A Study Of Valuation Methods For The Chinese Automobile Industry

Along with the establishment of Shanghai stock exchange in1990and Shenzhen stock exchange in1991, there have been94automobileenterprises, auto parts enterprises and dealer enterprises in the Chineseequity market including Hongkong. The valuation levels for theautomobile industry are lower than the average of all industries. Therehas been an onging debate on the valuation of the automobile industryand its role in the national economy. Are the current valuation levelsreasonable? How do they compare with the international peers? Weneed to develop feasible methods with general implications to study therationality of valution.This paper uses the DCF method and the relative valuation methodto study the valuation of the automotive industry of China. We focus onseveral leading companies in their representing industry. Specically, westudy SAIC Group (600104.SH), Huayu auto (600741.SH), as well asPangda Group (601258.SH). Further, we compare the valuation of theabove industries with their internation peers.From the empirical study, we found that the DCF approach yieldsmuch higher valuation than the relative valuation method for stable andwell-performing companies. The valuation level of vehicle firms iscomparable to the foreign mature auto markets. The valuation levels ofparts companies are significantly higher than those of the foreign peers. There is no obvious premium for the valuation of dealers.