Tag Archives: GREAT WALL

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 Anger with South Korea is Bad for Auto Stock BAIC

baic chart

China’s displeasure over South Korea’s move to allow the U.S to deploy the THAAD missile system on its territory is being felt by Hyundai.  Reports of lower production in China is bad news for BAIC 1958 hk, since Hyundai represents the largest portion of its unit sales.

BAIC hasn’t yet released its March sales. But year to date February sales and annual unit sales in 2016 indicate a large negative impact of a decline in Hyundai sales.

BAIC Jan Feb Sales.PNG

baic annual auto sales

BAIC closed down on 4/5/17 but hasn’t yet reported March sales. While it makes the biggest profit from its subsidiary, Beijing Benz, at 55% to 60% of its unit sales, a decline in Hyundai sales will hurt.

Auto Stocks Hong Kong Listed

 

China Auto Stocks Could Get Boost From GAC’S March Sales

GAC chart March

Source: HK Filings

While overall auto sales in the US disappointed for March, one of the first auto manufacturers to report in China, Guangzhou Auto or GAC, 2238 hk, had surprisingly good numbers.

GAC SALES March Spread.PNG

Source: HK Filings

The company sells its own brand as well as Honda, Toyota, Fiat and Mitsubishi. Guangzhou Auto and Fiat took the lead in growth both for March and year to date.

gac sales by manu march

As has been the case with China overall, SUV’s showed the greatest growth, overtaking sedans in terms of numbers and growth.

gac SALES BY TYPE MARCH

Sentiment for auto sales in China has been flat to negative thanks to the increase in the sales tax on smaller liter engines, from 5% to 7.5% starting in January.  In December, the tax is scheduled to revert to 10%.  As the top chart shows and was the case for many automakers and sellers in China, this caused a spike in last quarter sales of 2016.

GAC’s 2016 annual earnings were strong, with a net profit increase of 35.8% thanks primarily to the earnings from its joint ventures.

GAC financial annual

While it’s increasing sales of its own, less than profitable Guangzhou brand, the strong performance of its joint venture partners could give its first quarter results and price a boost.

Hong Kong listed auto stocks closed down on April 5th, except for Great Wall, 2333 hk, despite a rise in the Hang Seng.

Auto Stocks Hong Kong Listed