January 19th, 2014
by George Leong, Profit Confidential
If you don't believe China is the world's largest auto market, then you probably have never been to Beijing or Shanghai, where the traffic gridlock makes Congress here seem pretty lax.
Despite the Chinese government's ongoing efforts to regulate the number of vehicles on the country's roads, especially in the bigger megacities, the Chinese auto market continues to be a major growth market for many foreign automakers, including General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F), which I have discussed in the past. (Read "Where to Find the Best Potential Growth in the Automotive Industry.")
The statistics don't lie. In 2013, sales of vehicles in the country surged a staggering 13.9%, according to the China Association of Automobile Manufacturers. The growth was welcomed by Chinese auto sellers, given that growth stalled to 2.45% and 4.33% in 2011 and 2012, respectively. The folks at General Motors and Ford are probably salivating at these numbers.
For a more conservative approach to play the Chinese auto market, you could keep things in the U.S. and play the growth through General Motors and Ford. Or, if you are willing to accept the higher risk, you could look to U.S.-listed Chinese companies to play the market directly.
A small Chinese auto parts play that you should take a look at is Zhangzhou City-based China Zenix Auto International Limited (NYSE:ZX, $2.53, market cap: $131 million). The company designs and makes commercial vehicle wheels for China's aftermarket and original equipment manufacturers (OEM) market.
Chart courtesy of www.StockCharts.com
The company has been around a little more than a decade. Its products are of high quality, involving more than 430 series of tube, tubeless, and off-road steel wheels. Zenix is also working on diversifying its product line to include higher-priced aluminum wheels.
At this time, the company runs five plants that together manufacture more than 15 million wheel units per annum as of September 30, 2013.
The company is the largest maker of commercial vehicle wheels in China based on sales volume in both the aftermarket and OEM market, according to market research firm Frost & Sullivan. In China, the company makes wheels for more than 90 OEM automotive manufacturers. The aftermarket business in China is massive. Its network includes more than 5,000 distributors, comprising 23 tier-one distributors, 2,143 exclusive tier-two distributors, and 2,492 non-exclusive tier-two distributors. (Source: Company Profile, China Zenix Auto International Limited web site, last accessed 13 January 2014.)
Zenix also holds about 97 patents, including three invention patents, 74 utility model patents, 20 design patents, and 532 trademarks in China.
The company sells its wheels to more than 30 countries in North and South America, Africa, Europe, and Asia. The company's biggest foreign market is India, where Zenix has business with TATA Motors (NYSE:TTM).
The sole analyst covering the company estimates revenues to rise 11% to $680.77 million in 2013, according to Thomson Financial.
So with the massive growth in Chinese vehicle sales and each vehicle requiring four wheels, it's a no-brainer to take a look at some of the auto plays in China like Zenix. However, investors should note that Zenix is a highly speculative contrarian play that could rally much higher if it can grow its business and execute.