全球氫燃料：如何演繹氫主題x

Global

Equities

Multi-sector

GlobalHydrogen

Howtoplaytheemerginghydrogentheme

THISCONTENTMAYNOTBEDISTRIBUTEDTOMAINLANDCHINA

HydrogenhasthepotentialtoplayakeyroleincuttingCO2emissions;weseecostsfallingandinvestmentrisingto2030

Scale-upprospectsforhydrogentechnologiesaredrivingM&Aandaligninglong-termstrategiesacrosssectors

Wehighlight23stocksspanningthevaluechainthatstandtobenefitfromwidercommercialisationofhydrogen

Hydrogen’sjourneyfromgreytogreenisunderway

Risingemphasisondecarbonisationisdrivingrenewedinterestincarbon-free‘green’hydrogenproducedusingelectricityfromrenewables.Theindustryisonthecuspofmassmanufacturingelectrolysers,theenablingproductionrouteforgreenhydrogen

–acostlyprocesstoday–withstandardisationandscalesettodriverapidcostdeclines.Withthejourneyfrom“grey”to“green”hydrogeninourviewalreadyunderway,weestimatesalesofhydrogengascouldpotentiallyrisesevenfoldby2050,spreadbroadlyacrosschemicals,transport,power,industryandbuildings.

Scale-upisdrivingM&Ainterestandaligningcorporatestrategies

Greenhydrogenproductioncostsare3-4xhigherthantraditionalcarbon-intensiveroutes.A3GWpipelineofelectrolysercapacityadditionsto2025offerssomevisibilityonhowthecostgapcanbeclosed.WehavenoticedanaccelerationofM&Aactivityascorporatespositionthemselvesmoredirectlyinhydrogenthroughacquiringorpartneringmanufacturersofhydrogentechnologies.AnothersignofgrowingcorporateinterestinhydrogenisthefoundationoftheHydrogenCouncil.

ThisisaprivatesectorCEO-ledinitiativethatlaunchedin2017toacceleratethewide-scaleadoptionofhydrogentechnologies.Todayithascorporate81members,comparedtojust17attheoutset.Thecounciljoinsacoalitionthatincludesrenewableenergysuppliers,industrialgasproducers,electricityandgasutilities,automotiveOEMs,oilandgascompanies,largeengineeringcompaniesandmany

4February2020

SeanMcLoughlin*

Analyst,Industrials,Renewables&Grid

HSBCBankplc

sean.mcloughlin@

+442079913464

HenningCosman*

EuropeanHeadofAutomotiveEquityResearch

HSBCBankplc

henning.cosman@

+442079910369

GiulioPescatore*,CFAAnalyst,GlobalAutosHSBCBankplc

giulio.pescatore@

+442079919560

PaulChoi*

Analyst,KoreaIndustrialsandAutos

TheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch

paulchoi@

+82237068758

SriharshaPappu*

GlobalHeadofChemicalsResearchHSBCBankplc

sriharsha.pappu@

+442079919243

FawziHanano*

Metals&MiningStrategistandMarketingAnalyst

HSBCBankplc

fawzi.hanano@

+442033596052

MartinEvans*

HeadofEuropeanChemicalsResearch

HSBCBankplc

martin1.j.evans@

+442079912814

GordonGray*

GlobalHeadofOilandGasEquityResearch

HSBCBankplc

gordon.gray@

+442079916787

governmentsintheworld’slargesteconomies,whoareallkeentoseehydrogenplay

abiggerroleinthedecarbonisationdrive.

Hydrogenstockscreenshighlight23valuechainplaysundercoverage

4–5February2020|Frankfurt

15thHSBCESGConference

Registernow

Inthe30JanuarythematicreportGlobalHydrogen:Whythejourneyfromgreytogreenistakingoffweoutlinetheverystronggrowthprospectsforthehydrogensector.Inthisreportwelookathowinvestorscangainexposuretotheemerginghydrogentheme.Basedonastockscreenweidentify23companiesundercoveragethatspan:1)powerandtransportOEMs;2)chemicals/metals/infrastructure;3)integratedoils;and4)utilities.WehaveBuyratingson11ofthesecompanies.

*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

Disclosures&Disclaimer

ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.

Issuerofreport:HSBCBankplc

ViewHSBCGlobalResearchat:

https://

Contents

Aligningstrategies 3

Anewdawnforhydrogen?

Whythistimemightbedifferent 3

CorporateM&Arisingfor

hydrogenconversiontechnology 4

Hydrogen’sversatilitymakesitattractive

globallyacrosssectors 4

Stockswithexposuretohydrogen 5

Siemens 6

BMW 7

Michelin 8

Schaeffler 9

Faurecia 10

ElringKlinger 11

WeichaiPower 12

HyundaiMotor 14

AirLiquide 15

AngloAmerican 16

JohnsonMatthey 17

Vopak 18

AirProductsandChemical 19

LindePlc 20

Total 21

BP 22

Chevron 23

Equinor 24

Sinopec 25

ENGIE 26

EDF 27

?rsted 28

PowerAssetsHoldings 29

Disclosureappendix 30

Disclaimer 33

Aligningstrategies

Hydrogencanbeatransportfuel,asourceofindustrialheatandachemicalfeedstock

Corporatesacrossanumberofsectorsareincreasinglyvocalaboutincludinghydrogenintheirlong-termstrategy

Wehighlight23companiesundercoverageinthehydrogenvaluechain,ofwhich11areBuyrated

Anewdawnforhydrogen?Whythistimemightbedifferent

Inourspotlightreport“GlobalHydrogen:Whythejourneyfromgreytogreenistakingoff”(30January2020),wehighlightwhyhydrogenisseeingrenewedinterestasapromisingcomponentinthetransitiontoalow-carboneconomy.Thisisthankstohydrogen’sversatilityanditspotentialtodecarbonisearangeofsectors.Webelieveinfactthatthekeytohydrogen’ssuccesswillmostlikelybetiedtoitswideradoptionbeyondthepowersectorintransport,buildingsandheavyindustry.

Weestimatesalesofhydrogengascouldpotentiallyrisesevenfoldby2050,spreadbroadlyacrosschemicals,transport,power,industry,buildingsandtransport.TheHydrogenCouncilenvisionsatotalannualmarketforhydrogenandhydrogentechnologiesin2050withannualrevenuesofmorethanUSD2.5trnandjobsformorethan30mpeopleglobally.

Globalhydrogenmarketbyenduse(USDb)

USD2.5t/yearhydrogenmarketsplitbygas&equipment(2050)

60%(USD1.5

40%(USD1.0

1000

800

600

400

200

0

2020e 2030e 2040e 2050e

Existingfeedstockuses Powergeneration/buffering

Transportation IndustrialenergyBuildingheat&power Newfeedstock(CCU,

DRI)

Hydrogengasassociatedsupplychain

Source:HydrogenCouncil,IEA,HSBCestimates Source:HydrogenCouncil,IEA,HSBCestimates

CorporateM&Arisingforhydrogenconversiontechnology

WehavenoticedanaccelerationofM&Aactivityascorporatespositionthemselvesmoredirectlyinhydrogen.Manufacturersofhydrogenconversiontechnologies(electrolysers,whichproducepurehydrogen,andfuelcells,whichconvertpurehydrogenintoelectricity)havebeenthefocusofacquisitionsorstrategicstakesorhave,inthecaseofPlugPower,drivenconsolidationinthefragmentedfuelcelltechnologymarket.

CorporateM&AactivitiesforhydrogentechnologyOEMs(fuelcellsandelectrolysis)

Manufacturer DateCorporateaction

CeresPower Dec-18WeichaiPowertakes20%stakeandformsstrategiccollaborationprovidingaccessto

ChinesemarketCeresPower Jan20GBP38mequityinjectionbyBoschraisingitstotalstaketo18%(from4%)

ITMPower Oct-19Lindeacquires20%stakeprovidingaccesstokeymarketsandabilitytoofferelectrolyserat

lowercostPlugPower

Jul-19AcquiredEnergyOr,manufacturerofcompactfuelcellsystemsforrobotics,andaerospaceapplicationsHydrogenics

Sep-19CumminsacquiresentirecompanyincashdealforEVofUSD290m

BallardPower Aug-18AnnouncedJVwithWeichaiPowertosupportChina'sburgeoningfuelcellEVmarket

Source:Companydata

Hydrogen’sversatilitymakesitattractivegloballyacrosssectors

Theversatilityandflexibilityofhydrogenareamongitsmostattractiveattributes,makingitattractiveforuseacrossindustries.AccordingtotheHydrogenCouncil,aninitiativeledby81CEOsofmajormultinationalenergy,transportandindustrycompanies,hydrogenisthe‘Swissarmyknifeofenergysolutions’.Inthepicturebelowweshowsomekeyapplicationsforhydrogen.

Anindicationofhydrogen’spotential,bothintermsofenvironmentandbusinessopportunity,isourstockscreenappliedacrossourcoverageuniverse.WefindanumberofcompaniesspreadacrosssectorsareinvestingindevelopinghydrogentechnologywhichshouldgivethemearlyentryintoamarketworthUSD2.5trnannuallyby2050(basedontheHydrogenCouncil’s2050vision,outlinedin2017).

Keyusesofhydrogen

Source:BNEF

Stockswithexposuretohydrogen

Weseeverystronggrowthpotentialforcompaniesexposedtohydrogen,spanningacrosstheentirevaluechainfromproductiontoconsumptionandacrossdifferentendmarkets.

Despitethehugepotential,mostcompanieshaveminimalexposuretohydrogentodayintermsofrevenue.Hence,theideabehindourstockscreenistohighlightearlyentrantsintothemarketthatweexpecttoleadtheindustryinsectorssuchastransport,steel,gas,chemicalsandutilities.

Wescreenforstocksbasedonthefollowingthreecriteria:1)companieswhichscreenintheHSBCClimateSolutionsDatabaseunderthehydrogengasandfuelcellsclimatethemes;2)companieswithmembershipoftheHydrogenCouncil;3)companiesactivelyundercoveragebyHSBC.

Inthetablebelowwelist23stocksexposedtohydrogen,spreadacrossfoursectors:1)powerandtransportOEMs;2)chemicals/metals/infrastructure;3)integratedoilsand4)utilities.Themajorityofthecompanies

(21)aremembersofHydrogenCouncilandalsoscreenpositivelyunderrelevantclimatethemesinourproprietaryHSBCClimateSolutionsDatabase.AllarecoveredbyHSBC.

OverviewofstocksunderHSBCcoverageexposedtohydrogen

Share Current

Company

Market

Ticker

Analyst

Rating

M-cap(USDm) price Price(31 TargetPrice

(currenc

Jan2020)

y)

Power&automotive

OEMs

Siemens

Germany

SIEGn.DE

SeanMcLoughlin*

Buy

108750.0

EUR

111.6

130.0

BMWgroup

Germany

BMWG.DE

HenningCosman*

Hold

44065.3

EUR

64.3

68.0

Michelin

France

MICP.PA

HenningCosman*

Hold

21219.2

EUR

105.0

125.0

SchaefflerGroup

Germany

SHA_P.F

HenningCosman*

Hold

8481.1

EUR

9.0

10.5

Faurecia

France

EPED.PA

GiulioPescatore*

Hold

6669.7

EUR

43.1

45.0

ElringKlinger

Germany

ZILGn.DE

HenningCosman*

Reduce

446.7

EUR

6.1

4.0

WeichaiPower

Mainland

2338.HK

EmilyLi*

Buy

15431.8

HKD

13.8

18.7

HyundaiMotor

ChinaKorea

005380KS

PaulChoi*

Buy

22849.3

KRW

125,000.0

180,000.0

Chemicals/metals/infrastructure

AirLiquide

France

AIRP.PA

SriharshaPappu*

Hold

68194.8

EUR

130.7

112.0

AngloAmericanplc

UK

AAL.L

FawziHanano*

Hold

36413.6

GBP

19.8

23.6

JohnsonMatthey

UK

JMAT.L

MartinEvans*

Buy

6794.1

GBP

26.0

33.5

Vopak

Netherlands

VOPA.AS

MurielleAndre-

Buy

6854.6

EUR

48.3

54.0

AirProductsand

USA

APD.N

Pinard*

SriharshaPappu*

Hold

52360.4

USD

238.7

230.0

Chemicals

TheLindeGroup

UK

LIN.N

SriharshaPappu*

Hold

111856.2

USD

203.1

185.0

Integratedoils

TotalS.A.

France

TOTF.PA

KimFustier*

Buy

132159.2

EUR

44.1

57.0

BP

UK

BP.L

GordonGray*

Buy

125843.3

GBP

4.5

6.0

Chevron

USA

CVX.N

GordonGray*

Hold

208695.6

USD

107.1

118.0

Equinor

Norway

EQNR.OL

KimFustier*

Buy

63044.9

NOK

167.1

210.0

Sinopec

Utilities

MainlandChina

0386.HK

ThomasC.Hilboldt*

Buy

82256.0

HKD

4.1

6.3

ENGIE

France

ENGIE.PA

AdamDickens*

Buy

42536.0

EUR

15.5

17.4

EDFEnergy

UK

EDF.PA

AdamDickens*

Buy

38557.7

EUR

11.1

13.5

?rsted

Denmark

ORSTED.CO

AdamDickens*

Hold

46279.4

DKK

736.0

620.0

PowerAssetHoldingslimited

HongKong 0006.HK EvanLi* Hold 15649.9 HKD 56.3 57.0

Source:HSBC;*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

PowerandTransportOEMs

Siemens(SIEGR,Buy,TPEUR130.0,CMPEUR111.6)

SeanMcLoughlin*

Analyst,Industrials,Renewables&Grid

HSBCBankplc

sean.mcloughlin@

+442079913464

Exposuretothehydrogentheme

Siemensisamanufacturerofelectrolysersystemsforconvertingwaterintohydrogen.ThecompanyhasfocusedonProtonExchangeMembrane(PEM)electrolysersandshipped6MWin2018underthebrandnameSilyser.SiemensisinvestinginitsSilyserportfoliotoscaleuptotal

electrolysersystemcapacityandplanstolauncha>100MWsystemby2023andby2030

*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

envisionsbuilding1,000MWfifth-generationplants.Siemenswillsupplyelectrolyserstoalarge-scaleprojectinAustraliawhichplanstobuildupto5GWofwindandsolarcapacitytopowergreenhydrogenproduction.

Accordingtoa23JanuaryBloombergarticle,SiemensCEOispartneringSaudiAramcotoproducesyntheticfuelusinggreenhydrogen,mixingthefuelwithhydrocarbonstobringdownemissionsby40-50%.SiemensincludesitshydrogenactivitiesinitsPower&Gasdivision,whichithasstateditplanstospinoffbyYEFY20.

Investmentthesis

WehaveaBuyratingonSiemensaswebelievecorporatechangeGas&Power(GP),whichisfacinglong-termchallenges,shouldhaveapositiveimpactontheunderlyingoperatingperformance.TheQ4figuresgiveconfidencefor2020eventhoughthereisalidontheguidancebecauseofGas&PowerandSGRE.Weforecasttheunderlyingprofitmargintobemaintainedin2020einadifficultenvironmentandbelievethatthemarketwillnowfocusonthebenefitsofVision2020+,ietheunlockingofvaluethroughthespin-offsononehandandthefocusoftheremainingcompanyonanindustrialcoreofthreehigh-performingbusinessesontheother.OurTPofEUR130isbasedonaSOTPvaluationapproachandequatestoa2021eexitPEmultipleof16.2x.

Valuationandrisks

OurTPofEUR130isbasedonaSOTPasSiemens’portfolioissettochangedramaticallyoverthecomingyears.

InourSOTPapproachwevalueitsfourmaindivisionsnamely:1)Power&Gas(partofPowerhouse)atmedian2021epeerEV/EBITmultipleof7.6x,2)DigitalIndustries(DI)atmedian2021epeerEV/EBITmultipleof14.7x,3)SmartInfrastructure(SI)atmedian2021epeerEV/EBITmultipleof14.5xand4)Mobilityatmedian2021epeerEV/EBITmultipleof10.2x.ForourbasecasewehavetakenEVofSiemensHealthineers(SHLGR,Hold,TPEUR42.0)basedonourtargetpriceofEUR42,andSGREbasedonmarketprice.ThenoncorebusinessesFinancialServiceswevalueon1.5xofbookvalue,SREatbookvalue,PortfolioCompaniesat25%of2021erevenueofcommonfunctions(corporateelimination)at10xofloss.AfteralltheadjustmentswederivethreescenariosofBear,BaseandBullcasewithavalueofEUR89,EUR131andEUR166persharevaluerespectively.InthebasecasescenarioweapplyseparationcostandtaximplicationsinaseparationofPowerhouse,andwegetafairvalueofEUR128pershare,whichwerounduptogetfairvaluetargetpriceofEUR130.

OurTPofEUR130impliesupsideof16.4%basedonsharepriceofEUR111.64ason31January2020andwehaveaBuyratingonthestockaswethinktherecentrestructuringactivitiestomakeitamorefocusedcompanyarepositive.OurTPofEUR130impliesa2021eexitPEof16.2xandEV/EBITDAof11.5x.

DownsiderisksofSiemens:1)furtherchargesrelatedtointegrationcostofnewacquisitionsandfromtheunderperformingbusinesses;2)afurtherdelayintherealisationofrestructuringbenefits;3)pricingpressureoverandabovetheassumptionof2-3%pa;and4)notderivingtheexpectedbenefitsfromacquisitions.

SiemensHealthineersvaluation:WevalueSiemensHealthineersAGusingaDCFmodel(RFR3.0%,ERP5.0%,betaof0.95,terminalgrowthrate2%),yieldingatargetpriceofEUR42.0.Withonly3%upsideweratethestockHold.

DownsiderisksofSiemensHealthineers:1)productrecalls;2)higher-than-expectedASPpressure;

3)negativeeffectsfromregulatorychangesintheUS;4)value-destructiveM&Aactivities;5)missing2020andmid-termtargets;and6)failingtoturnarounditsdiagnosticsbusinessinupcomingyears.

UpsiderisksofSiemensHealthineers:1)better-than-expectedmarginprogression;2)astronger-than-anticipatedturnaroundindiagnostics;3)value-accretiveM&Aactivities;4)strongertop-linegrowth;and5)orderintakemomentuminitsImagingandAdvancedTherapiesbusiness.

BMW(BMWGR,Hold,TPEUR68.0,CMPEUR64.3)

HenningCosman*

EuropeanHeadofAutomotiveEquityResearch

HSBCBankplc

henning.cosman@

+442079910369

Exposuretothehydrogentheme

BMW’sexposuretothehydrogenthemeisthroughitspotentialuseoffuelcellelectricvehicles(FEVs)whichwouldbethenextstageofEVdevelopmentafterbatteryelectricvehicles(BEVs).BMWhasbeenco-developinghydrogenfueltechnologysince2013withToyota(7203JP,not

rated,JPY7652)andhastestedasmallfleetofprototypehydrogenBMW5SeriesGTsand

*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

recentlypresentedahydrogenX5attheIAAinFrankfurt.In2016,ToyotaandBMWsignedaproductdevelopmentpartnershipagreementunderwhichtheyhavebeenworkingtogetheronfuturegenerationsoffuelcelldrivesystemsandonscalable,modularcomponentsforhydrogenFEVs.BMWintendstointroducethesecond-generationfuelcelltechnologydevelopedtogetherwithToyotaintheBMWX6andX7,accordingtoBMW’sHeadofDevelopmentKlausFr?hlich(source:AutomotiveNewsEurope).

AccordingtoBMW,costisthebiggestissuecurrentlywithaFEVbeing10xmoreexpensivethanaBEV.BMWplanstohavecostparityby2025withthethirdgenerationofitssystems,whichcouldresultinvolumesinthe“hundredsofthousands”accordingtoBMW.AccordingtodataproviderIHSMarkit,however,BMWwilllaunchafuelcellbasediNextin2025inEuropebutwithverylowvolumes(<1,000units).BMWseesBEVsasthemostsuitablesolutionforpassengercarsuntil2025andexpectsfuelcelltechnologytoworkbetterinlightandheavydutytrucksbecauseinwhichtheuseofbatterycellscouldpotentiallyreducethevehicle'spayloadby6-7tonnes.

Investmentthesis

Helpedbyitsstrongmodelpipeline,BMWshouldhavehadastrongendtotheyear(in-linewithitscommunicatedambitionofimprovingquarter-after-quarter).However,thisalsomeansastrongbasefor2020andbeyond.Whileincreasingunitsalesofhigher-ASPEVmodelsshouldstillsupportrevenueandthe“mix”bucketintheAutoEBITbridgefrom2020e,theassociatedcontentcostwilllikelyovercompensatethiseffectandresultinaflatAutomotiveEBITmarginatbest.In2019,c25%ofsaleshavecomefromnewmodels,decliningto15%/6%in2020/21e,therebylimitingearningsgrowth.Also,whilethetrade-relatedconcerns(no-dealBrexitandUS-Chinatradetensions)haveeasedofftowardstheendof2019,itisimportanttonotethatwebelieveBMWisthemostexposedEUOEMtothesetraderisksandthereforearesumptionintradefrictioncouldposesignificantrisksforBMW.Finally,wedonotseesignificantupsideordownsideriskstocurrentconsensus.FordetailsofourviewonBMWsee–“StrongH2’19e–butwhat’snextMrZipse?”(23Aug2019).

Valuationandrisks

WevalueBMWusinganaverageofDCF(20%weight)andsum-oftheparts(80%weight)basedonouraverage2019-21estimates.Theindividualvaluationmethodsyieldthefollowingresults:

SOTP:WevalueBMWAutoonanEV/Salesmultipleof15%andEV/EBITDAmultipleof1.5x(inlinewithMercedesBenzcarsbusinessofDaimler),FinancialServicesat0.8x2019-21ebookvalue(inlinewithotherEOMsinthesector),ChinaJVsatc9xPE(2020e/21esectorPE).Weinclude2018netcashposition,pensionliabilitiesasreportedandEUR1.4bnforcartelfines.Overall,withtheseassumptionswearriveataSOTP-basedfairvalueofEUR63pershare.

DCF:WeperformtheDCFanalysisoverthreephases:anexplicitforecastperiodfrom2019e-21e,asemiexplicitperiodfrom2022-2030andaterminalperiodthereafter.Weassumeaterminaladj.

EBITmarginof4.5%andaterminalgrowthrateof-1.5%.Ourotherassumptionsarearisk-freerateof3.0%,equityriskpremiumof5.0%andbetaof1.2resultinginaWACCof8.7%.BasedonourDCFanalysiswearriveatafairvalueofEUR88.0pershare.

The80:20weightedaverageofSOTPandDCFresultsintargetpriceofEUR68.00,implying5.7%upsidebasedonsharepriceofEUR64.34ason31January2020andhencewehaveaHoldratingonBMW.

Upsiderisks:relatedtomacrodevelopmentsresultinginbetterthanexpectedmarketdevelopment,pricingandacceptanceofEVs.ThawingofvarioustradetalksalsoposeupsiderisksforBMW.

Downsiderisks:relatedtomacrodevelopmentsresultinginweakerthanexpectedmarketdevelopment,pricingandacceptanceofEVs.DeteriorationofvarioustradetalksalsoposesdownsiderisksforBMW.

Michelin(MLFP,Hold,TPEUR125.0,CMPEUR105.0)

HenningCosman*

EuropeanHeadofAutomotiveEquityResearch

HSBCBankplc

henning.cosman@

+442079910369

Exposuretothehydrogentheme

Michelin’sexposuretohydrogenisthroughfuelcellsystemsforzeroemissionvehicles.InNovember2019,MichelinandFaureciaannouncedthecreationofa50:50ownedJVpoolingtogetherallofMichelin’sfuelcellrelatedactivitieswiththoseofFaureciatoformSymbio.This

JVwilldevelop,produceandmarkethydrogenfuelcellsystemsforlightvehicles,trucksand

*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

otherapplications.Together,i.e.theSymbioJVandFaurecia(inpartnershipwithSteliaAerospace),willprovidethecompletehydrogenfuelcellsystemsforOEMs.WithinthisSymbiowillaccountfor60%ofthetotalvalueofthefuelsystemwithacontentpervehicle(CpV)ofEUR4kforLVsandEUR10kforCVsvehiclesonanaverageby2025(source:Faurecia).

SymbioaimstobeoneoftheworldleadersinthesegmentandtargetstogenerateEUR1.5bninrevenuesby2030.Michelinhasbeenmakingsmall-to-midsizedacquisitionsinadditiontolargeones-MultistradaandCamso-inareassuchastyreretaildealerships,fleetmanagement,restaurantbookinganddiningguides.TheSymbioJVwithFaureciatoo,inouropinion,isofasimilarnatureandwhilewedonotexpectanymeaningfulcontributionfromitintheshortterm-noranybigpushbythecompanytoexplaintherationalebehindtheseinvestments-westillthinktheseactivitiesprovidea“hiddenreserve”inatheoreticalSOTP.

Investmentthesis

WecontinuetoviewMichelinasamedium-tolong-termstoryonproductivityimprovementswhilefurtherleveragingthestrongbrandandhighASPs.Assuch,productivityimprovementsfromthecompetitivenessplanareguidedtoyieldnetsavingsofcEUR50m/yearby2020–inlinewithrecentrun-rate.Additionally,Michelinwilllikelybenefitfrom(guided)synergiesofitsFenner&Camsoacquisitions(combinedcEUR75min2021,HSBCe).Thebalancebetweennecessaryvolumegrowth(tofillnewcapacityandincreaseutilisation)andpricingdisciplineiskeyforcontinuedEBITgrowth.WethinkMichelincanmaintainaneutralprice-costbalanceandnarrowtheprofitabilitygaptopeers,

withincreasingvolumesandimprovementsintheproductionfootprintandmix(structural&cyclical)

–althoughnotbefore2021.For2020weexpectafurtherdeclineinvolumesleadingtoonlyaflatadj.EBITy-o-yandwiththatweareonlyinlinewith2020IRadj.EBITconsensus(nowc6%lowerthaninDecember).WecontinuetolikeMichelin’sFCFprofileand2021epotential,butwithnonear-termcatalystandlimited2020earningsgrowthwedon’tseemuchpotentialfornear-termsharepriceupside.FordetailsofourviewonMichelinsee–“DowngradetoHold:2020ayearoftransition”

Valuationandrisks

WevalueMichelinusinganaverageofDCF(20%weight)andsum-oftheparts(80%weight)basedonouraverage2019-21estimates.Theindividualvaluationmethodsyieldthefollowingresults:

SOTPbasedonpeermultiples:WevalueMLusingaveragepeermultiplesofEV/sales(1.08x;fairvalueofEUR89),EV/EBIT(9.2x;fairvalueofEUR118),PE(10.8x;fairvalueofEUR128),andFCFyield(6.5%;fairvalueofEUR155),Overall,withtheseassumptionswearriveataSOTP-basedfairvalueofEUR123.0pershare.

DCF:WeperformtheDCFanalysisoverthreephases:anexplicitforecastperiodfrom2019e-21e,asemiexplicitperiodfrom2022-2028eandaterminalperiodthereafter.Weassumeaterminaladj.

EBITmarginof4.5%andaterminalgrowthrateof1.5%.Ourotherassumptionsarearisk-freerateof3.0%,equityriskpremiumof5.0%andbetaof1.1resultinginaWACCof7.3%.BasedonourDCFanalysiswearriveatafairvalueofEUR136.0pershare

The80:20weightedaverageofSOTPandDCFresultsintargetpriceofEUR125.00,implying19%upsidebasedonsharepriceofEUR105.00ason31January2020.WehaveaHoldratingonMichelinasweseenoearningsgrowthpotentialfor2020eandhencenopositivecatalyst.

Upsiderisks:1)better-than-expectedvolumes&pricing;and2)synergiesfromacquisitionsandefficiencysaving.

Downsiderisks:1)sharpvolumedeterioration;2)pricingpressure;and3)executionrisksinnarrowingtheprofitabilitygapversuspeers.

Schaeffler(SHAGR,Hold,TPEUR10.5,CMPEUR9.0)

HenningCosman*

EuropeanHeadofAutomotiveEquityResearch

HSBCBankplc

henning.cosman@

+442079910369

Exposuretothehydrogentheme

Schaeffler’sexposuretothehydrogenthemeisthroughthevaluechainofkeycomponentsforfuelcells.Schaefflermanufacturesbipolarplatesbypreciseformingandcoatinginthethin-layerrange,whichoncestackedformanimportantcomponentofthefuelcellsystem.

Schaeffler’sportfolioforoptimisedfuelcellsystemsalsoincludesareassuchaselectronic

*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

controlsystems,specialhigh-performancebearings,smartthermalmanagementmodulesandcomponentsforpassivehydrogenrecirculation.

Investmentthesis

WeexpectFY2019etobethetroughforgroupadj.EBITmargin–particularlyduetoasharpdeteriorationintheglobalLVPleadingtounder-coverageoffixedcosts–particularlyintheAutoOEMbusiness.“Stabilising”globalLVPin2020eandmoreimportantlyincreasingsavingsassociatedwithSchaeffler’sAgenda4+1andRACEprogrammesshouldresultinmarginimprovementsin2020eandbeyond.Webelievethatthecostsavingsprogramsandinitiativesmaybeoverlydiscountedbyconsensus.While“CORE”i