Tag Archives: WEY

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.

 

 

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