HONG KONG: Shares of mainland carmakers raced ahead yesterday, outrunning the broad market, after July figures showed continued strong growth in domestic car sales.

A trio of domestic automobile companies posted solid gains: Denway Motors Ltd, the mainland partner of Honda Motor Co, jumped HK$0.22, or 5.28 percent, to close at HK$4.39 - almost double the Hang Seng Index (HSI) gain of 2.72 - after hitting a 15-month high of HK$4.56, its best intraday level since April 21, 2008.

Dongfeng Motor Group Co, one of the largest carmakers on the mainland, rose HK$0.36, or 4.74 percent, to close at HK$7.95.

Great Wall Motor Company Ltd, the largest privately-owned automaker on the mainland, climbed HK$0.38, or 4.91 percent, to HK$8.12.

Continued strong car sales and expectations for further policy support for the industry from the central government continued to provide steam for the rally in automaker plays, analysts said.

Car sales in July totaled 832,600 units, up 71 percent from a year ago, latest figures from the China Association of Automobile Manufacturers (CAAM) showed.

Car sales in the domestic market have remained robust in the past several months after the government provided incentives like tax-reductions and subsidies to car buyers as part of its economic stimulus package following the global financial crisis.

"There is still room on the upside for carmaker shares despite their sharp gains recently," said Francis Lun, general manager at Fulbright Securities Ltd.

Dongfeng's share price has more than tripled this year, while that of Denway has jumped about 80 percent.

"Further support measures are expected for the sector as the central government wants to further develop the automobile industry, with an aim of making the country a top automaker worldwide," said Lun.

Meanwhile, in the short term, maintaining strong growth in the sector is also an effective way of supporting economic growth, he said, noting that the automobile industry accounts for more than 10 percent of the nation's gross domestic product (GDP).

Castor Pang, strategist at Sun Hung Kai Financial Group, also sees further upside for the sector on hopes of continuous policy support.

"The sector will likely see further support measures, particularly manufacturers of small-engine cars," he said.

However, the analyst cautions investors against possible consolidations in share prices, as current valuations are very high already.

Meanwhile, Fulbright Securities' Lun warned that share prices of Dongfeng Motor and electric-car maker BYD Company Ltd may have overheated after their steep rises recently.

BYD rose HK$0.80, or 1.81 percent, to close at HK$45.00 yesterday. Its share price has more than tripled this year.

(HK Edition 08/11/2009 page4)