Tag Archives: haval

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.

 

 

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