银河国际Yum Cha饮茶

Growth of new energy vehicle (NEV) sales in China in volume terms decelerated substantially to 28.2% in Oct 2016 after about 114% YoY growth in Jan-Sep 2016. We believe that the slowdown is due to (a) delays in releasing subsidies and (b) the release of a subsidy cut plan by the Chinese government. We believe that the growth rate of NEV sales will moderate further in Nov and Dec, given the lack of clarity of government policy. Industry news flow suggests that the new subsidy plan will be released soon. We share the view that it will provide clarity to the industry. But the Chinese government is likely raise the requirements substantially, and the car models will be re-evaluated under the new system. NEV sales are expected to be distorted in 1H 2017. Based on our discussion with industry players, the delay in releasing subsidies by Chinese government has also put pressure on the working capital of companies in the value chain of the NEV sector. We are ex-pecting NEV-related names to report a substantial increase in accounts receivable (AR) when they announce their 2016 results. For example, BYD’s [1211.HK] AR increased by RMB12.6bn as at 30 Sep 2016. Coslight 1043.HK] also highlighted that the Company’s AR are likely to increase due to slower payments by automak-ers waiting for government subsidies. We believe that the NEV sector in China is now in a catch-22 situation unless Chinese government clears up all concerns and outstanding issues. Shares of companies in the NEV-related sector, including auto-makers, such as BYD, FDG [0729.HK] and Yutong Bus, and components sup-pliers, such as Coslight, Tianeng Power [0819.HK] and Hybrid Kinetic [1188.HK], are under pressure, in our view, because of uncertainty about government policy. As BYD is a leading player in the industry, we note that there has been an increase in short selling of the Company’s stock; average daily short selling turnover as a percentage of total turnover increased from 14.6% in Sep 2016 and 21.7% in Oct 2016 to 32.4% in Nov 2016. Investors should be prudent; the sector may see a major correction triggered by concerns about the growth outlook.