Data source: HK filing
Great Wall Motors, 2333 hk, disappointed with April sales down 8.1% year on year bringing its year to date sales growth to 4%. Sequentially the picture was much worse, with a decline of 14.3% from March. As can be seen above, April is typically lighter than March but the drop from 2016 same month sales could be a signal for more pain to come.
Data Source: Hk Filing
Great Wall is not alone in this decline, with the China Passenger Car Association (CPCA) reporting that in April China’s broad-sense passenger vehicles sales were 1.6934 million units, showing 1.7% yearly decrease and 13.7% monthly decline. A 5% growth for the full year has been projected, despite the rise in tax from 5% to 7.5% on small liter engines. Home grown Geely, however, managed a 94.5% increase in April year on year which translated to a 94.4% year to date increase over 2016 and a minor -.3% drop from March.
Additionally, Guangzhou Auto, a China brand produced by GAC AUTO, managed to increase its April units by 55.8% for April, bringing year to date sales up 64.2%. It even managed a sequential increase of 27.1% thanks to its popular Trumpchi GS4 compact crossover.
Data Source: Hk Filing
A major portion of the decline for Great Wall was due to the drop in sales of its aging SUV Haval H6. While some analysts have said it’s due to competition from the Trumpchi as well as Geely’s Boyue, (although the Boyue only just 21,693 in April, up from 20,461 in March – wasn’t selling in April, 2016); Great Wall’s H6 sales were 36,367. Great Wall partly made up for the decline in the H6 with the H2’s 36% April increase but it’s still less than half the sales of the H6, even at April’s lower units. Data Source: Hk filing
Great Wall’s descent warranted a downgrade in the stock price by Credit Suisse from hk$ 8.5 to 8.00 and kept at neutral. The bank noted that the decline came despite major price concessions by Great Wall such as the RMB1 billion “red packet” cash incentive program and RMB 9,000-15,000 per unit discounts on selected models. Finally, it noted that sales for the first week of May had fallen by 24%. Thanks to the drop, Credit Suisse expected Great Wall to aggressively discount and therefore revised its earnings down by 2-3% for the year. As shown here, Great Wall’s first quarter net profit showed a decline of 18% despite a unit increase of 8.9%.
Since Great Wall is heading into the slower sales period in China, it will be some time before there is clarity on its direction or profits. Caution signals are flashing.