Matters:
Great Wall Motor released its 2024 quarterly report. In the first quarter, the company achieved operating income of 42.86 billion yuan, an increase of 47.6% over the previous year; realized net profit of 3.23 billion yuan, net profit after deduction of 2.02 billion yuan (loss after deduction for the same period in 2023).
Ping An's point of view:
High gross margin product tanks/overseas vehicle sales are high, boosting the average bicycle price and gross margin level. According to the company's production and sales report, 1Q24 tank/export sales increased by 103%/79% year-on-year respectively, leading to the best performance in the same period in history in the first quarter of 2024, and the overall gross margin increased to more than 20%. Currently, tank is a local benchmark brand for new energy off-road tracks. The tank brand has models such as the Tank 300, Tank 400 Hi4-T, 500 Hi4-T, and 700 Hi4-T. Tank brands have a high share and high technical/brand barriers in their segments. Furthermore, according to data released by the company, Great Wall Motor's pickup truck accounts for about 50% of China's pickup truck share, and its leading position is stable. The pickup truck business is also one of Great Wall Motor's cash cow businesses.
Overseas vehicle sales increased to 92,778 units in the first quarter of 2024. From simply trading products overseas in 1997, to now having a deep overseas industrial chain, Great Wall Motor has grown and gained a lot. All five of its major brands have now gone overseas. Great Wall Motor has full-process vehicle production bases in Russia, Thailand, and Brazil. In 2023, the company promoted the signing and commissioning of new projects at the KD plant in Pakistan, the KD plant in Ecuador, and the KD plant in Malaysia. In markets such as Uzbekistan, Great Wall Motor has joined partners to actively promote localized production. In 2023, Great Wall Motor exported more than 300,000 vehicles. The export scale is expected to rise to the next level in 2024, and overseas business profits are strong (according to the 2023 Annual Report, the gross profit margin of overseas business in 2023 is 26%, which is 11 percentage points higher than domestic business. (Russia's Haval net interest rate reached 10% in 2023), and high export growth will be one of the strong driving forces for the company's profit growth.
Start a direct sales system. According to the official account of Great Wall Motor, Great Wall Motor recently launched a direct sales model and released its “Great Wall Smart Choice” direct sales system. Starting May 1, 2024, Great Wall Motor will open 33 “Great Wall Smart Choice” direct sales stores in 17 cities across the country, all located in high-traffic shopping malls in core business districts. To this end, Great Wall Motor has recruited and trained a team of more than 600 young product experts. Direct stores have taken the lead in selling Wei brand and tank models. Currently, Tesla and Ideal Auto are all direct sales. This system requires early resource investment from manufacturers, but it can better provide users with direct and efficient services. The direct sales system is also one of the necessary measures for current OEMs to control the image of high-end vehicle brands.
Profit forecast and investment advice: Since the beginning of 2024, in the context of the “lower electricity than oil” series product strategy initiated by China's NEV leaders, profits of models under 200,000 have generally been under pressure. Meanwhile, Great Wall Motor has pickups, tanks, and the three major “powerful tools” for export, and got off to a great start in the first quarter. We understand that in 2024, the company will continue to strive to grow its long board, gain quality market share, and prioritize operating quality. At the same time, the company began testing the waters of the direct management system and continued to increase research and development. It is expected that sales and R&D expenses will continue to grow throughout the year. Overall, we will maintain the company's net profit forecast for 2024-2026 at 9 billion/10.7 billion yuan. Great Wall Motor's hybrid technology is uniquely positioned. Pickup trucks and hardcore off-road brand tank moats stand out. The company has been deeply involved in export business for a long time, has strong overseas profitability, and maintains the company's “recommended” rating.
Risk warning: 1) Changes in the international trade environment may have an impact on the import and export business of automobile companies. 2) In the mainstream domestic household products sector, the company's new energy transformation has not been successful; 3) Plug-in and pure electricity transformation, and changes in the direct sales system have led to high cost increases.