Financials & valuation
Financial statements
Year to 12/2013a 12/2014e 12/2015e 12/2016e
Profit & loss summary (CNYm)
Revenue 37,263 63,523 71,822 74,044
EBITDA -309 627 869 1,221
Depreciation & amortisation -782 -774 -871 -945
Operating profit/EBIT -1,091 -147 -1 276
Net interest 374 175 334 562
PBT 10,712 12,327 14,744 15,998
HSBC PBT 10,712 12,327 14,744 15,998
Taxation -109 -120 -132 -145
Net profit 10,528 12,118 14,319 15,598
HSBC net profit 8,768 12,118 14,319 15,598
Cash flow summary (CNYm)
Cash flow from operations -9,675 -558 1,544 -2,187
Capex -1,268 -1,555 -1,552 -1,585
Cash flow from investment 17,982 7,119 9,393 10,037
Dividends -1,521 -1,551 -1,818 -2,148
Change in net debt -2,661 -5,010 -9,120 -5,703
FCF equity -10,137 -1,569 827 -2,709
Balance sheet summary (CNYm)
Intangible fixed assets 4,019 4,372 4,775 5,238
Tangible fixed assets 18,454 19,549 20,588 21,603
Current assets 57,622 69,619 85,813 87,756
Cash & others 24,282 35,948 45,068 50,771
Total assets 115,998 139,436 161,373 169,394
Operating liabilities 46,089 46,694 56,051 50,459
Gross debt 5,875 12,531 12,531 12,531
Net debt -18,407 -23,417 -32,537 -38,240
Shareholders funds 63,135 73,616 85,904 99,261
Invested capital 9,724 10,898 10,058 13,367

Ratio, growth and per share analysis
Year to 12/2013a 12/2014e 12/2015e 12/2016e
Y-o-y % change
Revenue 511.9 70.5 13.1 3.1
EBITDA 38.6 40.4
Operating profit
PBT 17.0 15.1 19.6 8.5
HSBC EPS -2.9 37.3 18.2 8.9
Ratios (%)
Revenue/IC (x) 4.7 6.2 6.9 6.3
ROIC -12.9 0.3 1.9 4.3
ROE 13.9 16.5 16.7 15.7
ROA 12.1 9.8 10.0 9.9
EBITDA margin -0.8 1.0 1.2 1.6
Operating profit margin -2.9 -0.2 0.0 0.4
EBITDA/net interest (x) 0.8
Net debt/equity -29.2 -31.8 -37.9 -38.5
Net debt/EBITDA (x) 59.6 -37.3 -37.4 -31.3
CF from operations/net debt
Per share data (CNY)
EPS reported (fully diluted) 1.22 1.41 1.66 1.81
HSBC EPS (fully diluted) 1.02 1.41 1.66 1.81
DPS 0.18 0.21 0.25 0.27
Book value 7.33 8.54 9.97 11.52




Valuation data
Year to 12/2013a 12/2014e 12/2015e 12/2016e
EV/IC 4.3 2.5 1.3 0.2
PE* 10.8 7.9 6.7 6.1
P/Book value 1.5 1.3 1.1 1.0
Dividend yield (%) 1.6 1.9 2.2 2.4
Note: * = Based on HSBC EPS (fully diluted)


Price relative
Source: HSBC


Note: price at close of 30 Jul 2014
7
8
9
10
11
12
13
14
15
16
17
7
8
9
10
11
12
13
14
15
16
17
2012 2013 2014 2015
Dongfeng Motor Rel to HSCEI


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Dongfeng Motor (489 HK)
Autos
1 August 2014
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New compact models driving DPCA market share gain
DPCA sales volumes increased 24% YoY to 343k units in 1H14. The strong sales growth was driven by
new compact models, including: 1) the launch of the new generation compact sedan Citroen Elysee in
October 2013 (+72% YoY); 2) the ramp-up of compact SUV Peugeot 3008 (+37% YoY); 3) the release
of the new compact sedan Peugeot 301 in November 2013; and 4) the release of the small SUV Peugeot
2008 in April 2014.
We believe the new model line-up in 2H14 should be an additional growth driver for DPCA. New models
include the new generation of Peugeot 408 and 308 compact sedans to be released in August 2014 and late
2014, respectively, and the new compact SUV Citroen C3-XR to be launched in late 2014/ early 2015.
DPCAs market share increased from 3.2% in 1H13 to 3.6% in 1H14. We expect DPCAs sales volume
to continue to grow at 32% YoY in 2H14 and total sales in FY14 to be 703k (+28% YoY) compared with
the company's target of 700k units.
Sales volume ramp-up of Peugeot 301 Sales volume ramp-up of Citroen Elysee



Source: Company data, CAAM, HSBC Source: Company data, CAAM, HSBC


0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Sep-13 Nov-13 Jan-14 Mar-14 May-14
Units
Peugeot 301
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan-12 May-12Sep-12 Jan-13 May-13Sep-13 Jan-14 May-14
Units
Citron Elyse
Entering the pit
New entry level models driving PSA market share gain
High inventory level at Nissan could result in lower volume growth
in 2H14; we expect upward earnings revisions to pause in 2H14
Downgrade to Neutral from OW, but raise target price to HKD15.4
from HKD13.6 based on 8.7x PE (vs 8.2x previously)


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Dongfeng Motor (489 HK)
Autos
1 August 2014
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Sales volume ramp-up of Peugeot 2008 Rising sales volume of Peugeot 3008



Source: Company data, CAAM, HSBC Source: Company data, CAAM, HSBC


Sales volume growth of DPCA

Source: Company data, CAAM, HSBC


Not an outright positive on DF Nissan
Dongfeng Nissans sales volumes increased 21% YoY to 477k units in 1H14, driven by: 1) strong sales of
the new X-trail launched in March 2014 (+512% YoY); 2) the ramp-up of Sylphy (+29% YoY); and
3) the low base of Teana in 1H13 as there was almost no production of this model in 1Q13 (+34% YoY).
At Nissans 1QFY14 results announcement on 28 July 2014, CFO Joseph Peter said that Nissans
inventory levels in China as of June 14 were definitely higher than where we would like them to be. He
said that Nissan inventories were 880k units globally, excluding China, and would increase to about 1.06-
1.07m with China included. This suggests that Nissans inventories in China (dealer+OEM level) were
around 180-190k units at June 2014, representing 2.6-2.7 months of average sales in 1H14.
Mr Peter said the company had already started to take action to bring inventories down and said the
company did not want to get into a situation where it had to compete on price to achieve this, but would
manage this in a structured way. He also said that July sales volumes would reflect the aim of cutting
inventory levels in China.
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
Units
Peugeot 2008
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-1
Units
Peugeot 3008
-50%
-25%
0%
25%
50%
75%
100%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
DPCA YoY growth %


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Dongfeng Motor (489 HK)
Autos
1 August 2014
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In terms of models, X-trail had low inventory, while Teana LWB and Sylphy were at the high end of the
appropriate range.
Weekly delivery data showed that, during the period 1-18 July, Dongfeng Nissan declined 34% YoY and
48% MoM after adjusting for working days. We believe the JV has started clearing the inventory at the
dealer level and we may see pressure on sales volumes in 3Q14.
We lift our sales volume forecast for Dongfeng Nissan in FY14 by 2% to 1.07m (+16% YoY), slightly
lower than the companys sales target of 1.08m, and expect growth in 2H14 to slow to 13% YoY.

Sales volume ramp-up of Nissan X-Trail Sales volume ramp-up of Nissan Sylphy



Source: Company data, CAAM, HSBC Source: Company data, CAAM, HSBC


Sales volume growth of Dongfeng Nissan

Source: Company data, CAAM, HSBC




0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan-12 May-12Sep-12 Jan-13 May-13Sep-13 Jan-14 May-14
Units
Nissan X-Trail
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Jan-12 May-12Sep-12 Jan-13 May-13Sep-13 Jan-14 May-14
Units
Nissan Slyphy Nissan Sylphy
-50%
-25%
0%
25%
50%
75%
100%
0
20,000
40,000
60,000
80,000
100,000
120,000
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
Dongfeng Nissan YoY growth %


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Dongfeng Motor (489 HK)
Autos
1 August 2014
abc
Brand new models to drive DF Honda growth in 2015e
Dongfeng Honda sales volumes increased 23% YoY to 172k units in 1H14, driven by the launch of
Honda Jade in September 2013 and the solid performance of Honda CR-V (+11% YoY).
We expect the new product launches to support the growth of Dongfeng Honda in 2015. New products
include: 1) the sub-compact SUV model expected in December 2014; 2) the new generation of mid-size
sedan Spirior to be launched in December 2014; and 3) a sub-compact sedan model expected in 2015.
Sales volume ramp-up of Honda CR-V Sales volume ramp-up of Honda Jade



Source: Company data, CAAM, HSBC Source: Company data, CAAM, HSBC


Sales volume growth of Dongfeng Honda

Source: Company data, CAAM, HSBC



0
5,000
10,000
15,000
20,000
25,000
Jan-12 May-12Sep-12 Jan-13 May-13Sep-13 Jan-14 May-14
Units
Honda CR-V
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Aug-13 Dec-13 Apr-14
Units
Honda Jade
-50%
-25%
0%
25%
50%
75%
100%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
Dongfeng Honda YoY growth %


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Dongfeng Motor (489 HK)
Autos
1 August 2014
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Sales volume and YoY growth of Dongfengs major entities

Source: Company data, CAAM, HSBC



Discount level of DF Honda, DF Nissan and DPCA

Source: CPCA, HSBC



395,338
276,896
139,388
88,198
41,564
476,803
343,170
171,859
118,398
40,377
20.6%
23.9%
23.3%
34.2%
-2.9%
0
100,000
200,000
300,000
400,000
500,000
600,000
Dongfeng Nissan DPCA Dongfeng Honda Dongfeng Liuzhou Dongfeng PV
1H13 1H14 Yoy growth
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14Mar-14 Apr-14 May-14
Dongfeng Honda Dongfeng Nissan DPCA


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Dongfeng Motor (489 HK)
Autos
1 August 2014
abc
Key entities product portfolio (upcoming models highlighted in red)
DF Nissan DF Honda DF Peugeot DF Citroen
Sub-compact March, N/3Q10 TBC, N/2015 207 Hatchback, N/1Q09 C2, N/4Q06
Venucia R30, N/3Q14 207 sedan, N/4Q08
Compact Livina, S/2Q13 Civic, S/4Q11 307 Hatchback, N/4Q04 Elysee, S/3Q13
Sylphy, S/2Q12 Ciimo, N/2Q12 307 sedan, N/3Q07 C4L, N/4Q12
Tiida, S/2Q11 308, N/4Q11 C-Quatre, S/1Q12
Sunny, S/1Q11 301, N/4Q13
Venucia D50, N/2Q12 408, N/1Q10
Venucia R50, N/3Q12 308, S/late 2014
Venucia R50X, N/3Q13 408, S/Aug-14
Mid-size Teana, S/1Q13 Spirior, N/4Q09 508, N/3Q11 C5, N/2012
Infiniti Q50L, N/Nov-14 Spirior, S/late14 508, F/1Q15
Sub-compact SUV Concept V, N/late 14 2008, N/Apr-14
Compact SUV Qashqai, N/1Q08 CR-V, S/1Q12 3008, N/1Q13 C3-XR, N/late 2014
Venucia SUV, N/2015
Qashqai, S/1Q15
Mid-size SUV X Trail, S/Mar-14
Murano, N/3Q11
Murano, S/2015
Infiniti QX50L, N/2015
MPV Elysion, N/2Q12
Jade, N/3Q13
Source: Company data, HSBC
Note: N-brand new model, S-successor model, F-mid-cycle facelift

Sales volume revision
Sales volume revision of PV
_____________________ Revised ______________________ ____ Old / Revision % ____
2013 2014e 2015e 2016e 2014e 2015e
Dongfeng Nissan 926,229 1,074,763 1,194,532 1,258,374 1,049,139 1,147,844
YoY% 16.0% 11.1% 5.3% 2.4% 4.1%
Dongfeng Honda 321,409 366,026 423,894 445,428 359,770 410,686
YoY% 13.9% 15.8% 5.1% 1.7% 3.2%
DPCA 550,007 702,841 826,690 853,260 620,402 665,880
YoY% 27.8% 17.6% 3.2% 13.3% 24.1%
Dongfeng PV 80,077 84,571 168,698 168,698 87,153 108,868
YoY% 5.6% 99.5% 0.0% -3.0% 55.0%
Dongfeng Liuzhou 180,189 238,242 252,849 252,849 186,388 199,453
YoY% 32.2% 6.1% 0.0% 27.8% 26.8%
Zhengzhou Nissan 55,291 59,884 62,222 64,497 60,540 61,583
YoY% 8.3% 3.9% 3.7% -1.1% 1.0%
Total passenger vehicles 2,113,202 2,526,326 2,928,886 3,043,106 2,363,392 2,594,314
YoY% 19.5% 15.9% 3.9% 6.9% 12.9%
Source: Company data, HSBC








9
Dongfeng Motor (489 HK)
Autos
1 August 2014
abc
Weakness in domestic peers driving change in valuation

Forward PE chart of OEMs

Source: Bloomberg, Company data, HSBC Research

Dongfeng valuation as measured by forward PE used to be in line with the market capitalisation
weighted average of the auto sector from 2010 to 3Q12.
As both Geely (175 HK, N, HKD3.08) and Great Wall Motors (2333 HK, N(V), HKD32.20)
experienced strong volume growth post 3Q12, both stocks saw a re-rating from the trough of 4.3-5.2x
forward PE in 2011 to the peak of 12.8-13.2x forward PE in 2013. Dongfeng then traded at a discount
to the market-capital weighted average.
As Great Wall and Geely are facing company-specific issues with structural challenges from both the
SOEs domestic brands and lower end models of JVs, both of the stocks started to de-rate to the
current level of 8x.
In 4Q13, the valuation discount of Dongfeng was as much as 37% to the industry average. We believe
Dongfengs valuation discount to the industry average will narrow again in the coming six months.
Our valuation target implies 7.7x rolling forward PE, versus the current industry average of 8.5x.
Potential gain on PSA investment
Dongfeng invested EUR800m in the PSA reserved capital increase and rights issue in 1H14. The
transaction was completed on 23 May 2014.
The consideration paid by Dongfeng is below its share of net assets of PSA following the transaction.
Depending on the final fair value adjustment for the acquisition, we believe Dongfeng could book a
one-off accounting gain on negative goodwill of RMB6,010m, as illustrated in the table below.
We have not included the potential accounting gain from PSA investment in our forecasts.
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Brilliance Dongfeng GAC Geely Great Wall Mkt cap weight PE


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Dongfeng Motor (489 HK)
Autos
1 August 2014
abc
Potential gain on negative goodwill from PSA investment
No. of shares acquired Price per share (EUR) Total consideration (EURm)
PSA Reserved Capital Increase 69,866,666 7.5 524
PSA Rights Issues 40,755,555 6.77 276
110,622,221 7.23 800

Consideration in HKD m 8,575
Consideration in RMB m 6,860

Potential gain on negative goodwill Units
PSA net asset @ 31 Dec 2013 EUR m 7,791
Equity increase from Reserved Capital Increase EUR m 1,048
Total net asset EUR m 8,839
14.1% shareholding EUR m 1,246

Consideration EUR m 524

Potential gain on negative goodwill EUR m 722
Potential gain on negative goodwill RMB m 6,010
Source: Company data, HSBC estimates
Note: Assumptions based on spot rate of RMB8.32/EUR


Earnings revisions
Earnings revisions in equity accounting
________ Equity accounting Revised _________ Proportionate consolidation Old

RMBm 2014e 2015e 2016e 2014e 2015e
Revenue 63,523 71,822 74,044 194,194 213,124
Cost of sales (54,571) (61,886) (63,694) (158,257) (173,947)
Gross Profit 8,952 9,935 10,350 35,937 39,177
Gross Profit margin % 14.1% 13.8% 14.0% 18.5% 18.4%

Other income/other gains and losses 559 599 618 1,822 1,822
Selling and distribution expenses (3,839) (4,144) (4,186) (10,412) (11,413)
Administrative expenses (3,688) (3,981) (4,021) (6,104) (6,690)
Other expenses (2,131) (2,410) (2,484) (5,960) (6,560)
EBIT (147) (1) 276 15,284 16,336
EBIT Margin % -0.2% 0.0% 0.4% 7.9% 7.7%

Interest income 543 835 1,063 833 820
Finance costs (368) (501) (501) (276) (276)

Share of profit of JVs 12,238 13,481 14,079 - -
Share of profit of associates 60 930 1,080 513 1,287

Profit before tax 12,327 14,744 15,998 16,353 18,166
Income tax (120) (132) (145) (3,960) (4,220)
Net profit after tax 12,207 14,612 15,852 12,393 13,946

Attributable to
Owner of company 12,118 14,319 15,598 11,154 12,273
Non-controlling interests 89 292 255 1,239 1,674

Revision in earnings attributable to
shareholders
8.6% 16.7%
Source: Company data, HSBC estimates

We adopt equity accounting to align with Dongfengs disclosure format as from 2013.


11
Dongfeng Motor (489 HK)
Autos
1 August 2014
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We lift our NPAT forecast by 9%/17% in 2014-15e. In our 2015 and 2016 forecast, we have factored
in a share of profits of RMB624m and RMB743m from the PSA investment based on the earnings
forecast by our European Auto analyst Horst Schneider (see Peugeot: The French lion keeps on
fighting, 2 July 2014. [UG FP, OW(V), EUR11.24]).
We expect NPAT to increase 15%/18%/9% in 2014-16e.
1H14 results preview
1H14 results preview
RMBm 1H14e 1H13 YoY% 2H14 2014e % of FY14e
Revenue 32,742 9,750 235.8% 30,781 63,523 51.5%
Cost of sales (27,955) (8,523) 228.0% (26,616) (54,571) 51.2%
Gross Profit 4,787 1,227 290.2% 4,165 8,952 53.5%
Gross Profit margin % 14.6% 12.6% 13.5% 14.1%

Other income/other gains and losses 261 259 0.8% 298 559 46.7%
Selling and distribution expenses (1,828) (696) 162.7% (2,011) (3,839) 47.6%
Administrative expenses (1,756) (566) 210.3% (1,932) (3,688) 47.6%
Other expenses (1,099) (523) 110.1% (1,033) (2,131) 51.5%
EBIT 365 (299) -222.1% (512) (147) -248.7%
EBIT Margin % 1.1% -3.1% -1.7% -0.2%

Interest income 283 277 2.0% 261 543 52.0%
Finance costs (184) (82) 124.5% (184) (368) 50.0%

Share of profit of JVs 5,535 5,620 -1.5% 6,703 12,238 45.2%
Share of profit of associates 124 113 10.0% (64) 60 206.9%

Profit before tax 6,123 5,629 8.8% 6,204 12,327 49.7%
Income tax (60) (74) -19.0% (87) (120) 50.0%
Net profit after tax 6,063 5,555 9.1% 6,117 12,207 49.7%

Attributable to
Owner of company 6,021 5,538 8.7% 6,070 12,118 49.7%
Non-controlling interests 42 17 148.4% 46 89 47.7%
Source: Company data, HSBC estimates

We expect NPAT in 1H14 to increase 9% YoY to RMB6,021m.
Excluding the one-off gain of RMB1,760m from the CV transaction in 1H13, we expect 1H14
earnings to increase 60% YoY to RMB6,021m, driven by the increased stake in the CV business,
rising volume and utilisation of DF Nissan, DF Honda and DPCA.




12
Dongfeng Motor (489 HK)
Autos
1 August 2014
abc
Valuation and risks
As the auto industry is cyclical and it is difficult to predict cash flows through cycles, we do not think
DCF is the best metric by which to value auto makers. We use the following formula to derive our fair
valuation of the company:
Target PE = (ROE g) (ROE [COE-g])

ROE 2014e 16.5%
Cost of equity 12.1%
Rf 3.5%
Equity risk premium 6.5%
Equity beta 1.33
g 2.0%
Source: HSBC estimates

We raise our 2014 ROE forecast to 16.5% from 15.8% previously. We raised our long-term growth
assumption from 1.5% to 2.0% to factor in the higher potential growth driven by the strong
performance of DPCA. We cut beta from 1.4 to 1.33 and our COE assumption decreases from 12.5%
to 12.1%.
As a result, our ROE-based target PE increases to 8.7x from previously 8.2x.
Based on our adjusted 2014e diluted EPS of RMB1.41 (previously RMB1.29), we derive a fair valuation
of HKD15.4 (previously HKD13.6 with embedded RMB/HKD exchange rate spot rate of 1.26).
Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and
below the hurdle rate of 9.5% for China stocks. Our target price implies a potential return of 12%
(including the forecast dividend yield), within the Neutral band; therefore, we downgrade our rating to
Neutral from Overweight. Potential return equals the percentage difference between the current share
price and the target price, including the forecast dividend yield when indicated.
Key upside risks
Better than expected sales volume growth of DF Nissan: We expect DF Nissan to see lower YoY
growth in 3Q14 driven by the de-stocking exercise. If inventory at the dealership level is cleared more
rapidly than expected, DF Nissan sales volume growth could be stronger than we forecast.
Higher than expected operating leverage: All major JVs have seen decent volume growth YTD;
operating leverage from the increasing volume, utilisation and procurement levels could provide upside
risks to our forecasts.
Key downside risks
CV business: Following the re-structuring of the CV business, earnings disclosure was distorted by the
change in percentage of ownership. Given the industry growth in the commercial vehicle market is still
under pressure, there is a risk that CV business profitability is lower than expected.


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Dongfeng forward PE band chart

Source: Thomson Reuters Datastream, Company data, HSBC estimates




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Autos
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Carson Ng.
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;
and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,
technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.
HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when
HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at
www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this
website.
HSBC believes 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. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors
should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not
be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities
Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.


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Dongfeng Motor (489 HK)
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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 31 July 2014, the distribution of all ratings published is as follows:
Overweight (Buy) 44% (32% of these provided with Investment Banking Services)
Neutral (Hold) 37% (31% of these provided with Investment Banking Services)
Underweight (Sell) 19% (27% of these provided with Investment Banking Services)

Share price and rating changes for long-term investment opportunities
Dongfeng Motor (0489.HK) Share Price performance HKD Vs HSBC rating
history
Recommendation & price target history
From To Date
N/A Underweight (V) 17 February 2013
Underweight (V) Neutral 21 August 2013
Neutral Overweight 03 March 2014
Target Price Value Date
Price 1 11.10 17 February 2013
Price 2 11.40 04 June 2013
Price 3 13.60 03 March 2014
Source: HSBC

Source: HSBC

HSBC & Analyst disclosures
Disclosure checklist
Company Ticker Recent price Price Date Disclosure
DONGFENG MOTOR 0489.HK 13.88 31-Jul-2014 4, 5, 6, 7, 11
Source: HSBC
1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4 As of 30 June 2014 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5 As of 30 June 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6 As of 30 June 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 30 June 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.
9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
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detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives)
of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.
Additional disclosures
1 This report is dated as at 1 August 2014.
2 All market data included in this report are dated as at close 30 July 2014, unless otherwise indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or
price sensitive information is handled in an appropriate manner.


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Dongfeng Motor (489 HK)
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1 August 2014
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Disclaimer
* Legal entities as at 30 May 2014
UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation
Limited, Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada,
Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Dsseldorf; 000
HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai;
JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC
Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking
Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul
Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC
Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel
Aviv; US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC
Mxico, SA, Institucin de Banca Mltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco
Mltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The
Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong
SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch
Issuer of report
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Industrials
Colin Gibson
Global Sector Head, Industrials
+44 20 7991 6592 colin.gibson@hsbcib.com
Sean McLoughlin
Analyst
+44 20 7991 3464 sean.mcloughlin@hsbcib.com
Michael Hagmann
Analyst
+44 20 7991 2405 michael.hagmann@hsbcib.com
Mark Webb
Analyst
+852 2996 6574 markwebb@hsbc.com.hk
Parash Jain
Analyst
+852 2996 6717 parashjain@hsbc.com.hk
Shishir Singh
Analyst
+852 2822 4292 shishirkumarsingh@hsbc.com.hk
Walden Shing
Analyst
+852 2996 6751 waldenshing@hsbc.com.hk
Stephen Wan
Analyst
+852 2996 6566 stephenwan@hsbc.com.hk
Thomas Zhu, CFA
Analyst
+852 2822 4325 thomasjzhu@hsbc.com.hk
Carrie Liu
Analyst
+ 8862 6631 2864 carriecfliu@hsbc.com.tw
Brian Cho
Head of Research, Korea
+822 3706 8750 briancho@kr.hsbc.com
Paul Choi
Analyst
+822 3706 8758 paulchoi@kr.hsbc.com
Yeon Lee
Analyst
+822 3706 8778 yeonlee@kr.hsbc.com
Jena Han
Analyst
+822 3706 8772 jenahan@kr.hsbc.com
Sinyoung Park
Analyst
+822 3706 8770 sinyoungpark@kr.hsbc.com
Incheol Yu
Associate
+822 3706 8756 incheolyu@kr.hsbc.com
Thilan Wickramasinghe
Analyst
+65 6658 0609 thilanw@hsbc.com.sg
Kristy Lee
Analyst
+65 6658 0616 kristy.zx.lee@hsbc.com.sg
Puneet Gulati
Analyst
+91 22 2268 1235 puneetgulati@hsbc.co.in
Joerg-Andre Finke
Analyst
+ 49 211 910 3722 joerg-andre.finke@hsbc.de
Richard Schramm
Analyst
+ 49 211 910 2837 richard.schramm@hsbc.de
Juergen Siebrecht
Analyst
+ 49 211 910 3350 juergen.siebrecht@hsbc.de
Autos
Niels Fehre
Analyst
+49 211 910 3426 niels.fehre@hsbc.de
Horst Schneider
Analyst
+49 211 910 3285 horst.schneider@hsbc.de
Carson Ng
Analyst
+852 2822 4397 carsonksng@hsbc.com.hk
Yogesh Aggarwal
Analyst
+91 22 2268 1246 yogeshaggarwal@hsbc.co.in

Transportation
Andrew Lobbenberg
Analyst
+44 20 7991 6816 andrew.lobbenberg@hsbcib.com
Joe Thomas
Analyst
+44 20 7992 3618 joe.thomas@hsbcib.com
Wei Sim
Analyst
+852 2996 6602 weisim@hsbc.com.hk
Shishir Singh
+852 2822 4292 shishirkumarsingh@hsbc.com.hk
Achal Kumar
Analyst
+91 80 3001 3722 achalkumar@hsbc.co.in
Rajani Khetan
Analyst
+852 3941 0830 rajanikhetan@hsbc.com.hk
Jingyuan Zhai
Associate
+852 3941 7009 jocelynzhai@hsbc.com.hk
Aric Hui
Associate
+852 2822 3165 ariccshui@hsbc.com.hk
Construction & Engineering
Neel Sinha
Head of Equity Research, South East Asia
+65 6658 0606 neelsinha@hsbc.com.sg
Pierre Bosset
Head of French Research
+33 1 56 52 43 10 pierre.bosset@hsbc.com
Tarun Bhatnagar
Analyst
+65 6658 0614 tarunbhatnagar@hsbc.com.sg
John Fraser-Andrews
Analyst
+44 20 7991 6732 john.fraser-andrews@hsbcib.com
Jeffrey Davis
Analyst
+44 207 991 6837 jeffrey1.davis@hsbcib.com
Ivan Enriquez
+52 55 5721 2397 ivan.enriquez@hsbc.com.mx
Claudia Navarrete
Analyst
+52 55 5721 2422 claudia.navarrete@hsbc.com.mx
Anderson Chow
Analyst
+852 2996 6669 andersonchow@hsbc.com.hk
Lesley Liu
Analyst
+852 2822 4524 lesleylliu@hsbc.com.hk
Raj Sinha
Analyst
+ 971 4423 6932 raj.sinha@hsbc.com
Levent Bayar
Analyst
+90 212 376 46 17 leventbayar@hsbc.com.tr
Ashutosh Narkar
Analyst
+91 22 2268 1474 ashutoshnarkar@hsbc.co.in
Tobias Loskamp
Analyst
+49 211 910 2828 tobias.loskamp@hsbc.de
Specialist Sales
Rod Turnbull
+44 20 7991 5363 rod.turnbull@hsbcib.com
Oliver Magis
+49 21 1910 4402 oliver.magis@hsbc.de
Billal Ismail
+44 20 7991 5362 billal.ismail@hsbcib.com

Global Industrials Research Team