Tag Archives: Great Wall Motor hk 2333

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.

 

 

Great Wall Hits A Pothole

Great Wall April Units

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.

 

Great Wall April ytd monthly sequential

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.

Geely April ytd yoy

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.

Guangzhou April

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.Great Wall detail April.PNG 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.

Great Wall Stock.PNG

GAC Stays in the Fast Lane in April

gac overall units

While April US auto sales have disappointed across the board, with declines in all major automakers, China has yet to release numbers for April, with the exception of GAC, 2238 HK.  If March offers a clue as to performance, it will be a mixed bag.  For those with declines in the first quarter, the increase in the sales tax on the majority 1.6 liter or less vehicles was blamed; Ford and GM. Despite the change in tax, some auto makers saw sales growth in China.  Hyundai, however, saw a dramatic decline as a result of stoppages related to discontent over the US THAAD missile in South Korea.  VW Audi, took a dive at least partly due to dealer discontent over its planned 2nd jv with SAIC.  Thanks to company specific issues, the outlook for overall China growth, projected at 5%, is cloudy. (The data is primarily from Reuters except for Chinese makers Geely, GAC, Ford and Daimler which were based on SEC and HKEX filings).

Major Autos China March

Skies are sunny for GAC, however, which just reported 36% growth ytd in April over 2016.  If revenues and costs stay on track from the first quarter as reported here, it bodes well for the GAC’s stock.

GAC April

Honda and Toyota have shown significant growth, but the proprietary Guangzhou has been an out sized contributor to growth as has Fiat Chrysler.

Guangzhou units

FCA April

While recent performance is no indicator of the future, at least in the short term GAC is conservatively valued with a trailing p/e of 9.

GAC stock

Great Wall Motors Accelerates Sales But Decelerates Profits

Great Wall Sales Chart

Despite predictions that auto sales in China would be grow around 5% in 2017 thanks to the tax increase from 5% to 7.5% on smaller engine liter cars, homegrown Great Wall Motors, 2333 hk, sold 8.8% more cars in the first quarter than the prior year. Unfortunately, in its battle for sales, its gross margin dropped from 25.3 to 22.1.  This, coupled with an increase in selling and administration expense increases as percent of sales resulted in a net profit decline of 18.3% for the first quarter.   (Without subsidies represented in non-operating income and an apparently lower tax rate, the decline would have been closer to 22%).

Great Wall q1 fs

The decline came despite Great Wall’s success and emphasis in the popular SUV segment.

Great Wall Sales by type q1.PNG

As shown above, SUV’s continue to make up the majority of Great Wall’s sales and grew 15.2% in the first quarter.  It’s most popular model, the Haval 6, however, is showing its age and actually declined in the first quarter.  While the year to date decline is small, the month of March 2017 is the first monthly year on year decline in sales of the Haval H6 since 2015. March is generally a more stable month than January or February since year on year comparisons are skewed by the differing time of the Chinese New Year. It is also, therefore, a more critical month to predict future performance.

Great Wall Haval6 q1 2017

As shown in the earlier chart, the new Haval H2 which has been characterized as a sub-compact SUV, has picked up some of the Haval H6’s slack but its March sales are still just a little over half of the H6.  The quarterly release neglected to provide any data on gross margins per vehicle although it could be assumed that the smaller H2 has a lower gross margin than the H6.  The H6 has been refreshed for 2017 and featured at the Shanghai Motor Show but hasn’t yet hit dealers.  Since buyers were aware of the new model, this could have negatively impacted sales year to date and also forced the company to reduce prices to make room for the new model.

Exports, while showing an increase both monthly and year to date, are still a tiny portion of Great Walls sales.  Reviews from car sites in Australia and New Zealand have been lukewarm with an emphasis on low price for lots of options.

Great Wall Stock April 27

Great Wall’s stock, particularly given its year to date performance, should be under pressure due to its declining profits.

China Auto Stocks Drop on Uncertainty

traffic-light-876046_640

Hong Kong Listed Chinese auto stocks were mixed yesterday, 4/11/17, despite a minuscule drop in the Hang Seng.

Auto Stocks upd

 

Data Source: Bloomberg

All of the above stocks, with the exception of BAIC 1958 hk, had previously reported sales for March.

Update: China March Overall Auto Sales

Depending on which source you read, and what they interpreted, monthly and year to date auto sales were up.  How much is apparently subject to interpretation from a meeting with the China Association of Automobile Manufacturers, (CAAM).  However, nothing has been published on the CAAM website regarding the update.  Unlike other international auto manufacturers, sales are not presented as seasonally adjusted.

January and February are poor monthly indicators due to the China Lunar New Year, aka Spring Festival.  For 2017 it fell on January 28, 2017: 2016; in 2016 it fell on February 8, 2016. Technically it lasts approximately one week, when all of China is on vacation – but the impact can be felt as workers leave or change jobs two weeks in advance. This even makes January to February sequential sales and year on year data unpredictable.

Reuters:

First Quarter Auto Sales China up 7%; March up 4% to 2.5 million units

Wall Street Journal:
First Quarter Vehicle Sales China up .59% to 2.84 million units; Passenger Sales March up 1.7% to 2.1 million units.

Both agreed that CAAM held to its earlier projection of 5% auto sales growth in China for 2017.

China March 2017 Auto Sales Picture – Proceed With Caution

The downward slide yesterday occurred as two reports threw tacks on the road of this fragile, critical barometer of China’s economy.  Now the biggest single car market in the world, the closely watched auto sector is under scrutiny.  2016 managed overall increases thanks partly on the sales tax reduction from 10% to 5% for the year on smaller liter engines, (1.6 liters – the majority of autos sold in China in 2015).  Under pressure to continue growth, instead of resuming the 10%, the tax was partially raised to 7.5% starting in January 2017 through the end of the year.

First Report: High-flying Geely 175hk, was flagged by Credit Suisse, its report, said

..this is the first monthly decline in March in over ten years. Continuing the falling trend for four days, it once fell to $10.44 at most, hitting over 1-month low; it last printed at $10.52, down 4.7%, on surging volume of 117 million shares.

It went on to project Geely’s gross profit margin would be under pressure and kept it at neutral with a target price of $11.4 hkd.

Geely had actually released its numbers on April 7th, with strong year on year growth so the blame for the drop on that report is most likely misplaced.

Geely March

Production Cut

While Geely’s drop is of concern, a report by CICC, 3908 hk, (Per Bloomberg, the Goldman Sachs of China), was more alarming, with an output cut of 16.7% by Great Wall Motors 2333hk.  Although other companies weren’t cited, the report implied other auto makers had done the same.

Slow Lane Data Releases

Auto sales data, unlike elsewhere in the world, is slow to be officially released in China.  The China Association of Automobile Manufacturers, CAAM, releases data for the prior month around the 22nd of the following month.  Specific company data is sporadic and lacks conformity either in presentation and or release dates. This creates the perfect situation for the market’s most hated state: uncertainty.

Mixed Picture

Adding to the uncertainty, March numbers in China reported to date from domestic and international players have been inconsistent.

In China, Nissan reported year to date sales in March up 5.3%; GM saw a ytd decline of 5.2% with Toyota up just 1.7%.

Domestically, auto sales were seemingly resilient, with the exception of Great Wall 2333   hk and Dongfeng 489 hk. Great Wall is a home grown auto company while Dongfeng sells autos produced by joint ventures with Nissan, Honda, PSA and Renault.

Great Wall March

Dongfeng

GAC 2238 hk, showed impressive growth, buoyed by increases in its proprietary brand Guangzhou as well as its JVs with Honda, Toyota and Chrysler.  A breakdown of those brands was shown here.

GAC Mar

 

BAIC 1958 hk, hasn’t yet reported sales.  However, as noted previously, China’s unhappiness with South Korea has prompted reports of Hyundai reducing production hours in China.  Hyundai units made up 60% of BAIC’s unit sales in 2016.

As sales data for March trickles in, these stocks look poised for more negative surprises.

(Sales data and graphs compiled from HK filings.)

China September Auto Sales Should Hold the Fast Lane

auto-world-august-2016

Source: VDA, Verband der Automobilindustrie

*USA, Brazil and Russia include light vehicles (trucks).

While the US was disappointed in Monday’s reports auto sales for September, numbers for the market leader in terms of number and growth, China, will be revealed later in the week. Thanks in part to a government stimulus in the form of a 50% tax cut on cars with an engine size 1.5 liters and less, September should follow the upward trend.

Here are the actual numbers, in units:

world-auto-sales-2016-august

Source: VDA data, Verband der Automobilindustrie

With the tax cut holding through the end of December and the last few years showing heavier purchasing in the final quarter, the next few months should also show growth, sequentially as well as year on year.  Three major Hong Kong listed Chinese auto companies demonstrate that historical seasonality as well as year this year’s  super-charged numbers.  Although the week-long vacation celebrating the Chinese New Year depresses auto sales at the beginning of the year, next week’s National Day, aka Golden Week, is more of a shopping holiday.  The three companies are :Geely 175 hk, Great Wall 2333 hk and GAC 2238 hk.

geely-sales-aug-2016

great-wall-august-2016

gac-auto-sales-august-2016

Source: all 3 charts from Company Hong Kong Exchange Filings

BAIC hk 1958, another company which reports monthly sales volumes has been excluded from the seasonal comparison since it was newly-listed in 2014. It had also just started to develop its relationship with Daimler Benz, DAI gr, referred to as Beijing Benz, a 51%-owned subsidiary. BAIC is a big player in China, selling 1.6 million passenger vehicles in 2015 which included its own brand as well as Hyundai and Daimler.  It was formed as an IPO in 2014 and has also shown increases in units sold 2016, thanks to Daimler and an aggressive push on its own brands, under the names of Senova, Weiwang and BJ.

baic-monthly-august-2016

Source: Hkex filings, January & February excluded since they were grouped together.

In numbers, sales of these four companies combined represent close to 22% of the year to date light vehicle sales in China for the first 8 months of 2016.  China passenger vehicle sales for China were reported at 14.4 million in 2016 vs. 12.7 million in 2015 which was a 12.8% increase. (Reported by CAAM, not seasonally adjusted.) Their reported numbers from filings are as follows:

china-4-autos-aug-2016

Although these four Chinese companies have all seen unit sales increases year to date, their stock prices have diverged.

autos-4-stocks-sept-2016

 

Source: Bloomberg, values as of 10/3/2016

Geely, which sells only its own brand under the names of Emgrand, Vision and Boyue, has been the best performer year to date and over the last 12 months.  This occurred in spite of the fact that the sales have been dominated by sedans versus the much more popular SUV’S.  The company has, however, been gradually moving into more SUV’S and crossovers to offset the declining interest and sales in sedans.

geely-types-august-2016

Geely’s stock performance is due partly to its first half performance, where it was able to transform an 11.3% unit sales increase into a 35.8% net to shareholders increase.  In its filing, it stated that the profit increase was due to both volume and an ex factory average sales price increase of 17% compared to the prior year.

geely-fs

Sales have continued strong following the first half, with August year to date showing an annual increase of 22%.  Geely has been targeting ramping up production, taking over two plants as of 7/20/16  with additional capacity of 300,000 units by the third quarter of 2016.  Baoji, is projected for production of 200,000 high end SUV’S while the other, Shanxi, is projected to produce 100,000 high end sedans and mid and high end new energy vehicles.  Both were purchased by the company’s wholly-owned subsidary Jirun subsidiary from Baoji Geely and Shanxi New Energy for a combined 1.4billion rmb.  (Both were held by Zhejiang Haoqing, the wholly-owned subsidiary of Geely Holdings.) Geely sales are primarily domestic, with exports on a downtrend over the last couple of years at only 12,871 year to date.   Despite Geely’s pledge to become a major new energy vehicle producer, the company has given little details on sales with a brief mention of average sales of about 1,500 per month.

Geely’s plan to sell its subsidiaries Ninghai Zhidou, producers of low end energy vehicles and supplies, to a third party failed.  They were sold instead to parent Geely Holdings, which is owned by Geely founder and Chairmen, Li Shufu. The breakdown is as follows:

geely-sale-subs

Geely’s quoted rational for the disposal:

As part of the Group’s on-going strategy to enhance value for the Shareholders, the Group plans to consolidate and enhance its product portfolio and thus brand image by focusing on relatively higher-end automobiles going forward. In addition, recent policies issued in the PRC in relation to the eligibility for subsidies and tax exemptions have also been unfavourable to the product portfolios of the Kandi JV and the Zhidou JV and have a negative effect on their financial performance in 2016.

Geely reports unit sales monthly but doesn’t give quarterly statements. Geely has had a strong run but its trailing p/e is still moderate.  Nomura raised its price in September to 8.33 hkd thanks partly to projected margin improvement, capacity utilization and product mix.

Guangzhou Auto, or GAC  the second best performer, sells its own brand under Guangzhou auto with names such as Trumpchi, but also sells Toyotas, Hondas and Fiat Chrysler vehicles as joint ventures.  Those JV’s powered its net profits in the first half to a 133% increase.

gac-1st-half-2016

 

While Honda & Toyota have shown growth and dominance in unit sales, the company has had major growth with the Fiat Chrysler JV thanks to success of the Jeep Cherokee brand. It’s also been aggressively pushing its own brand, despite the potential losses as shown in the income statement, to increase market share.

gac auto sales first half.PNG

August year to date sales were just as robust, with Chrysler taking up some of Toyota’s slack.

gac-aug-auto

 

Per Auto News, Jeep’s sales in China rebounded from 2015 thanks to the addition of Cherokee at a factory in Changsha in October, of 2015.  In April, Jeep began producing the Regenade subcompact crossover at a new plant in Guangzhou. It plans to add a new C-segment crossover to China in production by year end with another to follow, specifically designed for the Chinese market.

GAC’S unit sales and interim and its low p/e gives strong support to the stock continuing upward.  In September, 2016 CICC put GAC on a conviction buy list with a target price of 13.2.

Despite relatively strong auto sales growth, BAIC has actually lagged the Hang Seng index. Much of this is due to its structure.  It’s best profit driver has been with its subsidiary, BAIC Benz.  Otherwise it sells its own brand, under the names of Weiwang, Senova and BJ, generally at a loss and has seen weakened demand for its JV with Hyundai, which has historically made up its biggest portion of unit sales. While revenues have increased along with sales, net to shareholders has grown only 11% reflecting Daimler’s outsized contribution to profits and BAIC’S brand losses and Hyundais’ flagging sales.baic-1st-half-2016

baic-types-june

Source: hk filings

As shown below – Home Brand Beijing Motor is far behind Beijing Benz in profits.

BAIC beijing motor.PNG

BAIC bejing benz.PNG

Add to that the decline in JV earnings, which is mainly Hyundai, and GAC is struggling to increase profits despite sales increases. August sales have been even stronger than June, with Hyundai showing an upturn but Benz lower ytd than June and Beijing Brand climbing. BAIC doesn’t report quarterly earnings, however, so how those numbers translate into profits will be unclear until well after year end. On 9/27 Macquarie gave it a target price of 12 hkd based on strong Benz sales. (It also called the relationship a JV, which is incorrect.) Its current price of 8.14 is supported by its p/e which is close to the 6 month net profit to shareholder’s growth.  Sales numbers for September will most likely be strong and buoy the price.  However, profit growth for shareholders hasn’t kept up with unit growth.

baic-august-2016

BAIC has been rumored to be considering a JV with Chrysler Fiat.  This isn’t surprising given GAC’S recent success with Jeep.  BAIC has recently expanded a relationship with Daimler with Fujian Benz, which would reportedly produce high end mini-buses under the name of Viano, Sprinter and Vito but details have been light and sales to date have been minimal.

Home Brand Great Wall is the most disappointing of these four. For the first half, it lagged the others both in terms of sales and profits despite its concentration on SUV’s and its relatively popular Haval H6.

gw-fs-1st-half

 

Since June, Great Wall has had better unit sales growth. Unfortunately, its razor thin profit margins have been declining further, resulting in net profit changes about 1/2 of unit changes. On 9/27/16 Citi rated it a buy at a price of 10 hkd. on 9/21, Credit Suisse rated it neutral at a price target of 8.8 hkd.  Great Wall does report quarterly with a report due about the 23rd of October.

great-wall-sales-aug

In conclusion, despite strong auto sales stimulated by the tax break, Chinese auto manufacturers have divergent sales and profit paths. All, however, are at risk for a bumpy ride in 2017 when the tax cut is set to expire.

China July Auto Sales Up, BAIC Skids Downhill From June to July

July Car 1

The China Passenger Car Association reported that July year on year sales increased by 23%. Ytd increases were 11% over 2015. Three Hong Kong car stocks with a combined market cap of 205 Billion hkd, (23 Billion usd equivalent), beat that rise. Geely 175 hk, Great Wall 2333 hk, and BAIC  1958 hk, all reported year on year monthly and year to date sales increases. Geely and Great Wall managed to drive up over 4% from June, but BAIC dove 27%.

3 car stock july changes

BAIC sells its own brand, Beijing Benz, but relies on Hyundai and Mercedes Benz for the bulk of its sales and profits.

BAIC July Sales Type

The drop was striking and defied continued increases by home-grown competitors Geely and Great Wall.

great wall july monthly

geely july monthly

baic july monthly %

Much has been made over the Chinese voracious appetite for SUV’S.  Geely and Great Wall are polar opposites in their reliance on SUV’S, with Great Wall relying heavily on SUV’S, particularly its Haval H6, which is considered a close clone of the 4th generation Honda CRV.  Other types have had little growth, including  the Wingle pickup, with pickups banned  in major cities although some restrictions are easing along with a hope for more acceptance. BAIC only breaks down the sales by type for its own brand, with SUV’s ramping up to 50% of 2016 unit sales from only 7% in 2015.

Geely Monthly Type

great wall july types 2

Based on 2015 unit sales for Geely and Great Wall, there do appear to be seasonal sales variances with the highest sales occurring in the last quarter.  (BAIC was excluded since it didn’t provide monthly sales data for the full year of 2015).

great wall geely seasonal

China sales growth is critical for these companies, with Geely and Great Wall exports shriveling, (BAIC doesn’t report any exports).

Geely Greatwall Exports

Note: All charts and data were prepared from HK Filings with the exception of the stock data, which was from Bloomberg.  March was primarily used as the starting point since January and February are extremely variable due to Chinese New Year.

Despite the year on year overall increases, the stocks in Hong Kong are showing  a moderate trailing p/e ratio; with Geely outperforming the Hang Seng on a year to date and 12 month return basis.  Geely has recently completed the acquisition of two subsidiaries, Shanxi & Baoji, with combined capacity of 300,000 vehicles, construction completion expected in 3Q 2016.

3 car stocks

None of these companies provide sales dollars in their monthly updates.  Interim results have not yet been presented.  BAIC’s Q1 showed an increase in revenue of 30% but a drop in net profit of 25% due to lower JV numbers with Hyundai and increasing operating losses for its own brand.  The increase in profit was mainly due to Beijing Benz, which is owned 49% by Daimler.  Greatwall’s Q1 showed an 8% increase in revenues but a 4.5% decrease in profit, thanks to a lower gm and operating margin. Geely doesn’t provide quarterly statements.

Great Wall Q1

BAIC Q1