【Company Research】Great Wall Motor (2333 HK) – Marketing takes the lead

We believe GWM will maintain its growth momentum in 2021E given 1) strong product cycle and 2) recognition of its cutting-edge technology. In 2020, GWM recorded total revenue of RMB103.3bn, an increase of 7%YoY (Sales of automobiles +7%, Sales of automobile parts and components +23%). Net profit achieved RMB5.4bn (vs CMBI estimate RMB4.9bn), an increase of 18%. In 4Q20, NP was RMB2.8bn, an increase of 76% YoY. We raise our TP to from HK$17.0 to HK$28.2 with an upside of 22.5%. Reiterate BUY.

    

  1. The Company achieved a total sales volume of 1.11mn units in 2020, an increase of 5% YoY. (Haval brand -3%, WEY -22%, pickup truck +51%, Ora +45%). In late 2020, GWM rolled out the 3rd-generation Haval H6 and other new products such as Haval Dagou, Tank 300, and Ora Haomao. We expect that the new models will contribute a substantial sales volume to GWM in 2021E. In addition, it is expected that GWM will launch more than 10 new models in 2021E, including Haval Chulian (formerly H2), M6 Plus, and Chitu. Moreover, WEY will release Mocha, Macchiato in 1H21E, and the first B-class sedan in Jun 2021. We are very optimistic about the Company’s strong product cycle and forecast that its sales volume will reach 1.39mn units in 2021E, an increase of 24% YoY.

    

Organizational structure reform + stock/option incentives promote a marketing revolution. The Company has made corresponding changes in the underlying organizational structure, corporate culture, and human resource management. In addition, GWM established an organizational structure of "one vehicle, one brand, one company", enabling each team to make the decision on the ground and achieving user-centric marketing. We appreciate the reform measures which will mobilize the enthusiasm of front-line employees and stimulate marketing innovations. By digging out niche segments and emphasizing product features such as "young" and "female users", it has successfully created a new blue ocean market in the corresponding niche market. The Company achieved interactive marketing such as product naming to create consumer identity and to strengthen user stickiness. We believe that innovative marketing will stimulate sales volume while enhancing brand recognition.

       

  1. Technology advantages are gradually established. With its advantages in economy and power features, GWM’s DHT system based on Ningmeng platform is expected to raise the sales volume of hybrid models. The Company released the "331 Strategy" on the Kafei platform in the related autonomous driving field. The Company cooperated with Huawei and Qualcomm while investing in Horizon Robotics to further accumulate technological strength. In 2021E, the WEY Mocha model will be equipped with 5 millimeter-wave radars and 1 front-view camera. It will use Mobileye EyeQ4 as the autonomous driving chip, which calculation power can reach 2.5TOPS. The camera module can process the picture information collected by the camera at a speed of 36 frames per second. We believe GWM‘s technology advantage was gradually recognized by the market.

     

  1. We raise our bottom-line forecast to RMB7.3bn in 2021E to reflect strong product cycle and the benefit from new platforms. Our revised NP forecast suggests that GWM’s bottom-line will grow 37% YoY in 2021E. We believe GWM will continue to enjoy price premium given 1) strong product cycle and 2) technology advantage. We raise our TP to HK$28.9 (based on 30.0x 2021E P/E) with an upside of 22.5% from HK$17.0 (based on initial previous 20.0x average 2021E P/E). Reiterate BUY.
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