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HSBC - European Auto Components

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					Industrials
European Auto Components
                                                                                                                                                abc
                                                                                                                                                Global Research



European Auto                                                                                               Heading into a weak Q4 2012 the risk to
                                                                                                             guidance grows for Faurecia and Leoni
Components                                                                                                  We no longer expect global LVP growth
2013 won’t be any easier                                                                                     in 2013 and cut our supplier EPS ests by
                                                                                                             an average 20%; we also change our TPs
                                                                                                             for each company except Continental
Changes in ratings and target prices (in EUR)
Company                      RIC      Curr        __ Rating ___        _TP __ Potn'l Div                    Trading on distressed multiples we
                                      price        New           Old New Old return* yield                   remain cautiously optimistic on the
Continental    CONG.DE 79.54 OW (V) OW (V)                                98      98    25.5%       2.3%     sector. We like Continental and
ElringKlinger ZILGn.DE 21.50 OW (V) N (V)                                 26      24    23.6%       2.7%
Faurecia       EPED.PA 12.95 OW (V) OW (V)                                18      23    40.5%       1.5%     ElringKlinger (both OW (V)); we remain
Leoni         LEOGn.DE 30.25 N (V) OW (V)                                 33      43    14.0%       4.9%
Valeo           VLOF.PA 35.80 N (V) N (V)                                 36      38    4.06%       3.5%     OW (V) on Faurecia as a cyclical hedge
Source: HSBC estimates, Thomson Reuters Datastream; prices as at close 04 October 2012
*Potential return equals the percentage difference between the current share price and the target
price, including the forecast dividend yield.
                                                                                                           Q4 outlook – seasonal rebound now unlikely: The Q3
                                                                                                           earnings season starts on 16 October, and we expect good
                                                                                                           results as premium and NAFTA exposure is still strong
                                                                                                           enough to compensate for sluggish European volumes.
                                                                                                           However, outlook statements may turn more negative as we
                                                                                                           think the volume rebound normally seen in the fourth quarter
                                                                                                           will probably not materialise, and 2013 won’t be any easier.
                                                                                                           We see some risks of a 2012 guidance breach for the sector,
                                                                                                           especially at Faurecia and Leoni.

                                                                                                           2013 – flat global light vehicle production (LVP): In this
                                                                                                           note we cut our assumption for global LVP growth from 1.2%
8 October 2012                                                                                             to zero. We see European markets declining by a further 1%,
Niels Fehre*, CFA                                                                                          while NAFTA production shrinks by 0.5% y-o-y. As we also
Analyst
                                                                                                           cut our forecast for the emerging markets, we no longer
HSBC Trinkaus & Burkhardt AG, Germany
+49 211 910 3426     niels.fehre@hsbc.de                                                                   expect growth in 2013 global LVP.

Horst Schneider*                                                                                           We cut 2013 EPS forecasts: Our forecasts were based on a
Analyst
HSBC Trinkaus & Burkhardt AG, Germany
                                                                                                           scenario of stable volumes in the developed world and
+49 211 910 3285     horst.schneider@hsbc.de                                                               profitable growth in emerging markets. As we think this
                                                                                                           scenario will not materialise in 2013, we no longer see margin
                                                                                                           expansion in the supplier sector. We cut EPS forecasts for the
                                                                                                           sector on average by 20%, and are roughly 10-20% below
                                                                                                           consensus for Faurecia, Valeo and Leoni; we cut our targets on
                                                                                                           these three names, while raising our TP for ElringKlinger.
View HSBC Global Research at: http://www.research.hsbc.com
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,                                              We downgrade Leoni to N (V), from OW (V), and
and is not registered/qualified pursuant to FINRA regulations                                              upgrade ElringKlinger to OW (V), from N (V): Taking
Issuer of report:            HSBC Trinkaus and Burkhardt AG                                                the already distressed valuations into account, we do not
Disclaimer & Disclosures                                                                                   expect a significant sector de-rating. We favour defensive
This report must be read with the                                                                          companies that can still outperform global markets in 2013.
disclosures and the analyst certifications                                                                 We are OW (V) on Continental, ElringKlinger and Faurecia,
in the Disclosure appendix, and with the                                                                   and we cut Leoni to N (V), from OW (V), following the
Disclaimer, which forms part of it                                                                         target price change; Valeo remains N (V).
    Industrials
    European Auto Components        abc
    8 October 2012




Contents

2013 won’t be any better       3

Company profiles               11

    Continental                12

    ElringKlinger              17

    Faurecia                   22

    Leoni                      26

    Valeo                      30

Disclosure appendix            34

Disclaimer                     39




2
   Industrials
   European Auto Components                                                                                                                                        abc
   8 October 2012




2013 won’t be any better
 We expect a good set of results in the Q3 earnings season, but
    believe guidance wording on Q4 and 2013 will become more
    bearish, with risks to guidance for Leoni and Faurecia
 Outlook for 2013 weakens; we cut our 2013 EPS forecasts for the
    sector by an average 20%
 We see earnings upside potential from the attractive risk/return at
    Faurecia, Continental and ElringKlinger, but cut Leoni to N (V)



Q3 earning season ahead                                                                            European OEMs’ and auto suppliers' earnings calendar
                                                                                                                                               Q3 2012 calendar
The latest newsflow from Daimler and Volkswagen
                                                                                                   OEMs
shows that the problem in European car markets is                                                  PSA                                                    24-Oct
no longer confined to the mass players, it has                                                     Volkswagen                                             24-Oct
                                                                                                   Renault                                                25-Oct
spread to the premium OEMs and will – sooner or                                                    Daimler                                                25-Oct
later – reach the supplier industry. The Q3 earnings                                               Fiat                                                   30-Oct
                                                                                                   BMW                                                     6-Nov
season, which starts on 16 October, will be the first                                              Suppliers
test for the supplier industry, as seasonal weakness                                               GKN                                                    16-Oct
                                                                                                   Valeo                                                  18-Oct
from the holiday period will be combined with the                                                  Faurecia                                               23-Oct
effect of weak markets, especially in Europe. This                                                 Autoliv                                                23-Oct
                                                                                                   Continental                                            31-Oct
is not much of a risk to Q3 forecasts, but the risk is                                             ElringKlinger                                           7-Nov
greater for Q4 as the seasonal sequential rebound                                                  Rheinmetall                                             9-Nov
                                                                                                   Leoni                                                  13-Nov
may not appear.
                                                                                                   Source: Company data


 Western European car sales remain under pressure (000
 units)                                                                                            Q3 production volumes down 9.0%
 17,000                                                                                            y-o-y in Europe (-16.6% q-o-q)…
 16,000
                                                                                                   In a normal year, Q3 European production volumes
 15,000
 14,000                                                                                            fall around 17% versus Q2 due to plant closures in
 13,000                                                                                            the holiday season reducing production days to 50
 12,000                                                                                            from 60 in the previous quarter. However, Q3 2010
 11,000
                                                                                                   and Q3 2011 have been extraordinarily strong, with
 10,000
                                                                                                   plant closures shortened to meet high demand
                 20 02


                                2004
                                       2 005
                                               2006
                                                      2 007


                                                                     20 09


                                                                                    2011
                                                                                           2 012
          2001


                         2003




                                                              2008


                                                                             2010




                                                                                                   driven by exports or scrappage scheme
                                Weste rn Europ e S AAR
                                Weste rn Europ e S AAR (trend )                                    incentivises. This year, Q3 volumes have been
                                                                                                   down 16.6% versus Q2 (in Europe), which looks
 Source: IHS Automotive




                                                                                                                                                                     3
    Industrials
    European Auto Components                                                                                                         abc
    8 October 2012




HSBC light vehicle production quarterly forecasts by region
000 units                           Q3 11   Q4 11       Q1 12    Q3 12e y-o-y (%) q-o-q (%)   Q4 12e y-o-y (%) q-o-q (%) q-o-q (%)
Western Europe                      3,028    3,330       3,522     2,711   -10.5%    -15.4%    2,939    -11.7%     8.4%      8.4%
Eastern Europe                        819      883         802       763    -6.8%    -15.9%      812     -8.0%     6.4%      6.4%
Central Europe                        683      753         885       682    -0.2%    -19.9%      762      1.2%    11.8%     11.8%
Europe (excl Russia)                4,044    4,452       4,729     3,681    -9.0%    -16.6%    4,017     -9.8%     9.1%      9.1%
North America                       3,182    3,439       3,965     3,571    12.2%    -10.4%    3,576      4.0%     0.1%      0.1%
South America                       1,140      999         947     1,222     7.3%     19.7%    1,162     16.3%    -5.0%     -5.0%
Japan/Korea                         3,265    3,645       3,767     3,392     3.9%     -2.4%    3,326     -8.8%    -2.0%     -2.0%
Greater China                       3,835    4,437       4,108     4,056     5.8%     -2.6%    4,548      2.5%    12.1%     12.1%
ASEAN + India                       1,797    1,448       1,977     1,865     3.8%     -4.0%    1,886     30.2%     1.1%      1.1%
Global                             18,308   19,539      20,499    18,681     2.0%     -6.5%   19,442     -0.5%     4.1%      4.1%
Source: HSBC estimates, IHS Automotive




more like a normal seasonal decline. The table                             2012 guidance risk at
above shows the data for all regions. The NAFTA                            Faurecia and Leoni
region shows high resilience to a weakening macro
                                                                           The lower-than-expected Q4 production number
picture, which should compensate for some of the
                                                                           for Europe may put the 2012 targets at risk, in our
European pressure, in our view.
                                                                           view, depending on how aggressive these targets
… but Q4 rebound will be less strong                                       are. Below (and in more detail in the profiles) we
than expected                                                              compare current guidance from the auto suppliers
 Normally, Q4 volumes (in Europe) are around                               with our estimates. We think that ElringKlinger and
15% higher than in Q3. This year, despite the more                         Continental have been cautious enough to create
normal Q3, it will be difficult to achieve the usual                       the possibility of surprising on the upside. On the
rebound in Q4. Due to production cuts resulting                            other side we see some risks for Faurecia (which
from inventory de-stocking at mass car makers and                          earns roughly 80% of its profits in Europe, according
even at premium OEMs, we expect Q4 production                              to our calculations) as well as Leoni (which still
to rebound only around 9% this year versus Q3                              suffers from integration problems at Daekyeung
with the risk being on the downside. This will be a                        and weak product mix at the WCS division).
burden for supplier industry margins, although they                        Who cares about 2012?
can still partly compensate for the pressure on
                                                                           The question is whether a guidance cut would
volumes with non-European exposure as well as
                                                                           lead to further significant pressure on the share
flexible work contracts. We see risks to 2012
                                                                           prices. Looking at Faurecia we don’t think so as
guidance only for Faurecia and Leoni.
                                                                           the stock has already been under severe pressure
                                                                           in the past few weeks (and months). Given low
                                                                           valuations we believe that the market is already
Q3-2012 and 2012 expectations and outlook                                  aware of the risk of a guidance breach. At Leoni
Company         Results Q3                    Outlook                      the situation is a little different, but we do not
Valeo         Organic OE sales growth of 2012 confirmed, growing           believe that management will make another cut to
              1.2% y-o-y                    restructuring in 2013
Faurecia      Organic product sales growth 2012 at risk                    its full-year targets with Q3 results. In the year to
              of 0.5% y-o-y
Leoni         Weak cable product mix,       2012 increasingly at risk
                                                                           date, Continental is the best-performing supplier.
              integration problems persist
ElringKlinger Better margin on firm growth, 2012, 2013 confirmed           We think that even if Q4 2012 disappoints, investors
              integration problems persist
Continental Weaker auto business,           2012 confirmed                 will probably focus more on the outlook for 2013.
              rubber group compensates
Source: HSBC




4
    Industrials
    European Auto Components                                                                                                                                                 abc
    8 October 2012




Comparison of HSBC estimates with company guidance for 2012
                                                                       Guidance                                     HSBCe                                  Variance
Faurecia
Sales                                                              EUR17-17.4bn                           EUR17.3bn                                             0.6%
Op. income                                                         EUR560-610m                             EUR545m                                             -6.8%
Net cash flow                                                      balanced in H2                     EUR-100m in H2
Valeo
Op. margin                                    same level as FY 2011 (EUR704m)                                     EUR712m                                               1%
Leoni
Group sales                                                         EUR3.8-3.9bn                             EUR3.8bn                                         -1.3%
-Wire&Cable                                                        EUR1.6-1.65bn                           EUR1.625bn                                          0.0%
-Wiring Systems                                                    EUR2.2-2.25bn                            EUR2.18bn                                         -2.0%
EBIT                                                               EUR255-275m                               EUR247m                                          -5.9%
-Wire&Cable                                                        EUR115-125m                               EUR107m                                         -10.8%
-Wiring Systems                                                    EUR140-165m                               EUR140m                                          -8.2%
ElringKlinger
Organic growth                                                            5-7%                                       7.70%                                   170bps
Acquisitions                                                           EUR20m                                      EUR28m                                     40.0%
Adjusted EBIT                                                      EUR145-150m                                    EUR155m                                      5.1%
Continental
Group Sales                                                      >EUR32.5bn                                   EUR32.6bn                                        0.4%
-Automotive group                                                >EUR19.5bn                                   EUR19.7bn                                        0.8%
-Rubber group                                                      >EUR13bn                                   EUR13.3bn                                        2.2%
Adjusted EBIT margin                                  above 2011 level (10.0%)                                   11.10%                                      110bps
-Automotive group                                                         >8%                                        8%                                          flat
-Rubber group                                                          >14.5%                                    16.10%                                      160bps
FCF                                                                >EUR600m                                    EUR759m                                        26.5%
Source: Company presentations, HSBC estimates




2013 matters – we no longer                                                              in developed markets, but a still strong 5.6% in
see any growth in global LVP                                                             the emerging world.

Our economists have recently revised their
expectations for global GDP growth, and now
expect a 0.1% drop in the eurozone instead of
0.3% growth y-o-y. According to their forecasts,
the world will grow by 2.4% next year, only 1.2%


  YTD performance* of suppliers and EURO STOXX Auto and Parts

  190

  170

  150

  130

  110

   90

   70
                                                                                             Jun-12




                                                                                                        Jul- 12
        Jan-12




                          Fe b-12




                                           Ma r-12




                                                                          Ma y-1 2




                                                                                                                             Aug-12




                                                                                                                                               Sep-12




                                                                                                                                                               Oct-12
                                                          Apr-12




                 Vale o             Faure cia            Leo ni                 ElringKlin ger        Con tinenta l                   Eu ro S toxx Au to and parts



  * To 04 October 2012
  Source: Thomson Reuters Datastream




                                                                                                                                                                               5
     Industrials
     European Auto Components                                                                                                         abc
     8 October 2012




Changes to HSBC GDP forecasts for important regions                           We cut supplier EPS on
                             ______ 2012e ______ ______ 2013e ______          average by 20% for 2013e
                                   old      new        old      new
World                              2.1%          2.2%         2.5%     2.4%   Following our revision to global LVP in 2013 we
Developed                          1.0%          1.2%         1.3%     1.2%   cut our expectations for the supplier industry. As
Emerging                           5.2%          4.9%         5.8%     5.6%
Eurozone                          -0.6%         -0.6%         0.3%    -0.1%   can be seen below, our biggest cut to EPS
US                                 1.8%          2.2%         1.7%     1.7%
China                              8.4%          7.8%         8.8%     8.6%   forecasts is for Faurecia, which depends heavily
Brazil                             2.5%          1.7%         3.8%     3.8%   on European production. However, we also
Russia                             3.0%          3.0%         2.5%     2.5%
                                                                              become more pessimistic on the other names.
Source: HSBC estimates (Global Economics Quarterly Q4-2012)
                                                                              With our new EPS estimates we are now
We revise our global LVP numbers                                              significantly below consensus for three out of five
                                                                              companies that still seem to believe in structural
We become even more pessimistic on 2013. As
                                                                              margin improvement at stable volumes. We
can be seen below, we now assume a small
                                                                              believe that suppliers will struggle to improve
contraction in European light vehicle production
                                                                              margins as pricing pressure will rise and volumes
(LVP), as exports remain under pressure and
                                                                              will hardly improve versus 2012. Premium
austerity measures prevent any significant
                                                                              exposure will probably not help anymore, as
rebound in consumer confidence. Also, for the
                                                                              pricing and volumes come under pressure as well
NAFTA region we now assume a small drop in
                                                                              in this segment. Therefore the already announced
production, following the strong rebound in 2012.
                                                                              restructuring package at Faurecia will not be the
We make a small revision to Chinese production.
                                                                              last one in the industry (eg, we raise restructuring
We cut LatAm production growth from 6% to
                                                                              costs at Valeo and Faurecia for 2013e).
around 2% (mainly because of de-stocking and
the incentive scheme in 2012 which will pull                                  Cuts to HSBC estimates
forward demand from 2013 into this year’s H2).                                                          2012e      2013e      2014e
                                                                              Revenues
 In summary, we no longer see any growth in                                   Faurecia                     0%        -1%       -2%
global LVP in 2013 (cut from +1.2% to 0%). Our                                Valeo                        3%        -4%       -2%
                                                                              Leoni                       -3%        -8%       -9%
no-growth assumption follows 5% growth in                                     ElringKlinger                0%        -1%        0%
                                                                              Continental                  0%         0%        0%
production in 2012 when a very strong NAFTA                                   EBIT
market compensates for the sluggish production                                Faurecia                    -7%       -26%      -16%
                                                                              Valeo                       -1%       -11%       -3%
volumes in Europe. This will also have significant                            Leoni                      -16%       -26%      -24%
effects on our supplier estimates, which have so                              ElringKlinger               -2%        -7%       -3%
                                                                              Continental                  0%         0%        0%
far rested on global growth, not global stagnation.                           EPS
                                                                              Faurecia                   -18%       -38%      -26%
                                                                              Valeo                       -4%       -14%       -3%
                                                                              Leoni                      -15%       -27%      -25%
                                                                              ElringKlinger                0%        -8%       -4%
Changes to HSBC LVP estimates for 2012 and 2013
                                                                              Continental                  0%         0%        0%
                                ____ 2012e _____ _____ 2013e _____            Source: HSBC estimates
                                    old     new       old     new
Western Europe                    -8.2%         -9.1%          1.3%   -1.1%
Eastern Europe                    -2.4%         -1.3%         -4.1%    0.4%
Central Europe                    -1.6%         -0.1%          3.7%   -0.5%
Europe (excl Russia)              -7.3%         -7.7%          1.2%   -1.1%
North America                     13.2%         15.0%          0.5%   -0.5%
South America                      3.5%          1.6%          6.0%    1.7%
Greater China                      4.2%          4.8%          7.1%    6.0%
Global                             4.1%          5.0%          1.2%    0.0%
Source: HSBC estimates, IHS Automotive




6
    Industrials
    European Auto Components                                                                                                                                                                            abc
    8 October 2012




Consensus too high but low valuation                                                                      European suppliers are still trading at high discounts to historical
                                                                                                          multiples
prevents further sector de-valuation
                                                                                                          (x)                 2012 PE 2013 PE Historic                2012 2013 Historic
As can be seen in our ratings, we do not turn                                                                                                      PE                  EV/    EV/    EV/
                                                                                                                                                                   EBITDA EBITDA EBITDA
pessimistic on the sector or any single name. We
                                                                                                          Valeo                     7.1         6.7         11.5         3.5         3.2         3.9
downgrade Leoni to Neutral (V) but upgrade                                                                Faurecia                  7.2         5.3          8.8         3.6         2.8         4.5
ElringKlinger to Overweight (V). This is because                                                          Leoni                     6.1         6.6          9.2         3.6         3.7         5.2
                                                                                                          ElringKlinger            13.7        11.5         14.5         6.6         5.6         6.9
we have to acknowledge the low valuation of the                                                           Continental               7.5         6.9          9.8         4.8         4.3         5.7
sector. Historically, the EuroStoxx Autos & Parts                                                         Note: EV/EBITDA in this table is not comparable to the F&V page, which excludes pensions in
                                                                                                          the EV calculation
traded on 10.24x (2000-07 average) 12-month                                                               Source: HSBC estimates

forward PE – it is now trading at 6.5x 12-month
forward PE, a discount of 37%. Therefore we                                                               Our key ratings
think that a lot is already priced in. That does not                                                      In this note, we downgrade Leoni to Neutral (V)
mean negative consensus revisions may not put                                                             and upgrade ElringKlinger to Overweight (V). We
further pressure on share prices. But it does mean                                                        also change our target prices for each company
that the overall downside risk for the sector                                                             except Continental. Our high-conviction ideas are
remains low – at least for now.                                                                           Continental and ElringKlinger, both
                                                                                                          outperforming 2013 car production on HSBC
  Sector trades at a 37% discount to historical (2000-07) 12-
  month-forward PE multiple                                                                               forecasts. We still consider Faurecia to be a
                                                                                                          cyclical play and a high-beta name on a potential
  16
                                                                                                          recovery in European consumer confidence.
  14
  12                                                                  Av g P/E: 10.24x                    Continental (CON GR, TP EUR98, OW (V)): We
  10                                                                                                      updated our view on Continental on 5 October (see
   8                                                                                                      ‘Mixed Q3e – Rubber to offset Automotive
   6                                                                                                      weakness’). In this note we reduced our EBIT
   4
                                                                                                          forecast for the Automotive Group for 2012 and
                                                                                                          thereafter, but this was more than compensated by a
       2000
              2001
                     2002
                            2003
                                   2004
                                          2005
                                                 2006
                                                        2007
                                                               2008
                                                                      2009
                                                                              2010
                                                                                     2011
                                                                                            2012




                                                                                                          higher EBIT forecast for the Rubber Group. Our
              EURO STOXX Auto and Parts P/E                                          Av g
                                                                                                          2012 and 2013 estimates are 3% and 4% above clean
  Note: PE multiple in the period Feb-2009 to May-2010 is not meaningful due to very low                  EBIT consensus estimates (as collected by the
  EPS consensus
  Source: Factset;                                                                                        company). We like Continental for its consistent
                                                                                                          outperformance of global car production due to its
                                                                                                          innovative product portfolio. Also, we see some
                                                                                                          upside potential for 2012 in case of a good winter
                                                                                                          season (pushing tyre sales). We are Overweight (V)
                                                                                                          on Continental, target price EUR98.


HSBC EPS estimates versus Bloomberg consensus
                                                         __________________2012e __________________                              _________________ 2013e __________________
(EUR)                                                          HSBCe            Cons         var (%)                                   HSBCe            Cons         var (%)
Valeo                                                                        5.07                  5.30               -5%                     5.31                    6.00                  -11%
Faurecia                                                                     1.81                  2.27              -20%                     2.43                    2.92                  -17%
Leoni                                                                        4.98                  4.94                1%                     4.57                    5.07                  -10%
ElringKlinger                                                                1.57                  1.52                3%                     1.86                    1.75                    7%
Continental                                                                  9.06                   8.7                4%                     9.96                    9.33                    7%
Source: HSBC estimates, Bloomberg consensus




                                                                                                                                                                                                          7
    Industrials
    European Auto Components                                                                                abc
    8 October 2012




ElringKlinger (ZIL2 GR, TP EUR26, OW (V)):            remain a burden for the margin. Being 10% below
Despite our small margin cut we are still slightly    consensus EPS, we no longer see a big
above company guidance for 2012, believing in a       improvement to margins in 2013 and cut our target
further improvement in acquisition margins over       price from EUR43 to EUR33. We downgrade
the next two quarters. We cut our 2013 EPS            Leoni to Neutral (V), from Overweight (V).
estimates by 8% but remain 7% above consensus.
                                                      Valeo (FR FP, TP EUR36, N (V)): We do not
Elring should continue to outperform global LVP
                                                      see a major risk to 2012 guidance despite our 4%
next year; we see roughly 6.5% organic growth
                                                      cut to 2012 EPS estimates (being 5% below
from ramp-ups in the engineered plastics division
                                                      consensus). However, we cut our 2013 numbers
and the truck business. We like Elring for its
                                                      more aggressively (by 14%), being 11% below
defensive business model and consistent
                                                      consensus. Despite 5.6% organic growth y-o-y,
outperformance in difficult markets. We therefore
                                                      we do not see much scope for improving margins.
upgrade the company to Overweight (V) from
                                                      We still believe in solid cash generation next year
Neutral (V), with a new target price of EUR26 (up
                                                      but with most analysts on a Buy recommendation
from EUR24) on the back of slightly lower capex
                                                      and expecting further cuts to consensus forecasts,
assumptions for the future.
                                                      we believe the short-term outlook remains muted.
Faurecia (EO FP, TP EUR18, OW (V)):                   We reiterate our Neutral (V) on the company, new
Faurecia depends the most on European                 target price EUR36 (old EUR38).
production and is therefore the most affected by
                                                      Valuation methodologies
our cut in production numbers. Being roughly
20% below consensus EPS for this year                 Note that we use a variety of valuation
(reflecting the new convertible launch and higher     methodologies for the suppliers. We value
restructuring expenses), we are also slightly below   Faurecia, Valeo and Leoni on a mix of peer and
company guidance now. For next year we become         historical multiples. For Faurecia and Valeo, the
more cautious on margin improvement potential,        peers include European and US automotive
cutting EPS by roughly 38%. Even so, we see           suppliers (lower-margin peers to account for
roughly 34% EPS growth in 2013 y-o-y (after a         Faurecia’s lower profitability), while Leoni’s peer
42% decline this year). Given the cheap valuation     group also includes cable peers. For Continental,
and taking into account the margin improvement        we use historical multiples because it has a range
potential in the US, we remain OW (V) but cut         of different business segments. We value
our target price to EUR18 from EUR23 on the           ElringKlinger completely on DCF method, which
back of a higher discount factor. The short-term      captures the long-term growth opportunities (as it
outlook seems difficult, but on a 12-month view       is a niche player and there are no peers
we see Faurecia as a cyclical hedge to our more       available).
defensive Overweights.

Leoni (LEO GR, TP EUR33, N (V)): As
premium production comes under pressure, Leoni
is no longer immune to the downturn. We cut our
2012 EPS estimates by 15%, being slightly below
company guidance as integration problems at
Daekyeung and a weak product mix at WCS



8
    Industrials
    European Auto Components                                                                                                             abc
    8 October 2012




HSBC global light vehicle production forecast (000 units), 2008-2014e
Region                           2008    y-o-y %    2009    y-o-y %    2010    y-o-y %    2011    y-o-y %   2012e    y-o-y %   2013e    y-o-y %   2014e    y-o-y %
Western Europe                14,320      -9.8%    11,734   -18.1%    13,144    12.0%    13,606     3.5%    12,375    -9.1%    12,241    -1.1%    12,744     4.1%
Germany                        5,431      -2.8%     4,790   -11.8%     5,435    13.5%     5,747     5.7%     5,432    -5.5%     5,329    -1.9%     5,284    -0.9%
United Kingdom                 1,622      -6.2%     1,080   -33.4%     1,382    28.0%     1,446     4.7%     1,522     5.2%     1,424    -6.4%     1,608    12.9%
Italy                            966     -21.1%       818   -15.3%       798    -2.5%       748    -6.3%       643   -14.0%       686     6.7%       802    16.9%
France                         2,483     -15.1%     2,008   -19.2%     2,160     7.6%     2,229     3.2%     1,914   -14.1%     1,967     2.8%     2,156     9.6%
Spain                          2,501     -12.0%     2,157   -13.8%     2,370     9.9%     2,322    -2.0%     1,911   -17.7%     1,948     1.9%     1,944    -0.2%
Eastern Europe                 3,334       5.7%     1,783   -46.5%     2,690    50.9%     3,328    23.7%     3,285    -1.3%     3,299     0.4%     3,671    11.3%
Russia                         1,647       7.7%       658   -60.0%     1,330   102.1%     1,880    41.4%     1,999     6.3%     2,044     2.3%     2,250    10.1%
Turkey                         1,083       4.9%       848   -21.7%     1,059    24.9%     1,119     5.7%       976   -12.8%       944    -3.3%     1,175    24.4%
Central Europe                 3,022       5.0%     2,919    -3.4%     3,154     8.1%     3,182     0.9%     3,180    -0.1%     3,164    -0.5%     3,240     2.4%
Czech Republic                   838      -5.4%       916     9.3%     1,020    11.4%     1,126    10.4%     1,059    -6.0%     1,046    -1.3%     1,036    -1.0%
Poland                           893      22.1%       875    -2.0%       875     0.0%       817    -6.7%       622   -23.8%       489   -21.5%       453    -7.3%
North America                 12,638     -16.3%     8,583   -32.1%    11,941    39.1%    13,126     9.9%    15,099    15.0%    15,017    -0.5%    15,397     2.5%
United States                  8,493     -19.5%     5,609   -34.0%     7,622    35.9%     8,456    10.9%     9,920    17.3%    10,085     1.7%    10,462     3.7%
South America                  3,745       5.0%     3,667    -2.1%     4,148    13.1%     4,283     3.3%     4,352     1.6%     4,426     1.7%     4,727     6.8%
Brazil                         2,857       8.0%     2,925     2.4%     3,150     7.7%     3,143    -0.2%     3,243     3.2%     3,285     1.3%     3,547     8.0%
Middle East/Africa             1,706      -0.9%     1,762     3.3%     2,118    20.2%     2,199     3.8%     1,797   -18.3%     1,971     9.7%     2,139     8.5%
Iran                           1,061       0.2%     1,291    21.7%     1,517    17.5%     1,574     3.7%     1,095   -30.5%     1,193     9.0%     1,321    10.7%
Greater China                  7,701       4.4%    11,663    51.5%    15,490    32.8%    16,102     3.9%    16,876     4.8%    17,885     6.0%    19,823    10.8%
China                          7,529       6.0%    11,443    52.0%    15,199    32.8%    15,773     3.8%    16,554     4.9%    17,572     6.2%    19,487    10.9%
ASEAN + India                  4,698      12.0%     4,500    -4.2%     6,243    38.7%     6,485     3.9%     7,424    14.5%     7,680     3.4%     8,113     5.6%
India                          2,055       7.6%     2,403    17.0%     3,164    31.7%     3,508    10.9%     3,668     4.5%     3,952     7.7%     4,326     9.5%
Others                        14,700      -2.8%    11,137   -24.2%    13,355    19.9%    12,509    -6.3%    14,211    13.6%    12,929    -9.0%    12,653    -2.1%
Japan                         10,680      -1.1%     7,490   -29.9%     8,926    19.2%     7,705   -13.7%     9,349    21.3%     8,343   -10.8%     8,159    -2.2%
South Korea                    3,739      -6.5%     3,434    -8.2%     4,187    21.9%     4,583     9.5%     4,613     0.7%     4,324    -6.3%     4,235    -2.1%
Total Sum                     65,863      -4.5%    57,747   -12.3%    72,283    25.2%    74,822     3.5%    78,598     5.0%    78,611     0.0%    82,507     5.0%
  - Triad markets             37,638      -9.9%    27,808   -26.1%    34,011    22.3%    34,437     1.3%    36,823     6.9%    35,600    -3.3%    36,300     2.0%
  - non Triad markets         28,225       3.7%    29,940     6.1%    38,272    27.8%    40,384     5.5%    41,776     3.4%    43,010     3.0%    46,208     7.4%
  - BRIC markets              14,088       6.8%    17,430    23.7%    22,843    31.1%    24,304     6.4%    25,463     4.8%    26,853     5.5%    29,611    10.3%
Source: IHS Automotive, HSBC estimates




                                                                                                                                                                 9
     Industrials
     European Auto Components                                                 abc
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10
Industrials
European Auto Components               abc
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                           Company profiles




                                          11
     Industrials
     European Auto Components                                                                               abc
     8 October 2012




Continental
 Q3 2012e: We expect no major positive surprise due to some
     weakness in Automotive
 We remain positive: clean EBIT consensus still too low for 2012
     and 2013; and share liquidity should improve following Conti’s
     inclusion in the DAX30 and Schaeffler’s share placement
 We maintain our Overweight (V) rating and EUR98 target price




Investment case                                      favourable exposure to customers (VW, GM,              Horst Schneider*
                                                                                                            Analyst
                                                     Ford, BMW and Daimler) and its innovative
                                                                                                            HSBC Trinkaus & Burkhardt
Q3 release                                           product portfolio. We highlight that we expect         AG, Germany
In the release due on 31 October we still expect                                                            +49 211 910 3285
                                                     only EUR355m clean EBIT for the Automotive             horst.schneider@hsbc.de
strong results in the Rubber Group, even though      Group in Q3 2012, which corresponds to only            Niels Fehre*, CFA
the Q3 margin will not be as strong as that          7.4% clean EBIT margin (below the full-year            Analyst
                                                                                                            HSBC Trinkaus & Burkhardt
reported in Q2 2012. We are slightly more            target of 8.0%). This is mainly due to the fact that   AG, Germany
concerned about the Automotive Group, which we                                                              +49 211 910 3426
                                                     we expect revenues to be up only by 3.0% y-o-y,        niels.fehre@hsbc.de
believe suffered from weaker volumes. Even           while the operating margin is dragged down by a        *Employed by a non-US affiliate
though we still consider Conti’s guidance as too     negative raw material price effect of EUR20m           of HSBC Securities (USA) Inc,
                                                                                                            and is not registered/ qualified
cautious for 2012 (for the Rubber Group), we do      from higher rare earth metal prices. Owing to the      pursuant to FINRA regulations
not expect another guidance increase with the Q3     negative raw material price effect, we even expect
numbers. As we explain further below, we even        a negative operating leverage of c8% y-o-y.
see some risks that 2012 targets in the Automotive
Group (at least 6% revenue growth; more than 8%      Rubber Group

clean EBIT margin) will be missed, although not      For Q3 2012, we work with the assumption of
by much. For us, this is not a major concern since   roughly flat volumes and a mid-single-digit price
we still expect a positive surprise in the Rubber    mix impact in the tyre division. Even if the market
Group in 2012, which will more than compensate       has continued to decline y-o-y in Europe, we
weakness in the Automotive Group. For full           believe Continental has benefited from relatively
details on Q3, please have a look on our note from   low winter tyre inventories, resulting in a good
5 October (‘Mixed Q3e – Rubber to offset             sell-in to its dealers during Q3. We are relatively
Automotive weakness’).                               cautious regarding our clean EBIT margin
                                                     forecast in the Rubber Group and expect ‘only’ a
Automotive Group                                     15.6% margin in Q3 2012, weaker than the 17.1%
We believe that Continental has performed better     reported in Q2 2012. First, we believe the
than the market (as it did in H1 2012) due to        price/mix effect in tyres is less favourable than in


12
   Industrials
   European Auto Components                                                                                     abc
   8 October 2012




Q2 2012. Second, we believe Conti had to pass on       summer tyres it is only 15-20%. In the event of a
part of the lower raw material prices to car           hard winter with early snow in November in
makers, which reduces the operating leverage           Europe, Continental would benefit a lot from the
compared with H1 2012.                                 higher demand for winter tyres. We work with the
                                                       view of flat unit sales at Conti in Q4 2012,
2012 guidance: upside in the Rubber
                                                       assuming similar weather in Q4 this year as last
Group, downside in Automotive
                                                       year. We consider this as a conservative
Continental increased its sales and EBIT guidance      assumption. Most recent weather forecasts on
for 2012 only at its Q2 results on 2 August 2012.      ‘www.wetterprognosewettervorhersage.de’
The company now expects to increase sales by           predict a normal to cold winter for December
more than 7% to more than EUR32.5bn (old:              2012, January 2013 and February 2013. If these
>5%) and to increase (old: sustain) its clean EBIT     prove accurate our sales and EBIT margin
margin versus last year (2011a: 10.0%).                forecasts for Continental’s tyre division would
Main upside is still at the Rubber Group               need to be revised for the next two quarters.
We consider the clean EBIT margin guidance for         Getting more doubts on the Automotive Group
the Rubber division as too cautious. While Conti       While the outlook is still good for the Rubber
expects a clean EBIT margin of more than 14.5%         Group, we are becoming more concerned about
in 2012, we forecast a margin of 16.1%, which is       the Automotive Group since we expect LVP to
mainly based on lower natural and synthetic            remain rather weak in Q4 2012. Continental
rubber prices in the past few months. Alone,           currently expects at least 6% revenue growth in
natural rubber accounts for roughly 15-20% of          2012 for this segment and is well on track to
total cost of goods sold at passenger car tyres, in    achieving that number (HSBCe 9M 2012: +7.9%;
our view. After the recent natural rubber price        HSBCe 2012: +6.5%), but the operating leverage
decline (from USD3.45/kg in Q2 to USD2.87/kg           was only 8% in H1 2012. If the operating leverage
in Q3, lower than Conti’s expectation of USD3.6),      does not improve, we believe there is a small risk
we believe Conti’s guidance of a natural rubber        that Conti will not achieve more than 8% clean
price increase to USD4.00/kg in Q4 2012 is rather      EBIT margin in the Automotive Group in 2012.
pessimistic. Since there is a time lag of c6 months    We only expect 8.0% clean EBIT margin for this
between natural rubber purchasing and                  year in this segment. It is currently hard to say for
consumption, we believe these better raw material      us if that forecast is a conservative forecast or not.
prices will have their greatest impact in H1 2013,     We believe visibility is rather weak for
but some benefit could be seen in Q4 2012 since        Continental in that area and it depends particularly
natural rubber demand for November and                 on the production schedules in December if that
December had not been fully covered by                 target can be met. Nevertheless, we are not too
purchases in Q2 2012, in our view.                     concerned about that since we believe Conti
The big question: Will it be a mild or hard            would only marginally miss its earnings guidance
winter in Europe?                                      for the Automotive Group, and the positive
Continental is the market leader for winter tyres in   surprise in the Rubber Group would more than
Europe. In 2011, 24% of total passenger car tyre       compensate for that.
sales were in the winter tyre segment. We believe
Continental generates an EBIT margin close to
30% in this segment, whereas we believe that for


                                                                                                                  13
     Industrials
     European Auto Components                                                                                                                                                       abc
     8 October 2012




Continental AG: valuation based on historical multiples
Valuation                       2013 estimates                          Multiple-based  2013e net 2013e pensions 2013e minorities                                   2013e market   Number of Fair value
multiple*                                                                  EV (EURm) debt (EURm)         (EURm)          (EURm)                                      cap (EURm)    shares (m)    (EUR)
EV/sales                   0.7   Sales (EURm) 34,468.7                           25,197.8             5,477.5                1,432.2                     607.2          17,645.2        200.0      88.2
EV/EBITDA                  5.0 EBITDA (EURm) 5,156.3                             25,936.8             5,477.5                1,432.2                     607.2          18,264.7        200.0      91.3
PE**                        10      EPS (EUR)     11.5                                                                                                                                            115.1
Average 2013e                                                                                                                                                                                      98.3
* Historical average = 2001-07, Jan 2010-September 2011; we strip out 2008 and 2009 since the low level of earnings inflated PE and EV/EBITDA multiples too much.
** HSBC EPS excludes PPA amortisation, which is non-cash effective and phases out as of 2014 at Continental.
Source: HSBC estimates, Factset consensus




Development of most important raw material prices for Conti’s                                     (before PPA amortisation) PE of 6.8x. This is too
Rubber Group (average price, USD/kg)
                                                                                                  low, in our view, given the fact that we expect
                         Q1        Q2        H1        Q3        Q4        H2        FY
                                                                                                  Continental to outperform global LVP by at least
Natural Rubber TSR20
2011            5.37 4.79                  5.08      4.66      3.69      4.18      4.63           5% pa and to generate an EBIT margin of 11-12%
2012            3.78 3.45                  3.61      2.87      3.45      3.16      3.39
Butadiene (= synthetic rubber)
                                                                                                  pa from 2012e to 2015e.
2011            2.10 3.79                  2.95      3.62      1.86      2.74      2.85
2012            3.04 2.24                  2.64      1.77      2.00      1.88      2.26           Under our research model, for stocks with a
Source: Thomson Reuters Datastream, HSBC estimates                                                volatility indicator, the Neutral band is 10ppts
Numbers for Q4 12, H2 12 and FY12 are HSBC estimates
                                                                                                  above and below the hurdle rate for eurozone
                                                                                                  stocks of 9%. Our target price of EUR98 implies a
We are still above consensus for
                                                                                                  potential return of 25.5%, including the 2012e
2012 and 2013
                                                                                                  dividend yield of 2.3%. As this is above the
For 2012, we are c3% ahead of the clean EBIT
                                                                                                  Neutral band, we reiterate our Overweight (V)
consensus. For 2013, we are c4% ahead of the
                                                                                                  rating. Potential return equals the percentage
clean EBIT and 7% ahead of (reported) EPS
                                                                                                  difference between the current share price and the
consensus. We still consider upward consensus
                                                                                                  target price, including the forecast dividend yield
revisions as a positive catalyst for Conti’s shares,
                                                                                                  when indicated.
even though this should be more a trigger for
Q4 2012 and for 2013.                                                                             Risks
Valuation                                                                                         In our view, the main downside risks for Conti are
                                                                                                  macro related. If car demand in Europe, North
We take Conti’s historical average trading
                                                                                                  America and/or Asia is worse than expected, this
multiples (EV/sales 0.7x, EV/EBITDA 5.0x, PE
                                                                                                  has a direct impact on Continental’s business. The
10x) and apply them to the average of our
                                                                                                  main risk in the Rubber Group is that higher
estimates for 2013. We use the average 12-month
                                                                                                  prices for raw materials, such as natural rubber,
trailing Factset consensus EV/sales, EV/EBITDA
                                                                                                  cannot be passed onto customers, which would
and PE multiples for the past 10 years, but
                                                                                                  lead to unexpected earnings deterioration.
exclude 2008-09 since multiples then were overly
                                                                                                  Furthermore, tyre prices could decline if demand
distorted by the low level of earnings. Taking the
                                                                                                  is lower than supply.
average of the resulting fair values (EV/sales
EUR88.2; EV/EBITDA EUR91.3 and PE
EUR115.1), we arrive at an unchanged fair value
for Continental of EUR98 per share. Based on our
forecasts for 2013, Continental currently just
trades on an EV/EBITDA of 4.2x and an adjusted


14
     Industrials
     European Auto Components                                                                                                                                   abc
     8 October 2012




Continental AG: HSBC Q3 2012 and full-year estimates
Group (EURm)                        Q3 2011         Q1 2012         Q2 2012 Q3 2012e Q4 2012e                            2011     2012e 2012 cons   2013e 2013 cons   2014e    2015e
Sales                                   7,714           8,320           8,187           8,024           8,098         30,505      32,628   33,104   34,469   35,077   37,100   39,658
  change y-o-y                         18.9%           13.3%            8.7%            4.0%            2.3%          17.1%        7.0%     8.5%     5.6%     6.0%     7.6%     6.9%
Reported EBIT                             636             766             843             743             784          2,597       3,136             3,466             4,101    4,712
Clean EBIT                                744             875             948             854             941          3,043       3,619    3,528    3,940    3,777    4,350    4,746
Clean EBIT margin                       9.6%           10.5%           11.6%           10.6%           11.6%          10.0%       11.1%    10.7%    11.4%    10.8%    11.7%    12.0%
Net income attributable                   211             483             520             430             378          1,242       1,812             1,991             2,438    2,899
to shareholders
EPS (basic) (EUR)                        1.05            2.41            2.60            2.15            1.89            6.21       9.06     8.74     9.96     9.33    12.19    14.49
Net debt                                7,297           6,841           6,876           6,846           6,846           6,772      6,326    6,282    5,478    5,371    4,364    3,238
Divisions (EURm)
Rubber Group Total
Sales                                   3,176           3,290           3,283           3,337           3,382         12,395      13,292            13,845            14,438   15,056
  change y-o-y                         20.5%           13.9%            8.0%            5.1%            2.7%          19.8%        7.2%              5.1%              3.9%     -0.1%
Reported EBIT                             377             491             557             517             545          1,613       2,110             2,227             2,319    2,407
Clean EBIT                                398             494             561             520             568          1,643       2,142             2,250             2,334    2,420
Clean EBIT margin                      12.5%           15.0%           17.1%           15.6%           16.8%          13.3%       16.1%             16.3%             16.2%    16.1%
Automotive Group Total                                                                 -3.9%
Sales                                   4,637           5,100           4,968           4,776           4,811         18,464      19,655            20,959            23,019   24,980
  change y-o-y                         17.4%           12.2%            8.5%            3.0%            2.3%          15.2%        6.5%              6.6%              9.8%     8.5%
Reported EBIT                             278             294             301             247             269          1,025       1,112             1,329             1,878    2,408
Clean EBIT                                367             403             404             355             400          1,470       1,563             1,780             2,113    2,428
Clean EBIT margin                       7.9%            7.9%            8.1%            7.4%            8.3%           8.0%        8.0%              8.5%              9.2%     9.7%
Tires
Sales                                   2,275           2,367           2,352           2,416           2,460           8,812      9,594            10,000            10,400   10,817
  change y-o-y                         22.9%           18.2%           10.8%            6.2%            2.0%           21.6%       8.9%              4.2%              4.0%     4.0%
Reported EBIT                             287             378             436             407             440           1,196      1,661             1,752             1,817    1,878
Clean EBIT                                285             378             437             409             455           1,196      1,680             1,762             1,821    1,882
Clean EBIT margin                      12.5%           16.0%           18.6%           16.9%           18.5%           13.6%      17.5%             17.6%             17.5%    17.4%
Contitech
Sales                                    901             923             932             921             922            3,583      3,698             3,845             4,038    4,240
  change y-o-y                         15.0%            4.2%            1.7%            2.2%            4.8%           15.8%       3.2%              4.0%              5.0%     5.0%
Reported EBIT                              89            113             121             110             105              417        449               476               502      528
Clean EBIT                               113             115             123             110             113              446        462               488               513      538
Clean EBIT margin                      12.6%           12.5%           13.2%           12.0%           12.3%           12.5%      12.5%             12.7%             12.7%    12.7%
Chassis&Safety
Sales                                   1,595           1,812           1,781           1,704           1,715           6,511      7,012             7,463             8,213    8,965
  change y-o-y                         11.2%           12.0%           11.2%            6.8%            1.2%           12.7%       7.7%              6.4%             10.0%     9.2%
Reported EBIT                             164             160             166             155             167             662        649               707               833      956
Clean EBIT                                177             173             179             169             186             717        707               765               863      961
Clean EBIT margin                      11.1%            9.6%           10.1%            9.9%           10.8%           11.0%      10.1%             10.3%             10.5%    10.7%
Powertrain
Sales                                   1,517           1,626           1,573           1,519           1,533           5,842      6,251             6,801             7,584    8,295
  change y-o-y                         30.0%           16.4%            7.5%            0.1%            4.7%           23.5%       7.0%              8.8%             11.5%     9.4%
Reported EBIT                            29.5              44              35              19              17              31        115               225               465      697
Clean EBIT                              69.90              88              78              62              70             241        298               409               565      707
Clean EBIT margin                       4.6%            5.4%            5.0%            4.1%            4.6%            4.1%       4.8%              6.0%              7.5%     8.5%
Interiors
Sales                                   1,524           1,661           1,614           1,553           1,563           6,111      6,392             6,694             7,222    7,719
  change y-o-y                         13.1%            8.6%            6.6%            1.9%            1.3%           10.7%       4.6%              4.7%              7.9%     6.9%
Reported EBIT                              85              91             100              73              84             331        348               397               580      755
Clean EBIT                                120             142             147             124             145             513        557               606               685      760
Clean EBIT margin                       7.9%            8.5%            9.1%            8.0%            9.2%            8.4%       8.7%              9.1%              9.5%     9.8%
Others
Sales                                      -98             -70             -64             -89             -95            -353      -318              -336              -357     -378
Reported EBIT                              -19             -20             -15             -21             -31             -40       -86               -91               -96     -102
Clean EBIT                                 -21             -22             -17             -21             -27             -70       -86               -91               -96     -102
Note: Consensus as collated by Conti IR on 10 August 2012; only for revenues have we taken current (Factset) consensus numbers.
Source: Company data, Factset, HSBC estimates




                                                                                                                                                                                   15
     Industrials
     European Auto Components                                                                                                                abc
     8 October 2012




Financials & valuation: Continental                                                                                                           Overweight (V)
Financial statements                                                      Valuation data
Year to                       12.2011a   12.2012e   12.2013e   12.2014e   Year to                           12.2011a        12.2012e            12.2013e             12.2014e
Profit & loss summary (EURm)                                              EV/sales                                 0.7              0.7                 0.6                 0.6
                                                                          EV/EBITDA                                5.3              4.6                 4.2                 3.7
Revenue                        30504.9    32627.8    34468.7    37099.7   EV/IC                                    1.3              1.2                 1.1                 1.0
EBITDA                          4228.0     4825.2     5156.3     5610.5   PE*                                     10.2              7.5                 6.9                 6.1
Depreciation & amortisation    -1631.1    -1689.6    -1690.7    -1509.9
                                                                          P/Book value                             2.2              1.8                 1.5                 1.3
Operating profit/EBIT           2596.9     3135.6     3465.6     4100.6
                                                                          FCF yield (%)                            2.9              4.6                 7.4                 9.8
Net interest                    -706.3     -460.0     -520.0     -460.0   Dividend yield (%)                       1.9              2.3                 3.1                 3.8
PBT                             1861.4     2675.6     2945.6     3640.6
HSBC PBT                        2298.1     3113.9     3382.0     3857.6   Note: * = Based on HSBC EPS (fully diluted)
Taxation                        -536.2     -775.9     -854.2    -1092.2
Net profit                      1242.2     1811.7     1991.4     2438.4
HSBC net profit                 1553.1     2122.9     2301.2     2590.3   Issuer information
                                                                                                                                                                                2
                                                                                                                                                                                3




                                                                          Share price        (EUR)79.54                       Target price       (EUR)98.00
                                                                                                                                                                                .




Cash flow summary (EURm)
                                                                                                                                                                                2




Cash flow from operations       2316.5     2660.3     3156.2     3669.2   Reuters (Equity)                   CONG.DE          Bloomberg (Equity)           CON GR
Capex                          -1813.3    -1901.0    -1947.4    -2056.0   Market cap (USDm)                     20691.6       Market cap (EURm)             15908.5
Cash flow from investment      -1798.1    -1901.0    -1947.4    -2056.0   Free float (%)                             40       Enterprise value (EURm)       22252.9
Dividends                       -300.0     -300.0     -360.0     -500.0   Country                              Germany        Sector                          Autos
Change in net debt              -537.7     -453.8     -848.8    -1113.2   Analyst                       Horst Schneider       Contact              +49 211 910 3285
FCF equity                       455.9      739.3     1188.8     1593.2
Balance sheet summary (EURm)                                                Price relative
Intangible fixed assets         7058.3     6620.0     6183.6     5966.6          87                                                                                    87
Tangible fixed assets           6627.5     7277.2     7970.3     8733.3
Current assets                 11865.5    13287.0    14832.8    16709.0          77                                                                                    77
Cash & others                   1790.3     2244.1     3092.9     4206.1
Total assets                   26038.4    27651.3    29433.8    31836.0          67                                                                                    67
Operating liabilities           6996.3     7015.0     7066.1     7419.9          57                                                                                    57
Gross debt                      8570.4     8570.4     8570.4     8570.4
Net debt                        6780.1     6326.3     5477.5     4364.3          47                                                                                    47
Shareholders’ funds             7146.1     8657.8    10289.2    12227.6
Invested capital               16764.7    17925.1    18827.7    19782.9          37                                                                                    37
                                                                                   Oct-11                                 Apr-12                                 Oct-12
                                                                                      Continental       Rel to DAX-100

Ratio, growth and per share analysis                                        Source: HSBC

Year to                       12.2011a   12.2012e   12.2013e   12.2014e
                                                                          Note: price at close of 04 Oct 2012                 Stated accounts as of 31 Dec 2004 are IFRS compliant
Y-o-y % change
Revenue                           17.1        7.0        5.6        7.6
EBITDA                            17.9       14.1        6.9        8.8
Operating profit                  34.2       20.7       10.5       18.3
PBT                               50.4       43.7       10.1       23.6
HSBC EPS                          83.7       36.7        8.4       12.6
Ratios (%)
Revenue/IC (x)                     1.9        1.9        1.9        1.9
ROIC                              11.1       12.8       13.3       14.8
ROE                               23.9       26.9       24.3       23.0
ROA                                7.3        8.3        8.6        9.4
EBITDA margin                     13.9       14.8       15.0       15.1
Operating profit margin            8.5        9.6       10.1       11.1
EBITDA/net interest (x)            6.0       10.5        9.9       12.2
Net debt/equity                   89.9       69.2       50.4       33.8
Net debt/EBITDA (x)                1.6        1.3        1.1        0.8
CF from operations/net debt       34.2       42.1       57.6       84.1
Per share data (EUR)
EPS Rep (fully diluted)           6.21       9.06       9.96      12.19
HSBC EPS (fully diluted)          7.77      10.61      11.51      12.95
DPS                               1.50       1.80       2.50       3.00
Book value                       35.73      43.29      51.44      61.14



16
     Industrials
     European Auto Components                                                                                                      abc
     8 October 2012




ElringKlinger
 Having turned more cautious on global car volumes, we cut 2013e
      EPS by around 8%, although we are 7% ahead of consensus
 Despite further volume pressure in Europe, we assume 6.5%
      organic sales growth in 2013e from new product ramp-ups
 New TP of EUR26 (from EUR24), upgrade to OW (V) (from N (V))




Investment case                                                             negative EBIT margin of -1% in Q2 to +1% in Q3         Niels Fehre*, CFA
                                                                                                                                   Analyst
                                                                            and +3% in Q4). While Freudenberg volumes in           HSBC Trinkaus & Burkhardt
Q3 release                                                                                                                         AG, Germany
                                                                            France remain rather weak, we see further
ElringKlinger is due to release its Q3 figures on 7                                                                                +49 211 910 3426
                                                                            improvement in the Hug cost structure (limiting        niels.fehre@hsbc.de
November. The company reported a book-to-bill of                            EBIT losses at this entity from 10% of sales to        Horst Schneider*
1.2x in Q2, and so we expect a strong set of results                        4%). Overall we believe that acquisitions will         Analyst
                                                                                                                                   HSBC Trinkaus & Burkhardt
for the third quarter. We assume an operating                               achieve around a 2% EBIT margin by year end            AG, Germany
margin of 13.8% on 6% (organic) sales growth                                                                                       +49 211 910 3285
                                                                            (versus mid-single-digit guidance).                    horst.schneider@hsbc.de
(Hummel and Thawa will be consolidated for the
                                                                                                                                   *Employed by a non-US affiliate
first time with around EUR4m sales; Freudenberg                             2012 guidance fully in tact                            of HSBC Securities (USA) Inc,
                                                                                                                                   and is not registered/ qualified
has been consolidated since January 2011 and Hug                            Management currently guides for 5-7% organic           pursuant to FINRA regulations
since May 2011). This represents a 40bp                                     growth in 2012 plus EUR20m of sales from
improvement in the margin versus Q2, mainly from                            acquisitions (Hug, Hummel, Thawa). The
a rebound in the Engineered Plastics margin and                             operating profit is guided at EUR145m-150m,
further improvements at the acquisitions (from a                            including an EBIT dilution of around 100-150bp


ElringKlinger quarterly revenues by reporting segments
(EURm)                                          Q3 11     Q4 11    Q1 12       Q2 12    Q3 12e    y-o-y (%)   Q4 12e   y-o-y (%)
Group sales                                        264       270      284         286       280       6.0%       290      7.6%
OEM                                                209       223      226         232       224       7.1%       233      4.7%
Aftermarket                                         29        27       30          29        31       6.0%        28      3.9%
Engineered Plastics                                 23        21       25          22        23      -1.1%        27     26.9%
EBIT                                                60        27       37          38        39     -35.7%        41     51.9%
margin (%)                                      22.8%     10.0%    13.1%       13.4%     13.8%                14.1%
OEM                                                 25        18       25          27        27       5.1%        29      55.0%
margin (%)                                      12.1%      8.3%    11.0%       11.7%     11.9%                12.3%
Aftermarket                                          6         4        7           7         8      17.4%         7      75.1%
margin (%)                                      21.8%     13.9%    22.8%       24.8%     24.2%                23.3%
Engineered Plastics                                  5         5        5           3         4     -20.3%         5       1.7%
margin (%)                                      21.6%     23.8%    19.5%       15.6%     17.4%                19.1%
Clean EBIT                                          37        34       37          38        39       3.2%        41     20.2%
margin (%)                                      14.2%     12.6%    13.1%       13.4%     13.8%                14.1%
EPS (EUR)                                         0.66      0.22     0.39        0.40      0.39     -40.3%      0.39     75.9%
Source: ElringKlinger quarterly reports, HSBC estimates




                                                                                                                                                           17
     Industrials
     European Auto Components                                                                                                                 abc
     8 October 2012




from acquisitions (including Freudenberg) and e-                               Cheap or not?
mobility ramp-up costs of cEUR14m. In terms of                                 In the year to date, the ElringKlinger share price
2012 sales we are EUR15m above current                                         has underperformed the EuroStoxx 600 by 1.4%
guidance, while seeing an EBIT of EUR155m                                      and the EuroStoxx Autos & Parts by around 8.6%.
(EUR5m above guidance). We believe that                                        The stock is often seen as expensive in
ElringKlinger’s guidance for 2012 is conservative                              comparison with other auto suppliers, but we
enough to weather any risk in Q4. We also bear in                              acknowledge that ElringKlinger is a niche player
mind that with the utilisation rate declining in the                           with up to 16% margins, stable long-term growth
OE business, Elring may shift further work                                     rates above the industry average and a solid
towards the more profitable Aftermarket business.                              financing/growth strategy. Historically the stock
We cut 2013e EPS by 8%                                                         has traded in a PE range of 5-25x, it is currently
                                                                               trading at 11.5x for 2013e. We think this provides
We also cut our ElringKlinger estimates for 2013
                                                                               a buying opportunity.
by around 7% on the EBIT line and 8% on EPS.
The major reason for this is that we no longer                                 Outperforming the market in 2013e
believe acquisitions can reach the group margin in                             and beyond
2013 due to the high exposure to France of the                                 While for Valeo, Faurecia and Leoni we see
Freudenberg group and the ongoing high cost base                               significant consensus 2013 risks, this is not the
of Hug in Switzerland. Nevertheless we still see                               case for ElringKlinger. Management guidance is
6.5% organic growth for the group as a whole,                                  always very cautious, and this is paying off now.
mainly from ramp-ups in Engineered Plastics and                                We think that the market is too much focused on
the Truck business. We also expect the                                         acquisitions, which are indeed currently
Aftermarket division to grow more than 6% next                                 underperforming. However, looking at the core
year in terms of sales because of new contracts in                             business we highlight the following opportunities
Italy and France, as well as the ramp-up in the US                             in 2013 and beyond, which will drive revenues
(where Elring is just entering the market). With                               and margins (at least EUR40m ramp-up sales in
our new estimates we remain above consensus;                                   2013e), with ElringKlinger achieving its mid-term
around 7% above for 2013 and 12% for 2014.                                     margin target of 16% by 2014e again.



Changes to HSBC estimates and comparison with consensus
(EURm)              ______________ 2012e______________ ______________ 2013e ______________ ______________ 2014e _____________
                       old    new var (%) cons var (%)    old   new var (%) cons var (%)      old   new var (%) cons var (%)
Sales                  1,136     1,140        0%    1,116    2%   1,226    1,214   -1%   1,182    3%   1,312    1,308    0%    1,257    4%
-OE                      905       915                              976      968                       1,039    1,039
-Aftermarket             119       119                              125      126                         131      133
-Eng Plastics             98        98                              112      112                         129      129
-Others                   15         9                               14        8                          14        7
EBIT                     158       155        -2%     151     3%    197      184   -7%     171     8%    223      215    -3%     193   12%
margin                13.9%     13.6%               13.5%        16.1%    15.2%          14.4%        17.0%    16.5%           15.3%
-OE                      108       107                              145      131                         166      156
margin                11.9%     11.7%                            14.9%    13.5%                       16.0%    15.0%
-Aftermarket              24        28                               26       30                          27       32
margin                20.0%     23.8%                            21.0%    23.8%                       21.0%    23.8%
-Eng Plastics             22        18                               22       21                          26       26
margin                23.0%     18.0%                            20.0%    19.0%                       20.0%    20.0%
EPS (EUR)               1.56      1.57         0%    1.52     3% 2.02       1.86   -8%    1.75     7%   2.31     2.23    -4%    1.99    12%
Net debt                 169       185        10%     210   -12%     97      125   29%     157   -20%     20       65   217%      90   -28%
Source: HSBC estimates, Bloomberg consensus




18
   Industrials
   European Auto Components                                                                                abc
   8 October 2012




 Truck business: ElringKlinger is already           Valuation
  selling cam covers and oil pans for Daimler
                                                     Taking the above-mentioned opportunities into
  trucks, and new contracts for Volvo, Scania
                                                     account and considering the weak share price
  and MAN are ramping up quickly. The truck
                                                     performance of the company, we upgrade the stock
  business currently represents 12% of total OE
                                                     to Overweight (V) from Neutral (V). We believe in
  sales (mostly CHG and shielding products)
                                                     the growth story for 2013 and beyond, which does
  and is growing quickly, especially in the US
                                                     not yet appear to be reflected by the market.
  (into housing modules).
                                                     On our DCF-derived target price of EUR26 (we
 Hug was mainly bought for its diesel
                                                     discount cash flows at a WACC of 9.5%, based on
  particulate filter substrate and know-how (in
                                                     cost of equity of 9.0% for the eurozone, and use a
  combination with Elring coating material) and
                                                     terminal growth rate of 2.5%), the potential return
  provides huge opportunities in ship diesel
                                                     is 23.6% (including 2.70% dividend yield), which
    exhaust abatement (EUR1m per system) and
                                                     is above our -1% to 19% Neutral band around the
    truck engines (especially in the US where
                                                     current share price for volatile eurozone stocks.
    Hug does not yet have a presence).
                                                     Despite our slightly lower estimates for 2013 we
 Moldflon, an injection moulded PTFE,               increase our target price by EUR2 on back of
  should generate EUR15m of sales this year          slightly lower capex assumptions for the future.
  with the business growing very quickly (at a       We therefore upgrade our rating on the company
  high margin, from Medtech into new areas).         to Overweight (V), Neutral (V). Potential return
                                                     equals the percentage difference between the
 The e-mobility division may generate profits
                                                     current share price and the target price, including
  very quickly (we expect EUR5m profits on
                                                     the forecast dividend yield when indicated.
  EUR20m sales in 2013). With only one
  competitor on the market (for the cell             Risks
    connector), the ongoing hybridisation should     Key downside risks are a worsening of the
    lead to a strong increase in the business over   macroeconomic environment, particularly in
    the coming years.                                Europe, and any delays in the integration of
 Special gaskets: With the Freudenberg              Freudenberg (or Hug). Other risks include the
  takeover, Elring is now able to offer the full     failure of one or more important products or any
    package of gaskets for turbochargers             patent issues (for example, related to the diesel
    (EUR10m ramp-up sales alone in 2013e).           particulate filter or Moldflon).

Taking all these opportunities together we believe
that ElringKlinger will continue to outperform
global LVP by 5-7% pa over the coming decade.




                                                                                                             19
     Industrials
     European Auto Components                                                                                                 abc
     8 October 2012




ElringKlinger: First-stage growth model, 2013-14e explicit period, 2014-20e semi-explicit period
(EURm)                                        2013e           2014e     2015e    2016e    2017e    2018e    2019e    2020e
Sales                                          1,214          1,308      1,400    1,498    1,595    1,699    1,801    1,891
% (y-o-y growth)                               6.5%           7.8%       7.0%     7.0%     6.5%     6.5%     6.0%     5.0%
EBITDA                                           289            322        319      340      360      382      403      424
D&A                                             -105           -106        -88      -94     -100     -107     -113     -119
as % of CAPEX                                 97.6%          92.1%        75%      75%      75%      75%      75%      75%
EBIT                                             184            215        236      251      265      280      295      310
% margin                                      15.2%          16.5%      16.9%    16.7%    16.6%    16.5%    16.4%    16.4%
Profit before tax                              165.4          196.7        217      232      246      262      276      292
Income tax                                       -45            -53        -59      -63      -65      -69      -73      -77
% effective tax rate                          27.0%          27.0%      27.0%    27.0%    26.5%    26.5%    26.5%    26.5%
Net Income                                       121            144        159      169      181      192      203      214
Net working capital                              381            411        440      470      501      533      565      594
Change in working capital                        -22            -30        -29      -31      -31      -33      -32      -28
working capital/sales                         31.4%          31.4%      31.4%    31.4%    31.4%    31.4%    31.4%    31.4%
Capital expenditure                              107            116        118      126      134      143      151      159
% of sales                                     8.8%           8.8%       8.4%     8.4%     8.4%     8.4%     8.4%     8.4%
+ non-cash charges                               105            106         88       94      100      107      113      119
FCF                                               97            105        101      107      117      124      133      146
Present value of FCF                              97             96         84       82       81       79       77       77
Note: Cash flows discounted at WACC of 9.5%
Source: HSBC estimates



ElringKlinger: Second-stage growth calculations (EURm)
Year                                                   FCF              PV
2021e                                                  152              73
2022e                                                  157              69
2023e                                                  162              65
2024e                                                  168              62
2025e                                                  174              58
2026e                                                  180              55
2027e                                                  186              52
2028e                                                  193              49
2029e                                                  200              47
2030e                                                  207              44
PV of 2nd stage                                                        575
Assumptions:
Duration of 2nd stage growth                       10 years
growth rate                                           3.5%
Note: Cash flows discounted at WACC of 9.5%
Source: HSBC estimates



DCF valuation summary (EURm)
DCF summary                                                           2013e
EV of explicit period                                                   672
EV of semi-explicit period                                              575
terminal value                                                          642
Total Enterprise value                                                1,889
-Net debt                                                               125
-Pensions & Minorities                                                  109
+Associates and investments                                               6
Value to shareholders                                                 1,661
No. of shares outstanding (m)                                            63
Target price                                                             26
Note: Cash flows discounted at WACC of 9.5%
Source: HSBC estimates




20
    Industrials
    European Auto Components                                                                                                                     abc
    8 October 2012




Financials & valuation: ElringKlinger                                                                                                            Overweight (V)
Financial statements                                                      Valuation data
Year to                       12.2011a   12.2012e   12.2013e   12.2014e   Year to                           12.2011a            12.2012e         12.2013e         12.2014e
Profit & loss summary (EURm)                                              EV/sales                                 1.6                  1.4           1.2                1.1
                                                                          EV/EBITDA                                6.6                  6.2           5.2                4.5
Revenue                         1032.8     1140.1     1213.8     1308.1   EV/IC                                    1.7                  1.6           1.5                1.4
EBITDA                           243.5      251.9      288.8      321.8   PE*                                     14.4                 13.7          11.5                9.7
Depreciation & amortisation      -94.8      -96.6     -104.7     -106.4
                                                                          P/Book value                             2.3                  2.1           1.9                1.6
Operating profit/EBIT            148.7      155.3      184.1      215.4
                                                                          FCF yield (%)                           -3.2                  5.6           7.0                7.6
Net interest                     -14.5      -15.8      -18.7      -18.7   Dividend yield (%)                       2.7                  2.7           3.3                3.7
PBT                              136.6      139.5      165.4      196.7
HSBC PBT                         136.6      139.5      165.4      196.7   Note: * = Based on HSBC EPS (fully diluted)
Taxation                         -39.0      -37.7      -44.7      -53.1
Net profit                        94.9       99.2      118.2      141.0
HSBC net profit                   94.9       99.2      118.2      141.0   Issuer information
                                                                                                                                                                           2
                                                                                                                                                                           0




                                                                          Share price        (EUR)21.50                           Target price    (EUR)26.00
                                                                                                                                                                           .




Cash flow summary (EURm)
                                                                                                                                                                           9




Cash flow from operations         72.5      177.6      203.9      220.3   Reuters (Equity)                       ZILGn.DE         Bloomberg (Equity)            ZIL2 GR
Capex                           -121.6     -100.7     -107.2     -115.5   Market cap (USDm)                          1771.8       Market cap (EURm)              1362.2
Cash flow from investment       -147.4     -103.7     -107.2     -115.5   Free float (%)                                 48       Enterprise value (EURm)        1566.0
Dividends                        -23.0      -36.7      -36.7      -44.4   Country                                 Germany         Sector               Auto Components
Change in net debt               124.3      -37.1      -59.9      -60.4   Analyst                               Niels Fehre       Contact              +49 211 910 3426
FCF equity                       -44.8       76.9       96.7      104.7
Balance sheet summary (EURm)                                                Price relative
Intangible fixed assets          134.1      132.3      130.9      130.0          28                                                                                 28
Tangible fixed assets            550.6      556.6      560.5      570.5
                                                                                 26                                                                                 26
Current assets                   504.1      566.2      651.4      745.7
Cash & others                     65.2      102.3      162.2      222.5          24                                                                                 24
Total assets                    1217.8     1287.0     1374.6     1478.1          22                                                                                 22
Operating liabilities            173.1      177.1      180.8      185.0          20                                                                                 20
Gross debt                       366.6      366.6      366.6      366.6          18                                                                                 18
Net debt                         222.3      185.2      125.3       64.9
                                                                                 16                                                                                 16
Shareholders’’ funds             580.7      645.7      729.7      829.0
Invested capital                 950.7      975.7      999.8     1038.7          14                                                                                 14
                                                                                   Oct-11                                     Apr-12                           Oct-12
                                                                                      ElringKlinger      Rel to DAX-100

Ratio, growth and per share analysis                                        Source: HSBC

Year to                       12.2011a   12.2012e   12.2013e   12.2014e
                                                                          Note: price at close of 04 Oct 2012
Y-o-y % change
Revenue                           29.8       10.4        6.5        7.8
EBITDA                            28.9        3.4       14.6       11.4
Operating profit                  39.3        4.4       18.5       17.0
PBT                               45.4        2.1       18.6       18.9
HSBC EPS                          34.5        4.6       19.1       19.4
Ratios (%)
Revenue/IC (x)                     1.2        1.2        1.2        1.3
ROIC                              12.7       11.8       13.6       15.4
ROE                               17.4       16.2       17.2       18.1
ROA                               10.8       10.0       11.0       11.8
EBITDA margin                     23.6       22.1       23.8       24.6
Operating profit margin           14.4       13.6       15.2       16.5
EBITDA/net interest (x)           16.8       16.0       15.5       17.2
Net debt/equity                   36.4       27.4       16.5        7.6
Net debt/EBITDA (x)                0.9        0.7        0.4        0.2
CF from operations/net debt       32.6       95.9      162.7      339.1
Per share data (EUR)
EPS Rep (fully diluted)           1.50       1.57       1.86       2.23
HSBC EPS (fully diluted)          1.50       1.57       1.86       2.23
DPS                               0.58       0.58       0.70       0.80
Book value                        9.16      10.19      11.52      13.08



                                                                                                                                                                          21
     Industrials
     European Auto Components                                                                                                                    abc
     8 October 2012




Faurecia
 As the operating margin depends heavily on the European
      market, we cut our 2012 EPS forecast by 18% (2013: -38%); we
      are slightly below 2012 profit guidance
 Faurecia remains a leveraged play on 2013 volume stabilisation in
      Europe, with potential upside from NAFTA margins
 We cut our TP to EUR18 (from EUR23) but maintain our OW (V)




Investment case                                                        around 60% of its sales in this region but 75-80%                         Niels Fehre*, CFA
                                                                                                                                                 Analyst
                                                                       of its operating profit. It remains to be seen                            HSBC Trinkaus & Burkhardt
Q3 release                                                                                                                                       AG, Germany
                                                                       whether Faurecia management will cut its 2012
Faurecia is due to release its Q3 sales on 23                                                                                                    +49 211 910 3426
                                                                       guidance with Q3 figures (given the fact that                             niels.fehre@hsbc.de
October. We forecast EUR4.1bn of sales, which is                       visibility for December remains muted), but we                            Horst Schneider*
a y-o-y increase of 7.4%, with product sales up                        do expect a reduction to the H2 2012 cash target                          Analyst
                                                                                                                                                 HSBC Trinkaus & Burkhardt
7.1% (organic growth: 0.5% y-o-y). Due to the                          of breakeven (we forecast a cash burn of                                  AG, Germany
holiday season, European product revenues will                                                                                                   +49 211 910 3285
                                                                       cEUR100m after EUR120m in H1). This is                                    horst.schneider@hsbc.de
be roughly 20% below average Q1/Q2 levels,                             mainly the result of waning profitability in Europe                       *Employed by a non-US affiliate
which will be a burden for operating profit in H2.                     in spite of ongoing high capex requirements.                              of HSBC Securities (USA) Inc,
                                                                                                                                                 and is not registered/ qualified
2012 guidance at risk                                                  Faurecia 2012 guidance versus HSBC estimates
                                                                                                                                                 pursuant to FINRA regulations

Faurecia currently guides for EUR560m-610m of                                                         Faurecia              HSBCe     Variance
operating profit in 2012 (assuming a drop in                           Sales                   EUR17-17.4bn       EUR17.3bn               0.6%
                                                                       Op. income              EUR560-610m         EUR545m               -6.8%
European production of c7% in H2). Given the                           Net cash flow           balanced in H2 EUR-100m in H2
pressure in Europe, we now only expect                                 Source: Faurecia reports, HSBC estimates
EUR545m of operating profit (before
restructuring), and are roughly 6% below
consensus. In our stock universe, Faurecia
probably depends the most on Europe, generating



Faurecia quarterly revenues by reporting segments
(EURm)                                         Q3 11   Q4 11   Q1 12        Q2 12            Q3 12e               y-o-y %    Q4 12e   y-o-y %
Total sales                                    3,787   4,253   4,297         4,468             4,068                7.4%      4,478      5.3%
Product sales                                  2,866   3,193   3,353         3,400             3,068                7.1%      3,490      9.3%
Monoliths                                        668     695     723           687               700                4.9%        740      6.5%
Tooling & Development                            254     364     220           381               300               18.0%        249    -31.8%
Source: Faurecia quarterly reports, HSBC estimates




22
    Industrials
    European Auto Components                                                                                                                              abc
    8 October 2012




Summary of changes to HSBC estimates and comparison with consensus (F&V table shows EBIT post restructuring costs)
                        ______________ 2012e______________ ______________ 2013e ______________ ______________ 2014e _____________
(EURm)                     old    new var (%) Cons var (%)    old   new var (%) Cons var (%)      old   new var (%) Cons var (%)
Sales                      17,289 17,311        0% 17,139     1% 18,312 18,043    -1% 18,030             0% 19,484 19,135    -2% 19,291             -1%
-product sales             13,289 13,311        0%               14,052 13,843    -1%                       15,002 14,734    -2%
Op income                     579    545       -6%    578    -6%    797    646   -19%    675            -4%    955    814   -15%    805             1%
  margin                    3.4% 3.1%               3.4%          4.3% 3.6%            3.7%                  4.9% 4.3%            4.2%
EBIT                          489    455       -7%    543   -16%    747    556   -26%    628           -11%    905    764   -16%    735             4%
  margin                    2.8% 2.6%               3.2%          4.1% 3.1%            3.5%                  4.6% 4.0%            3.8%
Net income                    263    236      -10%    260    -9%    467    316   -32%    334            -5%    590    480   -19%    438             10%
EPS (EUR)                    2.20   1.81      -18% 2.27     -20% 3.90     2.43   -38%   2.92           -17%   4.94   3.68   -26% 3.74               -2%
Net debt                    1,413 1,487             1,419     5% 1,235 1,448           1,360             6%    863 1,167          1,105              6%
Source: HSBC estimates, Bloomberg consensus



New production estimates trigger                                             expenses of EUR90m (previously EUR50m) and
EPS cut                                                                      the convertible bond issue lead to the EPS cut of
Following our reduction to global LVP and in                                 38%. Even so, we see a small cash generation in
light of the convertible bond launch, we cut our                             2013 of around EUR60m, which is mainly from
fully diluted EPS estimates by 18% for 2012. The                             the higher group margin (and despite the still high
launch of the convertible alone leads to a 10%                               capital expenditure). Following the revision we
negative impact on EPS (from potential dilution                              are c10-15% below consensus (which has not yet
due to the bond).                                                            accounted for the convertible bond, in our view).

We cut our 2013 EPS estimates by 38%. Better                                 2013 story still intact
non-European growth should compensate for                                    Faurecia remains the worst-performing auto
weak European car production but profitability                               supplier in our universe, having underperformed
may suffer. We cut our operating profit estimates                            the EuroStoxx 600 by 19.5% year to date. This
by c20% as we expect high ramp-up costs to                                   leads us to believe that the market already largely
persist in the major growth regions such as                                  anticipates another guidance revision with the Q3
NAFTA, limiting the positive operational gearing                             release. However, we expect Faurecia’s share
(to around 10%, in our view). Higher restructuring                           price underperformance to come to an end as soon



  Faurecia 2013 margin bridge (EURm)

  680
  660                                      Additional EUR13m operating income potential from
                                                                                                                13                     13
  640                                      NAFTA in case operating leverage increases to
                                           15% f rom our base case assumption of 10%                            28
  620
  600
                                                                                          59
  580                                                                                                     Base case                  646
  560
                                                                   15
  540
  520                     545
  500
                                                                                    LatAm +
                                                 Europe




                                                                   Asia




                                                                                                                                 FY 2013
                   FY 2012 OP




                                                                                                                NAFTA
                                                                                              Others




                                                                                                                                           margin
                                margin




  Source: HSBC estimates




                                                                                                                                                            23
     Industrials
     European Auto Components                                                                                              abc
     8 October 2012




as European production bottoms out. We think                below the hurdle rate for eurozone stocks of 9%.
that the EUR80m-90m restructuring programme                 Our target price implies a potential return of
in Europe announced for 2012 and 2013 will                  40.5%, including the 2012e dividend yield of
improve the company’s cost base, supporting the             1.5%, above the Neutral band; we therefore
region’s profitability at a time of limited growth.         reiterate our Overweight (V) rating. Potential
Further, management’s top priority is to improve            return equals the percentage difference between
margins in the fast-growing NAFTA region (eg,               the current share price and the target price,
for H2 2012 management targets an operating                 including the forecast dividend yield when
margin of 3% plus).                                         indicated.

Therefore we think that 2012 will mark a                    Risks
transitional year, with improving sales and
                                                            The downside risk stems mainly from cuts to
margins in the year after. The upside surprise
                                                            European production forecasts given Faurecia’s
potential mainly comes from a volume recovery in
                                                            high dependence on this region. Some execution
Europe and improving NAFTA margins. The
                                                            risks could arise from strong growth in NAFTA
stock remains the cheapest in our universe.
                                                            and Asia. Further risks exist regarding the capital
Valuation                                                   structure of the group (share overhang from PSA,
                                                            capital increase risk).
We continue to value Faurecia using average peer
and historical EV/EBITDA and EV/sales
multiples, and roll over our model to 2013
estimates (from the average of our 2012 and 2013
estimates). We increase the discount on historical
multiples to 35% from 25% in order to account
for the high exposure to Europe (of the stocks we
cover in the sector, Faurecia depends the most on
European production). Based on our updated
estimates and peer multiples, we arrive at a new
target price of EUR18 (previously EUR23). Under
our research model, for stocks with a volatility
indicator, the Neutral band is 10ppts above and


Faurecia: Valuation summary
EURm                                   HSBCe    Multiples (peer)   EV (using peer      Multiples    EV (using historical
                                                                        multiples)   (historical)            multiples)
                                        2013e             2013e             2013e                                 2013e
Sales                                  18,043              0.25             4,421           0.18                  3,167
EBITDA (excl restructuring costs)       1,274               2.7             3,439           2.93                  3,725
Enterprise value                                                            3,930                                 3,446
-Net debt                                                                   1,110                                 1,110
-Pensions                                                                     219                                   219
-Minorities                                                                   114                                   114
+Associates & long-term investments                                           145                                   145
Value for equity shareholder                                                2,633                                 2,149
Number of shares (m)                                                          130                                   130
Implied value per share (EUR)                                                  20                                    16
Target price (EUR)                                                                                                   18
Source: HSBC estimates




24
    Industrials
    European Auto Components                                                                                                                     abc
    8 October 2012




Financials & valuation: Faurecia                                                                                                                 Overweight (V)
Financial statements                                                      Valuation data
Year to                       12.2011a   12.2012e   12.2013e   12.2014e   Year to                           12.2011a            12.2012e         12.2013e         12.2014e
Profit & loss summary (EURm)                                              EV/sales                                  0.2                  0.2          0.2                 0.1
                                                                          EV/EBITDA                                 2.5                  3.1          2.4                 1.8
Revenue                        16190.0    17311.0    18042.9    19135.3   EV/IC                                     0.9                  0.9          0.8                 0.7
EBITDA                          1046.4      936.9     1183.6     1455.0   PE*                                       4.2                  7.2          5.3                 3.8
Depreciation & amortisation     -453.6     -482.0     -627.5     -691.3
                                                                          P/Book value                              1.2                  1.0          0.8                 0.6
Operating profit/EBIT            592.8      454.9      556.1      763.7
                                                                          FCF yield (%)                             2.6                -16.6          3.5                21.9
Net interest                     -98.5     -125.7     -121.6     -114.0   Dividend yield (%)                        2.7                  1.5          2.7                 3.9
PBT                              475.3      309.1      414.5      629.8
HSBC PBT                         475.3      309.1      414.5      629.8   Note: * = Based on HSBC EPS (fully diluted)
Taxation                         -95.9      -63.4      -87.0     -135.4
Net profit                       371.1      235.8      316.3      479.7
HSBC net profit                  371.1      235.8      316.3      447.7   Issuer information
                                                                                                                                                                            3
                                                                                                                                                                            9




                                                                          Share price        (EUR)12.95                           Target price    (EUR)18.00
                                                                                                                                                                            .




Cash flow summary (EURm)
                                                                                                                                                                            0




Cash flow from operations        725.3      702.4      959.1     1207.8   Reuters (Equity)                       EPED.PA          Bloomberg (Equity)             EO FP
Capex                           -631.6     -935.0     -910.0     -900.0   Market cap (USDm)                          1866.1       Market cap (EURm)              1434.7
Cash flow from investment       -697.5     -925.0     -898.0     -888.0   Free float (%)                                 42       Enterprise value (EURm)        2890.2
Dividends                        -54.3      -38.6      -22.1      -38.6   Country                                    France       Sector               Auto Components
Change in net debt                28.8      261.5      -39.1     -281.2   Analyst                               Niels Fehre       Contact              +49 211 910 3426
FCF equity                        36.1     -232.6       49.1      307.8
Balance sheet summary (EURm)                                                Price relative
Intangible fixed assets         1724.8     1850.7     1923.8     1963.0          25                                                                                 25
Tangible fixed assets           1733.4     2060.5     2269.9     2439.4          23                                                                                 23
Current assets                  3566.0     3513.4     3697.8     4170.2          21                                                                                 21
Cash & others                    630.1      368.6      407.6      688.8
                                                                                 19                                                                                 19
Total assets                    7264.6     7665.0     8131.9     8813.0
                                                                                 17                                                                                 17
Operating liabilities           3584.9     3748.4     3878.0     4071.4
                                                                                 15                                                                                 15
Gross debt                      2074.5     2074.5     2074.5     2074.5
Net debt                        1225.6     1487.1     1448.1     1166.9          13                                                                                 13
Shareholders’ funds             1154.0     1391.2     1728.5     2216.3          11                                                                                 11
Invested capital                2809.2     3307.6     3605.9     3812.5           9                                                                                 9
                                                                                   Oct-11                                     Apr-12                           Oct-12
                                                                                      Faurecia       Rel to SBF-120

Ratio, growth and per share analysis                                        Source: HSBC

Year to                       12.2011a   12.2012e   12.2013e   12.2014e
                                                                          Note: price at close of 04 Oct 2012
Y-o-y % change
Revenue                           17.4        6.9        4.2        6.1
EBITDA                            15.6      -10.5       26.3       22.9
Operating profit                  41.3      -23.3       22.2       37.3
PBT                               56.7      -35.0       34.1       51.9
HSBC EPS                          73.3      -41.7       34.1       41.6
Ratios (%)
Revenue/IC (x)                     6.0        5.7        5.2        5.2
ROIC                              17.6       11.8       12.7       16.2
ROE                               37.8       18.5       20.3       22.7
ROA                                7.3        5.2        5.9        7.5
EBITDA margin                      6.5        5.4        6.6        7.6
Operating profit margin            3.7        2.6        3.1        4.0
EBITDA/net interest (x)           10.6        7.5        9.7       12.8
Net debt/equity                   96.7       98.8       78.6       50.1
Net debt/EBITDA (x)                1.2        1.6        1.2        0.8
CF from operations/net debt       59.2       47.2       66.2      103.5
Per share data (EUR)
EPS Rep (fully diluted)           3.10       1.81       2.43       3.68
HSBC EPS (fully diluted)          3.10       1.81       2.43       3.43
DPS                               0.35       0.20       0.35       0.50
Book value                       10.46      12.60      15.66      20.08



                                                                                                                                                                           25
     Industrials
     European Auto Components                                                                                                        abc
     8 October 2012




Leoni
 Leoni is no longer immune to the downturn; we cut our 2012e
     EPS by 15% and 2013e EPS by 27% (we are 10% below
     consensus for 2013)
 Still a cheap stock, but integration risks at Daekyeung and the
     weak product mix at WCS prevent quick re-rating
 We cut our target price to EUR33 from EUR43 and downgrade to
     Neutral (V) from Overweight (V)



Investment case                                                              margin will be slightly under pressure. We forecast     Niels Fehre*, CFA
                                                                                                                                     Analyst
                                                                             a margin of 7.2% (still comfortably above 7%). We       HSBC Trinkaus & Burkhardt
Q3 release                                                                                                                           AG, Germany
                                                                             see the risk of further one-off costs at Daekyeung,
Leoni should release its Q3 figures on 13                                                                                            +49 211 910 3426
                                                                             which puts pressure on the reported margin as well.     niels.fehre@hsbc.de
November. The company has high exposure to
                                                                                                                                     Horst Schneider*
PSA and Opel (around 25% of total Wiring sales),                             In the Wire & Cable Solutions (WCS) division we         Analyst
                                                                             assume the H1 weak product mix will persist in          HSBC Trinkaus & Burkhardt
which are currently quite weak. However, this is                                                                                     AG, Germany
still offset by strong German and commercial                                 H2 (due to ongoing weakness in the solar                +49 211 910 3285
                                                                                                                                     horst.schneider@hsbc.de
vehicle exposure (Daimler, VW and commercial                                 business, for example). Therefore we only expect
                                                                                                                                     *Employed by a non-US affiliate
vehicles account for 35% of total sales in the                               a small improvement in the clean margin. All in         of HSBC Securities (USA) Inc,
Wiring division). Due to the holiday season                                  all, we will probably not see a major margin            and is not registered/ qualified
                                                                                                                                     pursuant to FINRA regulations
(sequentially lower volumes), the clean EBIT                                 improvement in Q3 versus Q2.


Leoni quarterly revenues by reporting segments
EURm                                              Q3 11   Q4 2011   Q1 12       Q2 12     Q3 12e    y-o-y (%)   Q4 12    y-o-y (%)
Group sales                                         913       934      969         968        915       0.2%       953       2.1%
Wire & Cables Solutions                             439       398      399         412        415      -5.4%       399       0.2%
Wiring systems                                      474       536      570         556        500       5.4%       554       3.4%
Group EBIT                                           55        53       94          51         49     -10.3%        54       0.3%
margin (%)                                        6.0%      5.7%     9.7%        5.2%       5.4%                 5.6%
Wire & Cables Solutions                              19        18       50          17         20       3.6%        20      12.0%
margin (%)                                        4.4%      4.5%    12.5%        4.1%       4.8%                 5.0%
Wiring systems                                       35        36       44          34         29     -17.5%        34      -6.1%
margin (%)                                        7.4%      6.7%     7.7%        6.1%       5.8%                 6.1%
Group adjusted EBIT                                  58        58       69          60         56      -3.6%        57      -1.7%
margin (%)                                        6.4%      6.2%     7.1%        6.2%       6.1%                 6.0%
Wire & Cables Solutions                              24        10       20          18         20     -17.0%        20      91.2%
margin (%)                                        5.5%      2.6%     5.1%        4.4%       4.8%                 5.0%
Wiring systems                                       35        48       48          41         36       2.5%        37     -22.6%
margin (%)                                        7.4%      8.9%     8.5%        7.5%       7.2%                 6.7%
EPS (EUR)                                          1.01      1.25     1.98        1.05       0.94      -6.6%      1.01     -19.3%
Source: Leoni quarterly reports, HSBC estimates



26
     Industrials
     European Auto Components                                                                                                                                         abc
     8 October 2012




Summary of changes to HSBC estimates and comparison with consensus
(EURm)                 ______________ 2012e______________ ______________ 2013e ______________ ______________ 2014e _____________
                          old    new var (%) Cons var (%)    old   new var (%) Cons var (%)      old   new var (%) Cons var (%)
Sales                    3,918       3,805        -3%      3,846         -1% 4,300           3,940          -8%   4,022    -2%   4,550   4,120    -9%   4,215   -2%
EBIT                       293         247       -16%        256         -4%   310             230         -26%     259   -11%     337     255   -24%     276   -8%
margin                   7.5%        6.5%                  6.7%              7.2%            5.8%                 6.4%           7.4%    6.2%           6.6%
Clean EBIT                 283         241       -15%        115               330             250         -24%     115            357     275   -23%     115
margin                   7.2%        6.3%                                    7.7%            6.3%                                7.8%    6.7%
EPS (EUR)                 5.85        4.98       -15%        4.94         1% 6.23             4.57         -27%    5.07   -10%    6.85    5.16   -25%    5.53   -7%
Net debt                   221         249        13%         251        -1%   177             228          29%     206    10%      92     173    89%     148   17%
Source: HSBC estimates, Bloomberg consensus
Note: Clean EBIT adjusted for restructuring costs and in 2012 for EUR29.5m capital gain from Studer sale



Slightly below 2012 guidance                                                                        previous assumption). On our new 2013 estimates
Leoni revised its full-year guidance with the H1                                                    we are roughly 10% below EPS consensus.
results. It now expects EUR255m-275m of EBIT                                                        Daekyeung problems and weak WCS
(including EUR29.5m from the Studer disposal in                                                     product mix prevent re-rating
Q1), on EUR3.8bn-3.9bn of revenues (and net
                                                                                                    Our bullish stance on Leoni was based on resilient
debt of EUR235m-265m). Following the above-
                                                                                                    premium OEM business in the Wiring division
mentioned issues in both divisions (one-off costs
                                                                                                    and upside surprise potential from the WCS
at Daekyeung and weak product mix at WCS) and
                                                                                                    division. We no longer expect these catalysts to
anticipating further production cuts of the German
                                                                                                    appear. Premium is likely to remain resilient in
OEMs in the last quarter, we are now slightly
                                                                                                    2013 but the surprise potential becomes muted
below company guidance. Given the weak share
                                                                                                    and the margin risk is rather on the downside.
price performance it remains to be seen whether
                                                                                                    Also, the Daekyeung integration may take longer
such a small miss will lead to further
                                                                                                    than expected, while European mass volumes
disappointments. We do not think that Leoni
                                                                                                    continue to decline in 2013. In the WCS division
management will revise its 2012 guidance again
                                                                                                    we no longer expect a significant margin
(mainly as December visibility remains muted).
                                                                                                    improvement next year, which prevents a re-rating
As premium suffers, we cut our                                                                      of the cable exposure towards cable competitors
2012/13e EPS                                                                                        like Prysmian, TKH, Volex or Huber+Suhner.
As discussed above we cut our 2012 numbers,                                                         The company looks very cheap to us (in terms of
which leads to a 15% cut in EPS as well (we are                                                     PE multiples), but taking into account the
now roughly in line with consensus). However,                                                       upcoming consensus revisions, we no longer
the bigger cut is for 2013, as we no longer expect                                                  believe there is any significant share price
a big improvement in clean margins next year. On                                                    potential over the next 12 months.
3.5% revenue growth (mainly from ramp-ups), we                                                      Valuation
expect a 30bp clean EBIT margin improvement,
coming from the WCS division (product mix                                                           Approximately 70% of Leoni’s business is
improvement). We expect a 7% clean margin for                                                       exposed to the automotive industry while the
the Wiring division (in line with mid-term targets)                                                 remaining 30% has exposure to industrial cables
but no longer believe that the WCS division can                                                     (and other niche business). Consequently, we use
surprise on the upside. Therefore, mid-term                                                         a mix of automotive supplier peers and cable
targets (of 7% EBIT margin over the cycle)                                                          industry peers to arrive at Leoni’s peer multiple
cannot be achieved in 2013e (which was our                                                          valuation. We value Leoni using an average of



                                                                                                                                                                        27
     Industrials
     European Auto Components                                                                                                                                    abc
     8 October 2012




Leoni: valuation summary
EURm                                                            HSBCe            Multiples (peer)          EV (using peer    Historical   EV (using historical
                                                                                                                multiples)   multiples             multiples)
                                                                  2013e                       2013e                 2013e                               2013e
Sales                                                              3,940                       0.38x                1,478        0.35x                  1,359
EBITDA                                                               356                        3.5x                1,228         4.0x                  1,406
Enterprise value (group)                                                                                            1,353                               1,383
Net Debt                                                                                                              228                                 228
Pensions                                                                                                               50                                  50
Minority                                                                                                                1                                   1
Associates and investments                                                                                              6                                   6
Value for equity shareholder                                                                                        1,079                               1,109
Number of outstanding shares (m)                                                                                       33                                  33
Fair value per share (EUR)                                                                                             33                                  34
Target price (EUR)                                                                                                                                         33
Note: The average peer multiple is calculated using both Automotive (70% weight) and Cable (30% weight) peers
Source: HSBC estimates



peer multiples (EV/sales and EV/EBITDA) and                                                       Risks
historical EV/EBITDA and EV/sales, and roll
                                                                                                  The main downside risk for Leoni is a weakening
over our model to 2013 estimates from the
                                                                                                  of premium demand/production in Europe. Other
average of our 2012 and 2013 estimates. We
                                                                                                  risks include a working capital rebound (although
continue to apply a 25% discount to the historical
                                                                                                  this is partly reflected in our higher net debt
average multiples to reflect high macro
                                                                                                  figure), higher depreciation costs in the coming
uncertainty (especially in Europe). Given our
                                                                                                  years following record capital expenditure, and
lower estimates and slightly lower peer multiples,
                                                                                                  unforeseen execution risks integrating the
we arrive at a new target price of EUR33.
                                                                                                  Daekyeung acquisition.
Under our research model, for stocks with a
                                                                                                  The main upside risks for Leoni include better-
volatility indicator, the Neutral band is 10ppts
                                                                                                  than-expected consumer confidence in key
above and below the hurdle rate for eurozone
                                                                                                  markets leading to higher demand (especially for
stocks of 9%. Our target price implies a potential
                                                                                                  premium OEMs) and a positive surprise in the
return of 14.0%, including the 4.9% prospective
                                                                                                  WCS division (where visibility is very low).
dividend yield. As this is within the Neutral band,
we downgrade Leoni to Neutral (V), from
Overweight (V). Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.




28
    Industrials
    European Auto Components                                                                                                                     abc
    8 October 2012




Financials & valuation: Leoni                                                                                                                         Neutral (V)
Financial statements                                                      Valuation data
Year to                       12.2011a   12.2012e   12.2013e   12.2014e   Year to                           12.2011a            12.2012e         12.2013e        12.2014e
Profit & loss summary (EURm)                                              EV/sales                                  0.3                0.3            0.3                0.3
                                                                          EV/EBITDA                                 3.2                3.2            3.2                2.8
Revenue                         3701.5     3805.0     3940.0     4120.0   EV/IC                                     1.1                1.0            0.9                0.8
EBITDA                           352.3      365.1      355.9      390.2   PE*                                       6.0                6.1            6.6                5.9
Depreciation & amortisation     -115.2     -118.1     -125.9     -135.2
                                                                          P/Book value                              1.3                1.2            1.0                0.9
Operating profit/EBIT            237.1      247.0      230.0      255.0
                                                                          FCF yield (%)                            10.7                4.0            7.7               10.9
Net interest                     -41.0      -35.5      -36.2      -36.2   Dividend yield (%)                        5.0                4.9            4.5                5.1
PBT                              196.3      211.5      193.8      218.8
HSBC PBT                         196.3      211.5      193.8      218.8   Note: * = Based on HSBC EPS (fully diluted)
Taxation                         -40.3      -48.6      -44.6      -50.3
Net profit                       156.0      162.8      149.2      168.4
HSBC net profit                  156.0      162.8      149.2      168.4   Issuer information
                                                                                                                                                                           9
                                                                                                                                                                           .




                                                                          Share price         (EUR)30.25                          Target price   (EUR)33.00
                                                                                                                                                                           1




Cash flow summary (EURm)
Cash flow from operations        239.9      192.3      247.1      285.0   Reuters (Equity)                      LEOGn.DE          Bloomberg (Equity)            LEO GR
Capex                           -127.4     -175.0     -177.3     -185.4   Market cap (USDm)                          1285.6       Market cap (EURm)               988.4
Cash flow from investment       -126.9     -135.5     -177.3     -185.4   Free float (%)                                 91       Enterprise value (EURm)        1160.2
Dividends                        -20.8      -46.8      -48.8      -44.7   Country                                 Germany         Sector               Auto Components
Change in net debt              -210.6       14.9      -21.0      -54.9   Analyst                               Niels Fehre       Contact              +49 211 910 3426
FCF equity                        95.3       36.9       69.8       99.6
Balance sheet summary (EURm)                                                Price relative
Intangible fixed assets          211.7      201.1      193.1      187.0          45                                                                                45
Tangible fixed assets            625.9      720.8      780.2      836.5
Current assets                  1369.4     1548.1     1623.4     1730.3          40                                                                                40
Cash & others                    366.0      376.1      397.1      452.0
Total assets                    2320.6     2562.1     2688.7     2845.8          35                                                                                35
Operating liabilities            819.2      918.7      939.9      973.2          30                                                                                30
Gross debt                       644.8      669.8      674.9      674.9
Net debt                         233.9      248.8      227.8      172.9          25                                                                                25
Shareholders’ funds              736.2      852.3      952.7     1076.4
Invested capital                1013.8     1175.2     1259.6     1328.5          20                                                                                20
                                                                                   Oct-11                                     Apr-12                          Oct-12
                                                                                      Leoni       Rel to DAX-100

Ratio, growth and per share analysis                                        Source: HSBC

Year to                       12.2011a   12.2012e   12.2013e   12.2014e
                                                                          Note: price at close of 04 Oct 2012
Y-o-y % change
Revenue                           25.2        2.8        3.5        4.6
EBITDA                            43.3        3.6       -2.5        9.6
Operating profit                  81.4        4.2       -6.9       10.9
PBT                              119.0        7.8       -8.4       12.9
HSBC EPS                         120.9       -0.3       -8.4       12.9
Ratios (%)
Revenue/IC (x)                     3.7        3.5        3.2        3.2
ROIC                              19.6       17.4       14.5       15.2
ROE                               25.6       20.5       16.5       16.6
ROA                                8.8        7.8        6.7        7.1
EBITDA margin                      9.5        9.6        9.0        9.5
Operating profit margin            6.4        6.5        5.8        6.2
EBITDA/net interest (x)            8.6       10.3        9.8       10.8
Net debt/equity                   31.7       29.2       23.9       16.0
Net debt/EBITDA (x)                0.7        0.7        0.6        0.4
CF from operations/net debt      102.6       77.3      108.5      164.8
Per share data (EUR)
EPS Rep (fully diluted)           5.00       4.98       4.57       5.16
HSBC EPS (fully diluted)          5.00       4.98       4.57       5.16
DPS                               1.50       1.49       1.37       1.54
Book value                       23.61      26.09      29.16      32.95



                                                                                                                                                                          29
     Industrials
     European Auto Components                                                                                                     abc
     8 October 2012




Valeo
 Following the revisions to our production estimates, we cut 2012e
      EPS by 4% and 2013e EPS by 14% (11% below consensus)
 With a strong balance sheet and solid growth outside of Europe,
      we do not see major de-valuation risks
 We cut our TP to EUR36 (from EUR38) and remain Neutral (V)




Investment case                                                           1% in H2 2012 but 3% down for the full year (at         Niels Fehre*, CFA
                                                                                                                                  Analyst
                                                                          current prices). We forecast EUR712m operating          HSBC Trinkaus & Burkhardt
Q3 release                                                                                                                        AG, Germany
                                                                          profit (excluding other income and expenses) for
Valeo will start the Q3 earnings season, publishing                                                                               +49 211 910 3426
                                                                          2012, after EUR704m in 2011.                            niels.fehre@hsbc.de
sales figures on 18 October. We expect 4.5%
                                                                                                                                  Horst Schneider*
growth in OE revenues y-o-y (organic sales growth                         New production estimates may trigger                    Analyst
of 1.2%). Revenues in Europe will be down 11%                             further RST expenses in 2013                            HSBC Trinkaus & Burkhardt
                                                                                                                                  AG, Germany
sequentially, mainly due to the holiday season.                           Following revisions to our production estimates,        +49 211 910 3285
                                                                                                                                  horst.schneider@hsbc.de
There will be no consolidation effects in Q3 2012.                        we make some minor cuts to our 2012 forecasts
                                                                                                                                  *Employed by a non-US affiliate
                                                                          and are now roughly 5% below consensus (which           of HSBC Securities (USA) Inc,
2012 guidance intact                                                                                                              and is not registered/ qualified
                                                                          has not yet fully adjusted for the legal expenses in    pursuant to FINRA regulations
Valeo currently guides for 2012 operating profit of                       H1, in our view).
the same magnitude as in 2011. This guidance is
based on European production down 6-7% and                                We cut our 2013 EPS estimate for Valeo by 14%,
global production up 5-6% (as well as stable raw                          which leaves us 11% below consensus. Note that
material prices). We estimate European (excl Russia)                      our revenues number is adjusted for the sale of the
production to be down 7.7% y-o-y in 2012, and                             EUR620m Valeo Access Mechanisms division
global production up 5.0%. Even so, we assume the                         (which we assume at 5% profitability). Excluding
guidance to be intact as we believe management has                        this disposal we still forecast 5.6% organic growth
a certain safety cushion built into its guidance. Also,                   next year for the company, driven by 200bp
raw material costs are largely stable; for example,                       outperformance in Europe and strong growth in
LME expenses (c40% of total consumption) are up                           the NAFTA region and Asia.


Valeo quarterly revenues by reporting segments
EURm                                              Q3 11   Q4 11   Q1 12      Q2 12     Q3 12e     y-o-y %    Q4 12e     y-o-y %
Total sales                                       2,662   2,872   3,033      2,966      2,794       4.9%      2,963       3.2%
OE sales                                          2,262   2,435   2,602      2,516      2,364       4.5%      2,514       3.2%
Aftermarket                                         336     357     369        363        345       2.7%        358       0.3%
Miscellaneous                                        64      80      62         87         85      32.8%         91      13.8%
Source: Valeo quarterly reports, HSBC estimates




30
    Industrials
    European Auto Components                                                                                                                       abc
    8 October 2012




Summary of changes to HSBC estimates and comparison with consensus
                    ______________ 2012e______________ ______________ 2013e ______________ ______________ 2014e _____________
EURm                   old    new var % Cons var %        old   new var % Cons var %          old   new var % Cons var %
Sales                11,399 11,756            3% 11,595       1% 12,174 11,738      -4% 12,244       -4% 13,027 12,711   -2% 13,145         -3%
EBIT (clean)            707    712            1%                    816    741      -9%                     873    844   -3%
Margin(%)             6.2% 6.1%                                   6.7% 6.3%                               6.7% 6.6%
EBIT                    684    677            -1%     695    -3%    779    694     -11%       772   -10%    834    805   -3%    856         -6%
Margin(%)             6.0% 5.8%                     6.0%          6.4% 5.9%                 6.3%          6.4% 6.3%           6.5%
EPS (EUR)              5.25   5.07            -4%    5.30    -5% 6.16     5.31     -14%      6.00   -11%   6.68   6.46   -3% 6.81          -5%
Net debt                471    585            24%     468    25%    267    370      38%       306    21%   -388    220 -157%     80       174%
Source: HSBC estimates, Bloomberg consensus



Nevertheless, we do expect restructuring expenses                              are not expensive, we think that consensus needs
to rise again in 2013. After three years of very low                           to come down before any re-rating starts. Bear in
expenses (2010-12), we think that the company                                  mind that 15 out of 17 consensus analysts are
will again work on its cost base in Europe, which                              already Overweight/Buy on the name.
will be equivalent to around 0.4% of total sales
(versus mid-term guidance of up to 0.5% per
                                                                               Valuation
annum). This is not yet considered by consensus,                               We continue to value Valeo using average peer
in our view, and is the major reason why we are                                and historical EV/EBITDA and EV/sales
11% below consensus.                                                           multiples and roll over our model to 2013
                                                                               estimates (from the average of 2012 and 2013
2013 – limited surprise potential
                                                                               estimates). We still apply a discount to historical
In the context of the other suppliers, Valeo has                               multiples of 25% to reflect high macro
performed relatively well year to date. It has                                 uncertainty. Based on our updated estimates and
outperformed the EuroStoxx 600 by 6.3%                                         peer multiples, we arrive at a new target price of
(+25.7% versus Faurecia), being up 17.2% year to                               EUR36 (previously EUR38). Under our research
date. This is because Valeo is a healthy company                               model, for stocks with a volatility indicator, the
that is well financed and earns a stable margin of                             Neutral band is 10ppts above and below the
6-7% over the cycle. We expect cash generation                                 hurdle rate for eurozone stocks of 9%. Our target
of around EUR200m in 2012 and another                                          price implies a potential return of 4.06%,
EUR250m in 2013 (+EUR200m from the disposal                                    including the 2012e dividend yield of 3.5%,
of Valeo Access Mechanisms). While the shares                                  within the Neutral band; we therefore reiterate our


Valeo: valuation summary
EURm                                                        HSBCe    Multiples (peer)     EV (using peer       Multiples    EV (using historical
                                                                                               multiples)    (historical)            multiples)
                                                            2013e                2013              2013e                                  2013e
Sales                                                       11,738               0.32               3,756           0.29                  3,433
EBITDA                                                       1,335                3.6               4,808            2.9                  3,906
Enterprise value                                                                                    4,282                                 3,670
-Net debt                                                                                             370                                   370
-Pensions                                                                                             776                                   776
-Minorities                                                                                           144                                   144
+Associates & long term investments                                                                   150                                   150
Value for equity shareholder                                                                        3,142                                 2,530
Number of outstanding shares (m)                                                                       79                                    79
Implied value per share (EUR)                                                                          40                                    32
Target price (EUR)                                                                                                                           36
Source: HSBC estimates




                                                                                                                                                     31
     Industrials
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     8 October 2012




Neutral (V) rating. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.

Risks
The main downside risk stems from cuts in
European production given Valeo’s heavy
dependence on this region. Some execution risks
could also arise from strong growth in the
NAFTA regions and Asia.

The main upside risks relate to stronger-than-
expected light-vehicle production in key
regions (especially Europe) and a significant
drop in raw material prices from current levels
(for example, in the copper price as new supply
comes on the market in 2013). Note, however,
that for LME around 85% of the cost
inflation/deflation is neutralised via derivatives
or pass through, as is around 50% of the steel
cost (LME and steel account for around 75% of
total raw materials used).




32
    Industrials
    European Auto Components                                                                                                                     abc
    8 October 2012




Financials & valuation: Valeo                                                                                                                         Neutral (V)
Financial statements                                                      Valuation data
Year to                       12.2011a   12.2012e   12.2013e   12.2014e   Year to                           12.2011a            12.2012e         12.2013e        12.2014e
Profit & loss summary (EURm)                                              EV/sales                                  0.3                0.3            0.3                0.2
                                                                          EV/EBITDA                                 2.7                2.6            2.3                2.0
Revenue                        10868.0    11755.5    11737.6    12710.8   EV/IC                                     0.9                0.9            0.8                0.7
EBITDA                          1239.0     1276.8     1335.5     1463.5   PE*                                       6.3                7.1            6.7                5.5
Depreciation & amortisation     -535.0     -600.3     -641.3     -658.0
                                                                          P/Book value                              1.4                1.2            1.1                0.9
Operating profit/EBIT            704.0      676.5      694.1      805.5
                                                                          FCF yield (%)                            11.0                4.7            7.1               12.3
Net interest                     -71.0     -101.0      -97.1      -92.9   Dividend yield (%)                        3.9                3.5            3.7                4.5
PBT                              600.0      564.6      589.5      708.5
HSBC PBT                         600.0      564.6      589.5      708.5   Note: * = Based on HSBC EPS (fully diluted)
Taxation                        -148.0     -152.4     -159.2     -191.3
Net profit                       428.0      382.1      400.3      487.2
HSBC net profit                  428.0      382.1      400.3      487.2   Issuer information
                                                                                                                                                                           0
                                                                                                                                                                           .




                                                                          Share price         (EUR)35.80                          Target price   (EUR)36.00
                                                                                                                                                                           5




Cash flow summary (EURm)
Cash flow from operations        842.0      937.9     1012.0     1177.5   Reuters (Equity)                        VLOF.PA         Bloomberg (Equity)             FR FP
Capex                           -683.0     -841.0     -851.0     -881.0   Market cap (USDm)                          3693.5       Market cap (EURm)              2839.7
Cash flow from investment       -918.0     -865.0     -671.5     -898.1   Free float (%)                                 83       Enterprise value (EURm)        3330.9
Dividends                       -110.0     -135.2     -125.0     -130.1   Country                                    France       Sector               Auto Components
Change in net debt               245.0       62.2     -215.5     -149.4   Analyst                               Niels Fehre       Contact              +49 211 910 3426
FCF equity                       308.0      128.9      191.0      326.5
Balance sheet summary (EURm)                                                Price relative
Intangible fixed assets         2078.0     2106.4     2128.3     2136.2          44                                                                                44
Tangible fixed assets           1956.0     2168.3     2156.1     2371.1          42                                                                                42
Current assets                  4110.0     4237.6     4485.1     4883.6          40                                                                                40
Cash & others                   1295.0     1232.8     1448.3     1597.7          38                                                                                38
Total assets                    8562.0     8973.3     9273.5     9938.0          36                                                                                36
Operating liabilities           3326.0     3512.3     3507.2     3784.6          34                                                                                34
Gross debt                      1876.0     1876.0     1876.0     1876.0          32                                                                                32
Net debt                         523.0      585.2      369.7      220.3          30                                                                                30
Shareholders’ funds             1936.0     2211.0     2516.3     2903.4          28                                                                                28
Invested capital                3523.0     3767.2     3814.0     4008.8          26                                                                                26
                                                                                   Oct-11                                     Apr-12                          Oct-12
                                                                                      Valeo       Rel to SBF-120

Ratio, growth and per share analysis                                        Source: HSBC

Year to                       12.2011a   12.2012e   12.2013e   12.2014e
                                                                          Note: price at close of 04 Oct 2012
Y-o-y % change
Revenue                           12.8        8.2       -0.2        8.3
EBITDA                             9.5        3.1        4.6        9.6
Operating profit                  19.3       -3.9        2.6       16.0
PBT                               22.4       -5.9        4.4       20.2
HSBC EPS                          16.5      -10.9        4.8       21.7
Ratios (%)
Revenue/IC (x)                     3.4        3.2        3.1        3.2
ROIC                              16.4       13.5       13.4       15.0
ROE                               23.5       18.4       16.9       18.0
ROA                                6.5        5.7        5.7        6.2
EBITDA margin                     11.4       10.9       11.4       11.5
Operating profit margin            6.5        5.8        5.9        6.3
EBITDA/net interest (x)           17.5       12.6       13.8       15.8
Net debt/equity                   25.1       24.8       13.9        7.2
Net debt/EBITDA (x)                0.4        0.5        0.3        0.2
CF from operations/net debt      161.0      160.3      273.7      534.4
Per share data (EUR)
EPS Rep (fully diluted)           5.69       5.07       5.31       6.46
HSBC EPS (fully diluted)          5.69       5.07       5.31       6.46
DPS                               1.40       1.26       1.33       1.62
Book value                       25.77      29.39      33.45      38.60



                                                                                                                                                                          33
     Industrials
     European Auto Components                                                                                  abc
     8 October 2012




Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Niels Fehre and Horst Schneider

Important disclosures
Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;
and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,
technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.
HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when
HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at
www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this
website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors
should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not
be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities
Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.




34
    Industrials
    European Auto Components                                                                                                                                abc
    8 October 2012




*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities
As of 05 October 2012, the distribution of all ratings published is as follows:
Overweight (Buy)                47%      (27% of these provided with Investment Banking Services)
Neutral (Hold)                                                  38%               (26% of these provided with Investment Banking Services)
Underweight (Sell)                                              15%               (21% of these provided with Investment Banking Services)


Share price and rating changes for long-term investment opportunities
Faurecia (EPED.PA) Share Price performance EUR Vs HSBC rating history                                         Recommendation & price target history
                                                                                                              From                                    To                 Date
                                                                                                              Neutral (V)                     Restricted    18 November 2009
                                                                                                              Restricted                     Neutral (V)      14 January 2010
    45                                                                                                        Neutral (V)                 Overweight (V)      24 January 2011
    35                                                                                                        Target Price                        Value                  Date

    25                                                                                                        Price 1                              14.00      07 October 2009
                                                                                                              Price 2                              15.00    05 November 2009
    15                                                                                                        Price 3                          Restricted   18 November 2009
                                                                                                              Price 4                              15.00      14 January 2010
      5                                                                                                       Price 5                              20.00      15 October 2010
          Oct-07



                            Oct-08



                                              Oct-09



                                                                Oct-10



                                                                                   Oct-11



                                                                                                     Oct-12




                                                                                                              Price 6                              31.00      24 January 2011
                   Apr-08



                                     Apr-09



                                                       Apr-10



                                                                         Apr-11



                                                                                            Apr-12




                                                                                                              Price 7                              37.00     09 February 2011
                                                                                                              Price 8                              35.00         19 April 2011
                                                                                                              Price 9                              38.00         10 June 2011
                                                                                                              Price 10                             28.00       11 August 2011
                                                                                                              Price 11                             25.00      19 October 2011
Source: HSBC
                                                                                                              Price 12                             27.00     06 February 2012
                                                                                                              Price 13                             30.00        06 March 2012
                                                                                                              Price 14                             28.00         20 April 2012
                                                                                                              Price 15                             23.00          19 July 2012
                                                                                                              Source: HSBC




                                                                                                                                                                             35
     Industrials
     European Auto Components                                                                                                                                           abc
     8 October 2012




Continental (CONG.DE) Share Price performance EUR Vs HSBC rating history                                                Recommendation & price target history
                                                                                                                        From                                      To                  Date
                                                                                                                        Neutral (V)                     Restricted        12 January 2010
                                                                                                                        Restricted                     Neutral (V)       19 February 2010
      90                                                                                                                Neutral (V)                 Overweight (V)         25 March 2010
      70                                                                                                                Target Price                        Value                    Date
                                                                                                                        Price 1                              38.68         09 October 2009
      50
                                                                                                                        Price 2                          Restricted        12 January 2010
      30                                                                                                                Price 3                              40.00        19 February 2010
                                                                                                                        Price 4                              50.00           25 March 2010
      10                                                                                                                Price 5                              53.00            14 June 2010
            Oct-07



                                  Oct-08



                                                      Oct-09



                                                                          Oct-10



                                                                                             Oct-11



                                                                                                               Oct-12
                                                                                                                        Price 6                              70.00          03 August 2010
                       Apr-08



                                            Apr-09



                                                                Apr-10



                                                                                    Apr-11



                                                                                                      Apr-12



                                                                                                                        Price 7                              76.00         28 October 2010
                                                                                                                        Price 8                              80.00      24 November 2010
                                                                                                                        Price 9                              81.00        09 February 2011
                                                                                                                        Price 10                             82.00           15 March 2011
                                                                                                                        Price 11                             70.00      21 September 2011
Source: HSBC
                                                                                                                        Price 12                             69.00         20 October 2011
                                                                                                                        Price 13                             77.00      22 November 2011
                                                                                                                        Price 14                             81.00        06 February 2012
                                                                                                                        Price 15                             87.00            20 April 2012
                                                                                                                        Price 16                             90.00             26 July 2012
                                                                                                                        Price 17                             98.00         05 October 2012
                                                                                                                        Source: HSBC

Valeo (VLOF.PA) Share Price performance EUR Vs HSBC rating history                                                      Recommendation & price target history
                                                                                                                        From                                      To                  Date
                                                                                                                        Overweight (V)                  Neutral (V)           28 April 2011
     48                                                                                                                 Target Price                        Value                      Date

     38                                                                                                                 Price 1                                 28.00     22 October 2009
                                                                                                                        Price 2                                 32.00     29 January 2010
     28                                                                                                                 Price 3                                 36.00         29 July 2010
                                                                                                                        Price 4                                 41.00     15 October 2010
     18                                                                                                                 Price 5                                 50.00    22 February 2011
                                                                                                                        Price 6                                 52.00       10 March 2011
      8                                                                                                                 Price 7                                 48.00        28 April 2011
          Oct-07



                                Oct-08



                                                     Oct-09



                                                                         Oct-10



                                                                                             Oct-11



                                                                                                               Oct-12




                                                                                                                        Price 8                                 37.00      11 August 2011
                     Apr-08



                                           Apr-09



                                                               Apr-10



                                                                                   Apr-11



                                                                                                      Apr-12




                                                                                                                        Price 9                                 35.00     19 October 2011
                                                                                                                        Price 10                                38.00    06 February 2012
                                                                                                                        Source: HSBC


Source: HSBC


ElringKlinger (ZILGn.DE) Share Price performance EUR Vs HSBC rating                                                     Recommendation & price target history
history                                                                                                                 From                                      To                  Date
                                                                                                                        Neutral (V)                 Overweight (V)         28 January 2010
                                                                                                                        Overweight (V)                 Neutral (V)            07 April 2010
                                                                                                                        Neutral (V)                 Overweight (V)        17 February 2011
     30
                                                                                                                        Overweight (V)                 Overweight             30 June 2011
     25                                                                                                                 Overweight                  Overweight (V)      22 September 2011
                                                                                                                        Overweight (V)                 Neutral (V)        06 February 2012
     20
                                                                                                                        Target Price                        Value                      Date
     15
                                                                                                                        Price 1                                 20.00      28 January 2010
     10                                                                                                                 Price 2                                 21.00          13 July 2010
      5                                                                                                                 Price 3                                 22.00       04 August 2010
                                                                                                                        Price 4                                 31.00     17 February 2011
          Oct-07



                                Oct-08



                                                     Oct-09



                                                                         Oct-10



                                                                                             Oct-11



                                                                                                               Oct-12
                     Apr-08



                                           Apr-09



                                                               Apr-10



                                                                                   Apr-11



                                                                                                      Apr-12




                                                                                                                        Price 5                                 30.00        15 March 2011
                                                                                                                        Price 6                                 26.00   22 September 2011
                                                                                                                        Price 7                                 25.00     06 February 2012
                                                                                                                        Price 8                                 24.00         04 April 2012
                                                                                                                        Source: HSBC
Source: HSBC




36
     Industrials
     European Auto Components                                                                                                                              abc
     8 October 2012




Leoni (LEOGn.DE) Share Price performance EUR Vs HSBC rating history                                          Recommendation & price target history
                                                                                                             From                                    To                  Date
                                                                                                             Overweight (V)                 Neutral (V)    11 November 2009
     46
                                                                                                             Neutral (V)                Underweight (V)         29 April 2010
                                                                                                             Underweight (V)                Neutral (V)    10 November 2010
     36
                                                                                                             Neutral (V)                     Restricted         30 June 2011
                                                                                                             Restricted                     Neutral (V)          06 July 2011
     26
                                                                                                             Neutral (V)                 Overweight (V)         25 May 2012
     16                                                                                                      Target Price                        Value                   Date
                                                                                                             Price 1                              16.00         29 April 2010
      6                                                                                                      Price 2                              19.00          23 July 2010
          Oct-07



                            Oct-08



                                              Oct-09



                                                                Oct-10



                                                                                  Oct-11



                                                                                                    Oct-12
                                                                                                             Price 3                              29.00    10 November 2010
                   Apr-08



                                     Apr-09



                                                       Apr-10



                                                                         Apr-11



                                                                                           Apr-12



                                                                                                             Price 4                              35.00     04 February 2011
                                                                                                             Price 5                              36.00     15 February 2011
                                                                                                             Price 6                              37.00         20 April 2011
                                                                                                             Price 7                              40.00         10 June 2011
                                                                                                             Price 8                          Restricted        30 June 2011
Source: HSBC
                                                                                                             Price 9                              40.00          06 July 2011
                                                                                                             Price 10                             32.00    09 November 2011
                                                                                                             Price 11                             37.00     06 February 2012
                                                                                                             Price 12                             43.00         20 April 2012
                                                                                                             Source: HSBC

HSBC & Analyst disclosures
Disclosure checklist
Company                                                                                    Ticker             Recent price              Price Date                  Disclosure
CONTINENTAL                                                                            CONG.DE                          79.54          04-Oct-2012                 2, 5, 6, 7, 11
ELRINGKLINGER                                                                          ZILGn.DE                         21.50          04-Oct-2012                          6, 11
FAURECIA                                                                                EPED.PA                         12.94          04-Oct-2012                    1, 4, 5, 11
LEONI                                                                                 LEOGn.DE                          30.26          04-Oct-2012                           1, 5
VALEO                                                                                   VLOF.PA                         35.80          04-Oct-2012                    4, 6, 7, 11
Source: HSBC


1         HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months.
2         HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
          3 months.
3         At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
          company.
4         As of 31 August 2012 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5         As of 31 August 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of
          and/or paid compensation to HSBC in respect of investment banking services.
6         As of 31 August 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of
          and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7         As of 31 August 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of
          and/or paid compensation to HSBC in respect of non-securities services.
8         A covering analyst/s has received compensation from this company in the past 12 months.
9         A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
          detailed below.
10        A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
          company, as detailed below.
11        At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
          securities in respect of this company

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.


                                                                                                                                                                              37
     Industrials
     European Auto Components                                                                                abc
     8 October 2012




* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures
1     This report is dated as at 08 October 2012.
2     All market data included in this report are dated as at close 04 October 2012, unless otherwise indicated in the report.
3     HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
      Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
      operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
      procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or
      price sensitive information is handled in an appropriate manner.
4     As of 31 August 2012, HSBC and/or its affiliates (including the funds, portfolios and investment clubs in securities
      managed by such entities) either, directly or indirectly, own or are involved in the acquisition, sale or intermediation of,
      1% or more of the total capital of the subject companies securities in the market for the following Company(ies):
      FAURECIA, VALEO
5     HSBC Trinkaus & Burkhardt acts as a designated sponsor to the following companies, and as such has an agreement with
      such companies to engage in market making activities and/or to publish research in connection with the securities of the
      following company(ies): ELRINGKLINGER




38
   Industrials
   European Auto Components                                                                                                               abc
   8 October 2012




Disclaimer
* Legal entities as at 8 August 2012                                                                                        Issuer of report
‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation
                                                                                                                            HSBC Trinkaus and Burkhardt AG
Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto;
HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank                          Königsallee 21/23
(RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC                           D-40212 Düsseldorf
Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia                    Germany
Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore                    Telephone: +49 211 910-0
Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong
                                                                                                                            Fax: +49 211 910 33 20
and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd,
Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc,                    Website: www.research.hsbc.com
New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple,
Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank
Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New
Zealand Branch incorporated in Hong Kong SAR
This document has been issued by HSBC Trinkaus and Burkhardt AG (“HSBC”) for the information of its customers only. If it is received by a customer of an
affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and
should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on
information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty
and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are
subject to change without notice. The information and opinions contained within the research reports are based upon publicly available information at the time
of publication which are subject to change from time to time. Past performance is not necessarily a guide to future performance. The value of any investment or
income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local
currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In
case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its
value or the extent of the risk to which it is exposed.
HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving
and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United
States and not with its non-US foreign affiliate, the issuer of this report.
In the UK this report may only be distributed for the information of its Clients (as defined in the Rules of FSA) and those of its affiliates only. It is not intended
for Retail Clients in the UK. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc
in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general
information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited
investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in
the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is
regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore
Branch" representative in respect of any matters arising from, or in connection with this report. In Korea, this publication is distributed by either The Hongkong
and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul
Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act
(“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP
SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. In Australia, this publication has
been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its
“wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia
Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to
persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the
particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and
Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR.
In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Hong Kong, this document has been distributed by The Hongkong and
Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it
is not intended for and should not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no
representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular
person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation
Limited. It may not be further distributed in whole or in part for any purpose. HSBC Trinkaus and Burkhardt AG is regulated by the Federal Financial
Supervisory Authority ("BaFin").
In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar
materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or
“research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without
limitation, any currencies, securities, commodities or other financial instruments).
© Copyright 2012, HSBC Trinkaus and Burkhardt AG, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system,
or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC
Trinkaus and Burkhardt AG. MICA (P) 038/04/2012, MICA (P) 063/04/2012 and MICA (P) 206/01/2012
                                                                                                                                                         [345152]


                                                                                                                                                                  39
                                                                                                   abc
Global Industrials Research Team
Industrials                                         Transportation
Colin Gibson                                        Andrew Lobbenberg
Global Sector Head, Industrials                     Analyst
+44 20 7991 6592     colin.gibson@hsbcib.com        +44 20 7991 6816  andrew.lobbenberg@hsbcib.com

Michael Hagmann                                     Julia Winarso
Analyst                                             Analyst
+44 20 7991 2405    michael.hagmann@hsbcib.com      +44 20 7991 2168    julia.winarso@hsbcib.com

Mark Webb                                           Joe Thomas
Analyst                                             Analyst
+852 2996 6574      markwebb@hsbc.com.hk            +44 20 7992 3618    joe.thomas@hsbcib.com
Parash Jain                                         Zhe Wei Sim
Analyst                                             Analyst
+852 2996 6717      parashjain@hsbc.com.hk          +852 2996 6602      weizwsim@hsbc.com.hk

Shishir Singh                                       Luciano T Campos
Analyst                                             +55 11 3371 8192    luciano.t.campos@hsbc.com.br
+852 2822 4292      shishirkumarsingh@hsbc.com.hk
                                                    Shishir Singh
Walden Shing                                        +852 2822 4292      shishirkumarsingh@hsbc.com.hk
Analyst
                                                    Valerie Law
+852 2996 6751      waldenshing@hsbc.com.hk
                                                    +65 6658 0616       valerielaw@hsbc.com.sg
Stephen Wan
Analyst                                             Achal Kumar
+852 2996 6566      stephenwan@hsbc.com.hk          Analyst
                                                    +91 80 3001 3722    achalkumar@hsbc.co.in
Dandan Yu
Analyst                                             Rajani Khetan
+852 2822 4202      dandanyu@hsbc.com.hk            Associate
                                                    + 852 3941 0830     rajanikhetan@hsbc.com.hk
Brian Cho
Head of Research, Korea                             Construction & Engineering
+822 3706 8750      briancho@kr.hsbc.com            Neel Sinha
                                                    Head of Equity Research, South East Asia
Jinil Yoon                                          +65 6658 0606       neelsinha@hsbc.com.sg
Analyst
+822 3706 8763      jinilyoon@kr.hsbc.com           Tarun Bhatnagar
                                                    Analyst
Paul Choi                                           +65 6658 0614       tarunbhatnagar@hsbc.com.sg
Analyst
+822 3706 8758      paulchoi@kr.hsbc.com            John Fraser-Andrews
                                                    Analyst
Thilan Wickramasinghe                               +44 20 7991 6732   john.fraser-andrews@hsbcib.com
Analyst
+65 6658 0609      thilanw@hsbc.com.sg              Jeffrey Davis
                                                    Analyst
Rahul Garg                                          +44 207 991 6837    jeffrey1.davis@hsbcib.com
Analyst
+91 22 2268 1245    rahul1garg@hsbc.co.in           Francisco Suarez
                                                    Analyst
Puneet Gulati                                       +52 55 5721 2173    francisco.suarez@hsbc.com.mx
Analyst
+91 22 2268 1235    puneetgulati@hsbc.co.in         Anderson Chow
                                                    Analyst
Michele Olivier                                     +852 2996 6669      andersonchow@hsbc.com.hk
Analyst
+27 11 6764208      michele.olivier@za.hsbc.com     Elaine Lam
                                                    Analyst
Joerg-Andre Finke                                   +852 2822 4398      elainehlam@hsbc.com.hk
Analyst
+ 49 211 910 3722   joerg-andre.finke@hsbc.de       Raj Sinha
                                                    Analyst
Richard Schramm                                     + 971 4423 6932     raj.sinha@hsbc.com
Analyst
+ 49 211 910 2837   richard.schramm@hsbc.de         Levent Bayar
                                                    Analyst
Juergen Siebrecht                                   +90 212 376 46 17   leventbayar@hsbc.com.tr
Analyst
+ 49 211 910 3350   juergen.siebrecht@hsbc.de       Ashutosh Narkar
                                                    Analyst
Christophe Quarante
                                                    +91 22 2268 1474    ashutoshnarkar@hsbc.co.in
Analyst
+ 33 1 56 52 43 12  christophe.quarante@hsbc.com    Tobias Loskamp
                                                    Analyst
Autos                                               +49 211 910 2828    tobias.loskamp@hsbc.de
Niels Fehre
Analyst
+49 211 910 3426    niels.fehre@hsbc.de
Horst Schneider                                     Specialist Sales
Analyst
                                                    Rod Turnbull
+49 211 910 3285    horst.schneider@hsbc.de         +44 20 7991 5363    rod.turnbull@hsbcib.com
Carson Ng
                                                    Oliver Magis
Analyst
                                                    +49 21 1910 4402    oliver.magis@hsbc.de
+852 2822 4397      carsonksng@hsbc.com.hk
                                                    Billal Ismail
Yogesh Aggarwal
                                                    +44 20 7991 5362    billal.ismail@hsbcib.com
Analyst
+91 22 2268 1246    yogeshaggarwal@hsbc.co.in

				
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