The sales of automobiles in China fell 16.4% year-on-year to 1.912 million in May, and the sales of passenger cars down 17.4% year-on-year to 1.561 million for the same period, declining for eleven months, figures released by the China Association of Automobile Manufacturers. On the other hand, the China auto inventory index reported 1.65 as of the end of May, retreated from its peak at 2.1 as of February, but the reading is still at the alert level, implying a pressure from auto dealer to reducing its inventory. In order to boost auto consumption, officials from Guangzhou and Shenzhen unleashed stimulus program to counter the weak auto demand; this included the easing of purchase restriction, meaning that addition 100 thousand and 80 thousand new license plates will be issued each year to the current limit at 120 thousand and 100 thousand, respectively. Apart from the restriction ease, policies also prohibited new purchase restriction from launching and encouraged auto sales into rural areas. The current valuation of auto sector is attractive as the FY2019 estimated average PE reading at below 7. However, we expect the auto sector is still facing pressure amid the undetermined stimulus impact on auto demand and the coming off season starting on June.

Bloomberg, China Association of Automobile Manufacturers

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