Autohome (ATHM), which operates automobile listing websites
in China, jumped 14% on Friday to close above the $100 level on no
company-specific news, so we wanted to provide some color. The context of the
move seemed to involve a substantial number of
Chinese stocks seeing upward action fueled by optimism about a trade deal with
China based on Treasury Secretary Mnuchin's characterization of trade talks in
Beijing as "constructive." The stock surged to its highest level
since July 2018 on more than twice its average trading volume.
A trade deal between China and the US would clearly be a nice positive for ATHM and Chinese stocks in general. It would also be good for the Chinese economy, which has been a bit rocky lately. In fact, ATHM took a hit in early 2019 on some negative data that showed that Chinese auto sales had declined in 2018, for the first time in 20 years. That has been a been a bit of a cloud over the stock and other Chinese automakers over the past 6-9 months. On a more positive note, GM subsequently said that it expects 2019 China industry retail sales to be in-line with 2018 levels of nearly 27 mln, so that was a kernel of good news.
Autohome is not well known in the US, but it's a big name in China. In fact, ATHM sees itself as a preferred platform for automakers and dealers to conduct advertising campaigns. ATHM's dealer subscription and advertising services allow car dealers to market their inventory across mobile and online platforms.
ATHM offers sales leads, data analysis, and marketing services to assist automakers and car dealers with facilitating transactions. ATHM also provides assistance with related services, including auto financing, auto insurance, used car transactions, and aftermarket services. Moving customers to mobile has been a key initiative for ATHM, and one on which they have thus far made good progress.
From a broader sense, ATHM is benefitting from a couple of big trends in China: 1) the Chinese public is getting more comfortable with using online/mobile resources in the car buying process, and 2) moving such processes from offline to online increases that ad dollars at play.
However, a slowing economy and the effect of trade tensions with the US have slowed car sales in China. The 2018 decline in China auto sales was a big deal. For years, the Chinese auto market has been described as a huge growth opportunity that was still in its early stages of development. Industry watchers cited such factors as a strong economy, a rising middle class, increasing urbanization rates, the growth of disposable household income, and tax incentives related to automobile purchases as support for the market’s condition. The 2018 industry sales slip meant that investors needed to shake up those assumptions about underlying support. For its likely impact on macro health, an arrival at some sort of a trade deal between the two economic powerhouses would be great news for a company like Autohome.
Other Chinese auto-related stocks to watch include Bitauto Holdings (BITA), which is very similar to ATHM, and Uxin (UXIN), a recent IPO and the largest used car e-commerce platform in China. In early December, Uxin announced a collaboration deal with Taobao (owned by BABA) to establish an online used car shopping mall on Taobao Marketplace. Other names include KNDI, CAAS, SORL, and GELYF.
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