20171027-交银国际证券-长城汽车-02333.HK-Too_much_discounts,_too_much_expenses__Trading_Sell_5页_1mb

Great Wall Motor (2333 HK) Summary

Core Content

Great Wall Motor (GWM) is a leading Chinese automaker that specializes in the production and sale of pick-up trucks and sport-utility vehicles (SUVs) under its own brand names. The company also engages in the research and development of automotive parts and components for these vehicles. The document provides a comprehensive analysis of GWM's financial performance, including revenue, net profit, and various financial ratios, as well as its stock performance and analyst recommendations.

Financial Highlights

Key Financial Performance

• 3Q17 Performance:

  • Revenue increased by 1.8% YoY, but net profit dropped by 79.9% YoY to RMB460m, significantly below market and analyst expectations.
  • The decline in net profit was attributed to increased discounts on Haval models and higher marketing costs for the WEY brand.
  • Gross profit margin fell to 16.2% in 3Q17 from 23.8% in 3Q16 and 16.9% in 2Q17, primarily due to promotional activities and discounting.
  • SG&A expenses rose to 9.6% of revenue, up from 7.5% in 3Q16, mainly due to marketing costs for WEY.

• 4Q17 and 2018 Outlook:

  • Margin uncertainty remains a major challenge for GWM.
  • Haval's continued discounting in the SUV market is expected to persist into 4Q17 and 2018, amid low volume growth.
  • WEY's volume growth may be slower than expected due to its high-end positioning, and it is anticipated that it will start contributing meaningfully to earnings from 2H18 when its model lineup reaches five models.

Stock Performance

Analyst Recommendation

• Rating: Trading Sell
• Reasoning:
  • The poor 3Q17 results, especially the sharp drop in net profit, are expected to lead to a negative reaction in the share price.
  • Earnings estimates for FY17 and FY18 were revised downward by 21.4% and 20.3%, respectively, due to lower margins and higher expenses.
  • The target price was revised from HK$10.50 to HK$9.00, based on an 11x FY18 P/E multiple.
  • The rating remains Neutral in terms of 12-month outlook, but Trading Sell is recommended for the short term due to the unattractive absolute return outlook.

Financial Statements Overview

Profit & Loss (RMB m)

Cash Flow (RMB m)

Balance Sheet (RMB m)

Financial Ratios

Analyst Certification and Conflicts of Interest

• The authors of the report declare that all views expressed reflect their personal opinions and that they have no financial interest in the subject securities except for one analyst who holds shares of Shimao Property Holdings Limited.
• The authors have not traded in the stock covered in this report within 30 days prior to its release.
• The report is confidential and intended for private circulation only to BOCOM International's clients.
• BOCOM International and its affiliates may have business relationships with companies covered in the report and may have financial interests in some of them.

Disclosure of Business Relationships

BOCOM International has investment banking relationships with several entities, including Orient Securities Company Limited, Everbright Securities Company Limited, Guolian Securities Co., Ltd., and Guotai Junan Securities Co., Ltd. It also holds more than 1% of the equity securities of these companies. Additionally, it has relationships with various other financial institutions and companies.

Disclaimer

• The report is for informational purposes only and is not intended as an offer or solicitation to buy or sell securities.
• The views and recommendations in the report may change without notice and are subject to the limitations of the Hong Kong Securities and Futures Commission.
• Investors are advised to consult their own professional advisors before making any investment decisions.