德银-中国-汽车行业（个股-长城汽车）-没有强劲的复苏迹象——盈利预测的负面影响更大-20171027-Deutsche_Bank-Great_Wall_MotorNo_strong_signs_of_recovery-more_downside_to_earnings_forecasts_12页_801kb

Great Wall Motor Summary (27 October 2017)

Core Content

Great Wall Motor (GWM), a major Chinese automotive manufacturer, faced challenges in its financial performance during the third quarter of 2017. Despite some positive developments, the company's earnings forecasts were revised downward due to ongoing issues in the market and internal factors.

Main Points

• Financial Performance: GWM reported an 80% YoY decline in 3Q17 net profit. This was attributed to increased advertising expenses, price cuts on older models, higher sales incentives, and low initial margins for new models.

• Earnings Forecast Adjustment: The company's FY17 net profit estimates were reduced by 26.8%, and FY18/19 net profit forecasts were also cut by 10.4-10.7%. The new target price was reduced by 11% to HKD 7.20 for the Hong Kong listing and CNY 6.55 for the Shanghai listing.

• Sales and Revenue: Sales volume for both new and old models showed modest growth in 2017 and 2018. New model sales were expected to grow by 1.2% in 2017 and 3.8% in 2018. Net revenue for new models increased from RMB 91,183 million in 2017 to RMB 126,116 million in 2019.

• Margin Trends: GWM anticipates a margin rebound due to rising new model sales and better economies of scale. However, the company's gross profit margin is still expected to be significantly lower than the levels seen in FY10-16, which were above 21%.

• New Model Pipeline: The WEY brand plans to launch a plug-in hybrid model P8 by the end of 2017 and another model in 2018. The Haval brand will introduce a new SUV model H4 in 2018, alongside other facelifts and new energy vehicle variants.

• In-House Gearbox: GWM plans to increase the annual production capacity of its 7-speed DCT gearbox from 250k units in 2017 to 500k units in 2018, aiming to reduce unit costs and improve margins.

• Potential JV with BMW: GWM is in discussions with BMW about a joint venture to produce MINI vehicles in China, though no details have been disclosed and there are uncertainties surrounding the project.

• Market Competition: GWM claims that while other local brands are also struggling, it remains competitive by offering high value-for-money products.

Key Information

• Equity Rating: Sell for both GWM's Hong Kong (2333.HK) and Shanghai (601633.SS) listings.
• Valuation Metrics:
  • P/E (DB) for 2017E and 2018E are 14.1 and 9.6 for the Hong Kong listing, and 20.0 and 13.6 for the Shanghai listing.
  • EV/EBITDA for 2017E and 2018E are 8.3 and 6.2 for the Hong Kong listing, and 11.9 and 8.7 for the Shanghai listing.
  • P/BV for 2017E and 2018E are 1.6 and 1.4 for the Hong Kong listing, and 2.3 and 2.0 for the Shanghai listing.
• Market Cap:
  • HKD 12,376 million for the Hong Kong listing.
  • CNY 17,516 million for the Shanghai listing.
• Dividend Yield:
  • 2.1% for 2017E and 3.1% for 2018E for the Hong Kong listing.
  • 12.0% for 2017E and 16.1% for 2018E for the Shanghai listing.
• ROE:
  • 12.0% for 2017E and 16.1% for 2018E for the Hong Kong listing.
  • 12.0% for 2017E and 15.4% for 2018E for the Shanghai listing.

Analysts

• Vincent Ha, CFA: Research Analyst, +852-2203 6247, vincent.ha@db.com
• Fei Sun, CFA: Research Analyst, +852-2203 6130
• Yuki Lu: Research Associate, +852-2203 5925

Summary Table

Metric	2017E	2018E	2019E
Sales Volume (units)	1,045,214	1,263,532	1,391,366
Net Revenue (RMBm)	91,183	114,202	126,116
Net Profit (RMBm)	5,811	8,559	9,242
P/E (x)	14.1	9.6	8.9
EV/EBITDA (x)	8.3	6.2	5.4
P/BV (x)	1.6	1.4	1.29
ROE (%)	12.0	16.1	15.4

Key Risks and Opportunities

• Risks: Continued price erosion on old models, increased competition in the SUV segment, and lack of long-term EPS growth.
• Opportunities: Potential margin rebound from new model sales, increased production capacity for in-house components, and the possibility of a joint venture with BMW.

Additional Information

• Valuation: The target multiple is based on a three-year EPS CAGR of -4%, which is below the historical average.
• Historical Recommendations: The equity rating has been consistently "Sell" for GWM, with the target price decreasing over time.
• Disclaimer: The report is prepared by Deutsche Bank and is not an offer or solicitation to buy or sell any financial instruments. It is for informational purposes only and does not consider individual investment objectives.