Monthly Archives: June 2017

China Vanke Shoots For New Board, No Barbarians Allowed

Embattled China Vanke, hk 2202, has finally set a meeting to vote for a new Board, the current term having expired in March of 2017.Vanke Board

Source: Hk Filings, latest

Out: Wang Shi, Vanke founder, China Re Representatives & Blackstone. In: SZMC with equal representation to Vanke.  The board also appears to have some new diversity with non-related representatives.

What’s Missing: Baoneng, Anbang.

The major reason for the delay in the new vote was to ensure Vanke executives maintain control, or at least split it with an entity of their choosing, despite their minority ownership interests.  They’ve been aided in their quest from outside sources.

  • China Re, which owned 15.3%, agreed to transfer them to Shenzhen Metro, SZMC.
  • China Evergrande, 3333 hk, a competing developer which had been stockpiling shares, volunteered transferring its voting rights to SZMC.
  • Evergrande officially sold the shares, at a loss to its original cost, to SZMC.  (No, Evergrande isn’t a charity – they are pursuing a back-door listing in Shenzhen which will very possibly be aided by this gesture).
  • Other heavy owner & tagged a barbarian, Baoneng, was prohibited from selling certain insurance products and its Chairman was prohibited from insurance for 10 years.
  • Vanke started a lawsuit in February, 2017, to invalidate Baoneng’s shares based on its use of leveraged products to acquire them.

Despite all these visible moves, the fact remains that Baoneng still holds 25.4% of the company’s shares and would be assumed to have a legitimate reason to expect Board representation.  The executives from Vanke’s side own a minor percentage of shares. Another insurance company, Anbang, also owns a significant amount of shares.

Baoneng Owner

Source: HK filings

The June Meeting, Friday the 30th of June, should be an interesting one.  Although the stock has been rising on the news, it’s still too early to know if the proposal will get the 2/3 majority needed.

 

 

 

 

Great Wall Motors Zooms Upward on Fumes

WEY Great Wall wey

Despite CAAM’S report of another month of declining auto sales in China, Great Wall Motors, Hk 2333, powered above all its peers.

Auto Stocks May 2017The report for overall passenger sales in China, issued by the China Association of Automobile Manufacturers, CAAM, showed a May year on year decline of 2.6% following an April decline of 3.7%.  A decline from last year’s 13.7% growth was expected after the sales tax drop on smaller engine vehicles from 10% to 5% went up to 7.5%.  (63% of cars sold in 2016 were 1.6 liters or less, the maximum size for the tax incentive.) With the decline in the tax incentive, expected sales growth for 2017 is only 5%.  Thus far, sales have been running below those expectations.

Defying the letdown, Great Wall rocketed up over 21%.  The apparent reason: a positive upgrade by Credit Suisse.  Thanks to the pending introduction of the WEY brand luxurious but affordable SUV, Credit Suisse raised the sales projections and profit projections for Great Wall.  Besides projecting impressive unit sales increases, a net profit increase over the popular Haval was seen at 5,000 rmb/unit. Although Credit Suisse lowered the 2017 earnings forecast by 14%, it raised the target price from $8 hkd to $12.5 hkd mainly on the basis of the projected sales growth and profits of the WEY.

WEY Sales Projections

Putting this in perspective, Great Wall  had the following sales in 2016: (from HK filings)

1Great Wall 2016

Thanks to both its emphasis on SUV’S and its Haval H6, Great Wall surpassed the industry average in 2016.  This increase also translated to profits.

2 Great Wall Fin 2016

Source: HK Filing

Sales Growth Slower in 2017

Like the industry, Great Wall has seen a drop in unit sales growth as well as profits for 2017.  In the first quarter, while overall China auto sales surprised with a rise of 7%, Great Wall exceeded that rise with a unit increase of 8.9%.  That increase, however, came at a cost as its net profit actually declined thanks to a gross profit drop from 25.3% to 22.1%.

3Great Wall q1

Source: HK Filing

Great Wall’s Unit Sales growth to date has slowed since the first quarter, particularly with the once popular but now aging Haval 6.  For May, the 3.76% drop was worse than the overall industry.

4Great Wall May

Source: HK Filing

Price Change Overshoots Short Term Prospects

While Credit Suisse may eventually be proven correct in its forecast, given the industry’s recent and projected performance, the untested demand for the WEY SUV, and the strong competition in the Chinese auto market, the rapid stock rise is unwarranted.  We are a long way from June’s sales reports and earnings for Great Wall shouldn’t be out until about 8/25/17.  Additionally, Great Wall, as are all China auto sellers, is entering the slowest part of the year for sales.

6 Great Wall Monthly Chart

Time to Hit the Brakes on Great Wall.