2011-01-28 10:45

SHANGHAI - SAIC Motor Corp, China's largest carmaker, jumped to the highest level in a month in Shanghai trading on speculation the company's shares are undervalued as economic growth will sustain industry earnings.

SAIC advanced 2.83 percent to 16.72 yuan ($2.54) on Thursday in Shanghai, heading for the highest since Dec 15.

SAIC is valued at 9.87 times estimated earnings, compared with a multiple of 12.8 times for the Shanghai gauge, according to data compiled by Bloomberg. The stock dropped 27 percent last year on concern sales growth would slow after the government scrapped subsidies for vehicle purchases in rural areas.

"The curbs on the property market will shift some funds to equities from real estate," said Wang Weijun, a strategist at Zheshang Securities Co in Shanghai. "Sectors with attractive valuations and certain earnings growth like auto stocks will be the favorites."

Chongqing Changan Automobile Co, the partner of Ford Motor Co and Mazda Motor Corp, said on Wednesday its 2010 net income may have increased up to 95 percent from a year earlier. On Jan 20, China's National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier.

China's auto stocks will perform well in the first quarter because sales are expected to be "strong" in 2011 and other local governments won't follow Beijing with measures to limit car licenses, according to UBS AG. Beijing municipality said on Dec 23 that it would set a monthly quota of 20,000 new vehicle licenses as part of efforts to alleviate congestion.

"Auto stocks' current valuations have fully reflected the concern about a slowdown in sales growth," Chen Guoxi, an analyst at UBS, wrote in a report this week.

Chen predicted China's auto sales will grow 14 percent this year after surging about 30 percent in 2010. UBS has a share-price estimate of 20.16 yuan for SAIC, according to the report.

Chongqing Changan rose 2.43 percent to 9.68 yuan in Shenzhen on Thursday. The company has an estimated price-earnings ratio of 11.9. Anhui Jianghuai Automobile Co gained 4.73 percent to 11.29 yuan in Shanghai.

Bloomberg News