Maintain BUY. Great Wall's 1Q24 net profit of RMB3.2bn beat investors' prior forecast, which has increased our confidence in its profitability in FY24E. We raise our FY24E net profit forecast by 25% to RMB9.9bn. We believe Great Wall still needs a high-volume NEV in the mainstream market to boost investors' confidence in its electrification transformation.

1Q24 earnings beat. Great Wall's 1Q24 revenue was 8% higher than our prior forecast thanks to higher-than-expected ASP. Its 1Q24 GPM of 20% was higher than our prior forecast by 1.4ppts despite wider discounts in China, partially driven by higher-than-expected contribution from exports. Other income of RMB1.1bn in 1Q24 was about RMB900mn higher than our prior forecast, due to the excess VAT deduction and tax rebates from overseas, which is partially recurring (50-70% according to management). Great Wall's 1Q24 net profit excluding extraordinary items of RMB2bn beat our prior estimates by about RMB400mn.

FY24E earnings forecast. We maintain our FY24E sales volume forecast of 1.35mn units (+10% YoY), but raise ASP forecast by 3%. We revise up our FY24E GPM forecast by 0.3ppt to 18.9% given the 1Q24 GPM beat. We also lift our other income forecast from RMB900mn to RMB2.5bn for FY24E, as the 5% excess VAT deduction is applicable until 2027. Accordingly, we raise FY24E net profit forecast by 25% to RMB9.9bn, up 41% YoY.

Still need a high-volume NEV to boost investors' confidence in Great Wall's long-term development. Despite Great Wall's success in the off- road style SUVs and good earnings contribution from overseas market, it still lacks a competitive NEV to prove its capabilities in electrification and intelligence following the failure of Wey Lanshan PHEV and Haval Xiaolong Max PHEV last year, in our view. As the company is scheduled to introduce more BEVs from FY25E, PHEVs should still be the key for this year. The company plans to roll out a lower-priced PHEV (vs. Xiaolong), which could be a new sales driver. We are also of the view that pricing for the new Wey Lanshan AD version could be important.

Valuation/Key risks. We maintain our BUY rating and raise target price from HK$13.00 to HK$14.00, based on 11x (prior 13x) our revised FY24E EPS to reflect China's stiff competition. Investors could keep an eye on the Beijing Auto Show from 25 Apr. Key risks to our rating and target price include lower sales volume and margins, especially for NEVs, slower tech transformation than we expect, and sector de-rating.