Play the Parts: Opportunity in the Growing Chinese Auto Sector

Tickerspy’s Chinese Auto Parts Index

CHINESE AUTO PARTS INVESTING IDEAS

• Popular long ideas: CAAS, CYD, SORL
• Popular short ideas: CAAS, TXIC, CYD
• Top dividend plays: None
• Pro favorites: CYD, SORL

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CHINESE AUTO PARTS COVERAGE

Auto parts manufacturers and retailers based in China

• China Spy: Liquidity is Back, Youku Has a Partner (EFUT, ISS, CAAS, ZX, YOKU, ZNH, SVN, HSOL, SOL, NQ)
• SORL's Earnings Not Enough To Lift Chinese Auto Parts Stocks (SORL, TXIC, CAAS, CYD, WATG)
• Three Hot U.S.-Listed China Sectors (CYD, CAAS, SORL, HSFT, ASIA, EFUT, NTES, CYOU, PWRD, GA, WZENY)

CHINESE AUTO PARTS CHART

CHINESE AUTO PARTS METRICS

Avg. Market Cap:	$195.5M
Avg. P/E Ratio:	5.0
Avg. Div Yield:	0.0%

This back door to the Chinese auto market is earning investors big gains across the board.

Only three of the five largest Chinese carmakers, as identified by Road & Track magazine in April, can be traded in the U.S. None of them are listed on a major exchange, and as is often the case with over-the-counter and pink sheet stocks, low volume makes liquidity an issue.

Luckily for U.S. investors, there is an alternative play on the sector via automotive components. The Chinese Auto Parts Stocks Index is soaring ahead of the S&P 500 by 26% over the last month, and three of its four components have added double-digit gains in just the last week.

Wonder Auto (WATG), via its subsidiaries, develops, manufactures, and sells automotive electrical parts like alternators and starters, as well as some other engine components. The company has shot up by 40% in the last month, accelerating after announcing a joint development agreement with BYD (OTC: BYDDF) towards the end of September.

SORL Auto Parts (SORL), via its 90% stake in the Ruili Group Ruian Auto Parts, manufactures and distributes brake valves and other components to original equipment manufacturers (OEMs) and aftermarket buyers in China and internationally, according to Reuters. The stock has mimicked the trend set by Wonder Auto over the last month, with little news of its own.

This week, analyst Merriman Curhan Ford upgraded China Automotive Systems (CAAS) to Buy from Neutral yesterday, citing the company’s position to benefit from improved Chinese passenger car sales trends.

Tongxin International (TXIC) has also traded in tandem with SORL and Wonder over the last month. The stock accelerated higher in early October after announcing a second “on-site” manufacturing contract with a leading vehicle manufacturer. The contract partner was kept anonymous in the October 8 press release, but Tongxin noted its staff would work at the company’s plant assembling cabs for heavy-duty commercial trucks.

As of this writing, the Chinese Auto Parts Stocks Index is outperforming all of tickerspy’s more than 250 sector-based Indexes over the last month, up by 28%.

Tags: BYDDF, CAAS, SORL, TXIC, WATG