China sale boosts BMW target
Updated: 2011-07-13 13:58
A BMW five series is on display at the headquarters of the German luxury carmaker in Munich May 11, 2011. [Photo / Agencies]
Luxury carmaker BMW hiked its profit target for the year thanks to booming sales in China as German auto companies prove quicker at tapping into growth in emerging markets than rivals.
French mass market partner PSA Peugeot Citroen is stepping outside Europe, but its lingering reliance on shaky demand in euro zone countries delivered only minimal first half sales growth.
Rising lifestyles in the world's most populated countries like China, India and Russia are opening up new markets for premium and luxury brands.
Among those joining the gold rush, Volkswagen, BMW and Mercedes-Benz said their vehicle sales for the first half had not only never been higher, they were increasing at around double-digit rates.
BMW's raised outlook comes as China is slamming on the breaks on growth in an effort to wrestle down inflation, leaving investors increasingly concerned about the demand for new cars.
"Since BMW is the carmaker with the most conservative guidance, it's good because it offers a certain amount of visibility for the industry," said Sascha Gommel, analyst with Commerzbank. "They wouldn't have raised their targets if the Chinese market was about to slow down appreciably."
Premium cars do best
The more expensive the brand, the greater the growth. BMW brand retail volumes jumped nearly 18 percent during the period, while Porsche sports car sales zoomed ahead by 37 percent.
"The market doesn't believe the Chinese customer is sustainable, but he's more sustainable than the company's European customers," said Credit Suisse analyst Arndt Ellinghorst.
Ellinghorst recommends investors stick with premium over mass market brands, taking the view that Audi, BMW, Porsche and Mercedes can deliver superior pricing power and rock solid balance sheets.
"BMW has one of the strongest brand equities out there and China is very brand sensitive. These sales in China are the enabling force to restore BMW's global net pricing and work on a much higher capacity utilisation," Ellinghorst said.
Ellinghorst said BMW's valuation is not keeping pace with its earnings growth, saying its valuation is about half of where it should be.
Half outside Europe
While the Germans went from one record to the next, PSA revealed limited growth in the first half.
"Investors perceive Peugeot to be a pure-play European carmaker, and here the competition is very, very hard with the resulting pressure on pricing power and margins. It's a problem for the Fiat, Renault, Peugeot and Citroen brands that they have no or virtually no exposure to Asia," said Commerzbank analyst Sascha Gommel.
"Considering then that the expectations were so low, it was actually not that bad. Peugeot grew faster than the market in Russia and Latin America," he added.
PSA is aiming to sell one in every two cars outside Europe by 2015, up from 38 percent in the first half of 2011 and 35 percent in the first half of 2010.
BMW now expects to achieve an "even greater improvement in pre-tax earnings than originally predicted" for 2011. The world's largest premium carmaker expects sales this year to rise more than 10 percent to over 1.6 million vehicles versus a previous forecast of more than 1.5 million.
Its shares traded 0.7 percent higher at 67.19 euros by 1513 GMT, outperforming a 2 percent decline in German blue chips.
"In view of the strong performance to date and the good outlook for the coming months, the automotive segment is now expected to achieve an EBIT margin of over 10 percent for the full year," the company said ahead of its quarterly results on August 2.
BHF Bank analyst Aleksej Wunrau expressed surprise at BMW's level of profitability given a host of model launches.
"The earnings strength at BMW has stabilised at a high level, and that is not bad for a cyclical company," he said.
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