Stock price quadrupled, is YTCO's overseas expansion so successful?

Yutong Bus: A 4-fold Increase in Stock Price in Over a Year

Before the rise in stock price, not many people paid attention to companies related to buses, as they may have thought there was no promising future.

After all, who still takes buses nowadays? For long-distance travel, there are high-speed trains; for short distances, people drive their own cars or take the subway. How many years has it been since you last visited a bus station? Are bus stations going to be canceled?

With the continuous rise in Yutong Bus's stock price, it has defied market expectations. Is it truly a "sunset industry," where if you don't buy now, you won't be able to buy later?

I. Leading Bus Manufacturer

Yutong Bus is a large manufacturing enterprise that integrates bus product research, development, manufacturing, and sales, with over 100 series of complete product lines. Its products mainly focus on large and medium-sized buses, catering to market demands ranging from 5 meters to 18 meters.

The application scenarios of its products cover various segmented markets such as highway passenger transport, tourism passenger transport, public transport, group commuting, school buses, scenic area buses, airport shuttle buses, and autonomous driving microcirculation vehicles.

Established in 1993 and listed in 1997, the company has maintained the top spot in China's large and medium-sized bus sales for 20 consecutive years since 2003.

Why emphasize large and medium-sized buses? Because there are also light buses, but the competition is more intense due to lower barriers to entry and a more fragmented market.

Relatively speaking, the market for large and medium-sized buses is considered high-end, with higher requirements for brand awareness and product quality. There are higher thresholds for the company's capital, technology, and service standards.

Yutong Bus firmly holds the leading position in the large and medium-sized bus market. The industry shows a high degree of concentration, which is increasingly becoming more concentrated.

In 2023, Yutong Bus's market share in large and medium-sized buses reached 36%, further increasing to 43% in 2024M1-8. Golden Dragon Bus's market share in large and medium-sized buses increased from 26% to 30%, Zhongtong Bus's market share increased from 8% to 12%, and Ankai Bus's market share increased from 3% to 4%.

Behind the increasingly concentrated market, as everyone knows, the bus industry is indeed a sunset industry, and the overall market sales have long passed the peak and have been declining continuously.

In 2016, the sales volume of large and medium-sized buses reached a peak of 170,000 units, dropping to a low of 83,000 units in 2022. Along with the industry cycle, YTCO's sales volume reached a peak of 71,000 units in 2016, with large and medium-sized bus sales at 63,000 units; dropping to a low of 30,000 units in 2022, with large and medium-sized bus sales at 24,000 units. YTCO is basically unable to escape industry fluctuations and can only do its best.

The main factor in this bus industry cycle is the gradual withdrawal of new energy subsidies. The subsidies for new energy buses were adjusted in 2017, and the subsidy standard decreased by 40% in 2016. It was completely discontinued by 2022.

Knowing about the subsidy reduction, 2016 became the year with the highest sales volume of large and medium-sized buses, and the market overdrew the demand.

As new energy subsidies gradually phased out, the market gradually returned to rationality, with small brands exiting at an accelerated pace, releasing market share. The leading companies in the industry have relatively stable market share and continue to increase their market share.

After experiencing a cycle trough, in the bus market, the remaining players are the kings, and the strong become stronger.

With domestic sales peaking, in addition to competing to increase market share, expanding overseas and opening up new territories has become a major development path for the industry.

In 2023, in YTCO's overall sales structure, domestic sales still dominate, while the export proportion is gradually increasing. The export proportion is 28%, and the domestic sales proportion is 72%; among them, the export proportion of large and medium-sized buses is 32%, and the domestic sales proportion is 68%.

The company's products have been sold in batches to more than 40 countries and regions worldwide, forming a development layout covering six major regions: the Americas, Africa, the CIS, Asia-Pacific, the Middle East, and Europe.

However, YTCO's performance in overseas markets is considered slow within the industry. In 2023, the export proportion of Golden Dragon large and medium-sized buses is 48%, and the domestic sales proportion is 52%; Zhongtong's export proportion of large and medium-sized buses is 59%, and the domestic sales proportion is 41%; Ankai's export proportion of large and medium-sized buses is 38%, and the domestic sales proportion is 62%; Foton's export proportion of large and medium-sized buses is 34%, and the domestic sales proportion is 66%; BYD's export proportion of large and medium-sized buses is 75%, and the domestic sales proportion is 25%.

Since everyone is expanding overseas, and YTCO's export proportion is lower than its main competitors, why is YTCO's stock price soaring?

II. The new cycle after being overly pessimistic

Opportunities always arise in desperate situations.

In 2022, YTCO faced several negatives:

1. Domestic health event control
2. Continued industry decline, with bus new energy subsidies set to stop
3. Affected by the overall environment, YTCO's sales of large and medium-sized buses in 2022 were even lower than in 2009
4. The company's export proportion was small, only 25% at the time, which dragged down performance.

From top to bottom, it was all negative news, with the company's PB ratio dropping to a historical low of 1.1 times. Although based on the dividend amount in 2021, the dividend yield at that time could reach around 8%, the outlook was not good, and funds were not very interested.

The turning point was the relaxation of epidemic control measures, which completely changed the logic. The new cycle also overlapped industry factors and the company's own choices and efforts.

1. The shrinkage of the new energy bus market, with the market rebounding in fuel vehicles

In 2023, the purchase subsidies for new energy vehicles were officially canceled, and the new energy bus market saw a wave of concentrated purchases in 2022, which to some extent overdrew demand, resulting in a net decrease of 20,000 units in sales of large and medium-sized new energy buses in 2023, a year-on-year decline of 36%.

The retention value of new energy vehicles is still not as good as that of fuel vehicles. In the absence of subsidies, the market still tends to favor fuel vehicles for buses, especially for long-distance use where fuel supply is more convenient.

Yutong's traditional fuel vehicle models dominate, with a low proportion of new energy vehicle models. In 2023, the proportion of new energy vehicle models in Yutong's overall bus sales structure was 21%, with the proportion of new energy vehicles in large and medium-sized bus models at 20%, lower than that of major competitors.

2. The demand for tourist vehicles is the main driving force for the sales of large and medium-sized seat buses in China

Tourist vehicles have been greatly impacted by high-speed rail and private cars in China, with sales declining year by year. In 2023, due to the recovery of the domestic tourism market and the surge in overseas demand, sales began to rise.

After the epidemic in 2023, tourism demand quickly surged, with domestic tourist visits recovering to 4.9 billion, a year-on-year increase of 93%, and is expected to return to pre-epidemic levels this year. The strong domestic tourism demand continues to drive the continuous growth of the tourist bus market.

Affected by the epidemic, sales of tourist group seat buses rapidly declined from 2020 to 2022, reaching a low of 19,000 units in 2022. After the epidemic, the rapid release of pent-up tourism demand by residents drove a significant rebound in seat bus sales, reaching 32,000 units in 2023, a year-on-year increase of 68%. Domestic tourism demand remains strong in 2024.

According to data from Huaxin Securities, the domestic seat bus market has a high concentration, with Yutong Bus in an absolute leading position, with a market share of 50%. In 2024H1, Golden Dragon Bus had a market share of 33%; 1. Market Share of Yutong Bus is 6%; Ankai Bus is 5%; Foton Bus is 3%.

2. Insufficient Overseas Supply, Prices and Volume Rise Together

From 2020 to 2022, the global epidemic significantly suppressed the demand for large and medium-sized buses. In 2023, the global demand for large and medium-sized buses accelerated, with a year-on-year growth rate of 15.4%, achieving sales of 278,000 vehicles. The release of demand has become the core logic for the current recovery of the bus market. Huatai Securities predicts that the global demand for large and medium-sized buses will return to the level of 2019 by 2024.

In the export pattern of large and medium-sized buses, Yutong Bus's market share steadily increased, reaching the top in the first half of 2024. In the export pattern of large and medium-sized buses, in the first half of 2024, Yutong's market share was 30%, Jinlong's market share was 25%, Zhongtong Bus's market share was 16%, and BYD's market share was 6%. Foton Motor's market share was 7%.

In 2023, Yutong's export sales volume only accounted for 28%, but due to the export ASP being nearly double the domestic ASP, it drove the revenue proportion to exceed 40%. From 2009 to 2023, Yutong Bus's revenue changes have remained consistent with fluctuations in sales volume, and the proportion of overseas income has increased from 4% to 43%, with exports becoming the source of revenue growth for the company. Starting in 2020, due to the insufficient overseas bus production capacity driving a rapid increase in demand from Chinese bus companies, export prices have increased significantly.

After the domestic epidemic control was relaxed in 2022, Yutong further strengthened its overseas presence. In 2023, Yutong's overseas income doubled, becoming a sector that can significantly impact the company's performance. The outlook for this year remains positive.

The sudden change in the environment happens to be YTCO's advantage area. YTCO has turned from all negative news to all positive news. The polar reversal, the Davis double-click, has created a fourfold increase in stock price.

Conclusion

YTCO's semi-annual report remains optimistic for future development.

"On the domestic front, in the first half of the year, the tourism market has transitioned from recovery to prosperous development, supporting a significant increase in overall demand for road passenger transport; affected by the continuous tight balance of local fiscal revenue and expenditure, the demand in the bus market continues to decline; overall, driven by the tourism market, the demand for large and medium-sized buses in the domestic market in the first half of the year has increased significantly year-on-year. In the second half of the year, with the implementation of policies such as the 'old-for-new' policy for new energy buses, the promotion of demonstration projects such as the first batch of 'bus cities' and urban-rural transportation integration in the 14th Five-Year Plan, and other policy stimuli, it is expected that industry demand will remain stable or slightly increase year-on-year.

On the export front, since the beginning of this year, the continuous increase in international personnel mobility has led to the continuous recovery of demand in various segmented markets such as buses, tourism, and passenger transport; project opportunities brought by the 'Belt and Road' policy and the delivery of key projects such as pilgrimage vehicles in the Middle East region have driven a significant growth in the export industry. According to data from the China Bus Information Network, the export volume of large and medium-sized buses has increased by 48.5% year-on-year, and it is expected to continue to grow in the second half of the year. In regions such as Europe, Latin America, and Southeast Asia, driven by economic and technological factors and environmental protection policies, the demand for new energy buses is expected to continue to grow."

It is worth noting that in terms of PB, YTCO's valuation is currently at a high level compared to the historical valuation of the company.