Piper Jaffray Initiates Coverage Of China's Auto Boom

In a report released this morning, Piper Jaffray says that per capita car ownership in China is around 1/10 of that in the United States, and given sustained government support and ravenous demand among an expanding middle class, the company believes this gap will steadily narrow in the coming years. “To reflect this opportunity, investors have driven valuations for HK-listed auto OEMs up to 16x 2011 earnings,” Piper Jaffray writes. “Auto parts stocks, by contrast, have not benefited from such high investor appetite; as a group, they trade at only 10x 2011 earnings – a 37% discount to the OEMs.” As such, Piper Jaffray has launched coverage of six auto stocks concurrently with this report, its favorite being the NYSE-listed China Yuchai International Ltd.

, which currently trades for $19.80.