Great Wall Motor (2333 HK) Summary
Core Content
Great Wall Motor (GWM) is a Chinese automaker that primarily produces and sells pick-up trucks and SUVs. The document outlines the company's financial performance, key growth drivers, and analyst recommendations for its stock. The stock has been upgraded to "Buy" due to potential improvements in sales volume and margin recovery in 2018.
Financial Highlights
| Metric |
2015 |
2016 |
2017E |
2018E |
2019E |
| Revenue (RMB m) |
76,033 |
98,616 |
98,930 |
113,659 |
128,651 |
| YoY growth (%) |
21.5 |
29.7 |
0.3 |
14.9 |
13.2 |
| Net profit (RMB m) |
8,059 |
10,551 |
4,233 |
8,694 |
10,448 |
| YoY growth (%) |
0.2 |
30.9 |
(59.9) |
105.4 |
20.2 |
| EPS (RMB) |
0.88 |
1.16 |
0.46 |
0.95 |
1.14 |
| BVPS (RMB) |
3.9 |
4.7 |
5.3 |
5.8 |
6.6 |
| P/E (x) |
8.7 |
7.2 |
17.2 |
8.3 |
6.9 |
| P/B (x) |
2.0 |
1.8 |
1.5 |
1.4 |
1.2 |
| Dividend yield (%) |
3.5 |
4.2 |
1.8 |
3.7 |
4.4 |
Key Growth Drivers
- New 1.5T H6 Model: A new version of the H6 with higher average selling price (ASP) is expected to improve margins significantly in 2018. This model offers better fuel economy and power compared to previous versions.
- In-House 7-Speed DCT Box: GWM plans to gradually replace outsourced transmissions with self-developed 7-speed dual-clutch transmissions (DCT), which could lead to cost savings of approximately RMB3-4K per unit.
- WEY Brand Sales: The WEY brand is expected to contribute 300k-400k units in 2018, driven by the ramp-up of models like VV7 and VV5, as well as the introduction of new models such as VV6 and VV3. Although initial costs are high, the brand's growth is anticipated to improve margins in the coming quarters.
- Cost Management: Reduced operating expenses from the second year of the WEY brand's operations are expected to further enhance profitability.
Analyst Recommendation
- Upgrade to Buy: The analyst has upgraded GWM from "Neutral" to "Buy" based on the potential for volume and margin recovery in 2018.
- Target Price: The target price has been raised from HK$9.00 to HK$11.50, based on a 10x forecasted FY18E P/E.
- Risk-Reward Ratio: The stock is viewed as a good risk-reward opportunity due to the expected recovery in sales volume and margins, despite weak performance in the third quarter of 2017.
Stock Performance
| Metric |
Value (HK$) |
| 52-week high |
12.08 |
| 52-week low |
6.84 |
| Market Cap |
110,325.30 |
| Issued Shares (m) |
9,127.27 |
| Average Daily Volume (m) |
55.38 |
| 1-month change (%) |
-10.48 |
| YTD change (%) |
29.83 |
| 50-day MA |
9.89 |
| 200-day MA |
9.51 |
| 14-day RSI |
43.25 |
Financial Statements
Profit & Loss
| Metric |
2015 |
2016 |
2017E |
2018E |
2019E |
| Revenue (RMB m) |
76,033 |
98,616 |
98,930 |
113,659 |
128,651 |
| Cost of Sales (RMB m) |
(56,864) |
(74,360) |
(80,614) |
(88,312) |
(99,389) |
| Gross Profit (RMB m) |
19,169 |
24,255 |
18,316 |
25,347 |
29,261 |
| Selling Expenses (RMB m) |
(2,842) |
(3,175) |
(3,957) |
(4,319) |
(4,889) |
| Administrative Expenses (RMB m) |
(4,031) |
(4,575) |
(5,441) |
(6,138) |
(6,818) |
| Other Expenses (RMB m) |
(2,877) |
(4,233) |
(3,965) |
(4,527) |
(5,082) |
| Operating Profit (RMB m) |
9,420 |
12,273 |
4,952 |
10,363 |
12,472 |
| Net Profit (RMB m) |
8,059 |
10,551 |
4,233 |
8,694 |
10,448 |
Balance Sheet
| Metric |
2015 |
2016 |
2017E |
2018E |
2019E |
| Total Assets (RMB m) |
71,911 |
92,309 |
94,747 |
104,968 |
117,710 |
| Total Liabilities (RMB m) |
33,524 |
44,956 |
44,441 |
48,600 |
54,056 |
| Shareholders' Equity (RMB m) |
38,387 |
47,354 |
50,306 |
56,368 |
63,655 |
| BVPS (RMB) |
3.932 |
4.691 |
5.343 |
5.837 |
6.568 |
Cash Flow
| Metric |
2015 |
2016 |
2017E |
2018E |
2019E |
| Profit after tax (RMB m) |
8,060 |
10,554 |
4,234 |
8,695 |
10,450 |
| Depreciation & amortization (RMB m) |
2,108 |
2,994 |
2,978 |
3,543 |
3,926 |
| Other items (RMB m) |
(280) |
(370) |
(90) |
(94) |
(106) |
| Cash flow from operations (RMB m) |
10,034 |
8,835 |
12,127 |
12,257 |
13,057 |
| Cash balances at year end (RMB m) |
3,642 |
2,154 |
4,000 |
6,314 |
8,555 |
Key Points
- GWM is expected to benefit from volume and margin recovery in 2018, particularly with the launch of the new 1.5T H6 and the expansion of the WEY brand.
- The company's P/E ratio is projected to improve in the coming years, leading to a higher target price.
- Despite weak performance in the third quarter of 2017, the analyst believes the current time is optimal to invest due to the potential for recovery.
- The analyst has revised up earnings forecasts for FY18 and FY19 by 36%, primarily due to higher gross profit margin (GPM) and lower operating expenses.
- GWM's financial ratios indicate a strong balance sheet with improving profitability metrics over time.
Conclusion
GWM is a promising investment opportunity with strong fundamentals and growth potential. The company's strategic moves, such as the launch of the new 1.5T H6 and the expansion of the WEY brand, are expected to drive sales volume and margin improvements in 2018. The analyst's upgrade to "Buy" reflects confidence in the company's ability to deliver strong returns, supported by the revised earnings forecast and the updated target price.
