Despite these short-term factors weighing on growth, over the past five years Dongfeng has seen dramatic increases in both sales and profitability.
Figure 1: Dongfeng Motor Group Profitability (RMB Billions)
• Double-Digit Growth – Over the past five calendar years, Dongfeng had average annual revenue growth of more than 11.9% and was able to grow profits by over 18.6%. It is important to note that profitability grew faster than revenue, usually a sign of higher margins and increased efficiency.
• Recent Sales Declines in Japanese Brands – The dispute between China and Japan over the sovereignty of the Diaoyu Islands in September 2012 had an adverse impact on the sales of Japanese automobile brands in China, and Dongfeng Nissan and Dongfeng Honda were not spared. Although the sales of these brands will likely continue to suffer in the near future, eventually they will begin to normalize. I would also remind investors that Dongfeng is a diversified automobile company with over 12 different brands, as the above chart highlights, and is still in a position to benefit from the growth in incomes across China’s large population.