Wuling Motors Group Holdings Co., Ltd. (“Wuling Motors”, “Group” for short) specializes in the sales and manufacturing of automotive parts, engines and special vehicles. The manufacturing facilities are mainly located in Liuzhou, Qingdao, Chongqing and Indonesia, covering the markets of South China, North China, Southwest China and Southeast Asia, respectively. Guangxi Automobile Group (formerly Liuzhou Wuling Automobile Group), a major state-owned automobile company, is the controlling shareholder of Wuling Automobile and actually holds 78.06% of the shares. Since the establishment of the group, SAIC-GM-Wuling Automobile Co., Ltd. has been Wuling Motor's largest customer and largest supplier, accounting for 60.1% of total sales and 34.4% of total purchases in 2018.
In 2018, the Group achieved total revenue and gross profit of RMB 15.12 billion and RMB 1.28 billion respectively, with gross margin of 8.5%. The engine, auto parts and special vehicle businesses accounted for 10.4%, 61.8% and 27.8% of total revenue respectively, with consolidated profit margins of 0.8%, 1.5% and 1.0% respectively.
Taking advantage of the policy trend, the automobile market can be expected in the future
Domestic automobile sales continued to be sluggish as consumer confidence declined under pressure from the external economic environment. However, we think that the current state of the automobile market is temporary, and domestic demand for automobiles is still strong. According to the 2019 national car ownership data released by the World Bank, the number of cars owned by a thousand people in China is only 173, which is only one-fifth of the United States, which is ranked first. At the same time, the country's per capita disposable income continues to grow, and the annual growth rate has been above 8% in the past. With the increase in disposable income of citizens, Internet consumer finance such as P2P is booming, and consumer spending has become more convenient. In terms of policies, a number of relevant policies to promote automobile consumption were introduced in 2019 to increase support for automobile consumption. We believe that strong demand in the automobile market and the increase in consumer spending power will drive the Group's revenue growth.
Join hands with outstanding domestic and foreign enterprises to accelerate product transformation and upgrading
Facing fierce competition in the traditional parts market, the Group actively explores cooperation with outstanding enterprises with expertise in specific fields at home and abroad to quickly obtain their core technology, accelerate product upgrading and transformation, and maintain competitive advantage within the industry. Currently, the group cooperated with Faurecia, the world's third largest seat manufacturer, to establish a joint venture company for seats, interiors and exhaust control systems. In April 2018, the Group signed a strategic partnership agreement with ABB Engineering Co., Ltd., the world's leading digital technology company. In July of the same year, the Group established a joint venture with American Axle Manufacturing International Co., Ltd., the world's leading auto parts manufacturer. Relying on cooperation with leading international technology companies, the Group will be able to further strengthen its market advantage in the parts business.
Active deployment of overseas markets, building new growth points for components
In response to the “Belt and Road” call, the Group set up a factory in Indonesia in 2016, following the steps of its main customer, SAIC-GM-Wuling, and established its first overseas production base to produce automotive parts such as welding parts, rear axles, and front axles, with an annual output of 100,000 sets. Since SAIC-GM-Wuling began car sales business in Indonesia in 2017, with its high cost performance ratio, it was already the top 10 local car dealers in 19, with a market share of about 2%, breaking the situation where Nissan car dealers have occupied the top 10 in the automobile market for a long time. According to reports, SAIC-GM-Wuling will export its Almaz SUV model to Thailand in 2019. This model has been very popular since it was exhibited at the Indonesian International Auto Show at the beginning of the year. Meanwhile, the Group's Indian production base has been officially put into operation and is expected to begin operation in the second half of '19 to help the Group further develop overseas markets. We believe that the future prospects of the Group's parts business are optimistic as major customers are located overseas.
Risk warning:
1) Domestic automobile sales continue to decline; 2) the opening up of foreign investment intensifies competition in the automobile market; 3) Higher raw material costs have led to a decline in gross margin