In 1Q24, GWM's revenue beat by surging 47.6% YoY against sales volume growth of 25.2% YoY, mainly boosted by higher-priced export and Tank lineup. 1Q24 net profit expanded to RMB3.2bn, while core net profit reached RMB2.0bn, largely in line. We see Tank line-up and exports are the dual-driver for GMW's earnings growth this year. For Tank, with the additional overseas demand and new model contribution, management reiterate confidence in Tank's full-year target of 250k units, versus 160k units last year. For export, we reckon this year's target of 400-500k units attainable; yet over the mid-to-long term, sustainable and profitable growth for overseas market remains invisible. Overall speaking, we acknowledge GWM's positive earnings outlook this year amid brutal price competition domestically may attract some investors back to the company. However, we feel GWM's slower-than-peers NEV transition and high exposure to ICE/Russia in overseas market cannot support rerating for the stock if referring to the valuation of global OEM, most of which are trading at 5-6x P/E. Thus, maintain HOLD with TP of HK$10, based on 10x 2024E P/E.

Key Factors for Rating

Revenue beat on elevating exports mix and larger sales proportion of Tank lineups. In 1Q24, GWM's revenue surged 47.6% YoY to RMB42.9bn, better than our estimates driven by elevating exports mix with higher ASP (RMB170k for exports sales vs. RMB131k for domestic in 2023) and larger sales proportion of premium Tank lineups that together lifted blended ASP up 6.3% QoQ to all-time high of RMB156k. By region, the proportion of exports volume further increased from 28.5% in 4Q23 to 33.7% in 1Q24. By brand, the more expensive Tank lineups accounted for 17.9% in total sales in 1Q24, up from 15.8% in 4Q23. Moving forward, we expect the blended ASP could sustain uptrend with increasing overseas sales proportion and greater sales mix from high-priced models as the company targets higher overseas sales mix this year.

Gross margin held steady at 20% on better regional mix and product structure against domestic headwinds. The gross margin spiked 4ppts YoY/1.6ppts QoQ to 20% in 1Q24, benefiting from increasing overseas sales mix and improving product structure against weaker economies of scale and constant margin pressure domestically. Separately for overseas business, its gross margin stayed high at 26% in 2023, over 10ppts higher than that of 15.5% for domestic market. In terms of export mix, we see Haval brand accounted for over 70% of total export volume, followed by Tank and Pickup trucks both at c.11% in 1Q24, whereas the proportion of ORA (for BEV) and WEY (for PHEV) with lower margin remained low at less than 5% in total export volume . Although margin of Haval models for domestic market has been adversely hurt by price competition in the same segment, Haval models enjoy decent profitability in overseas market.

Robust growth of Tank brand is the bright spot to support overall profit this year. We see robust overseas demand for Tank lineups as the company aims to quicken the global introduction of Tank models in Russia/GGC countries/Africa/etc., in addition to stable demand for its domestic sales driven by renewed product cycle with PHEV trims for Tank 400/500 model. Moreover, the potential challenge from Chinese counterparts appears softer than feared given the mediocre order performance of BYD's Fangchengbao brand YTD. On the other hand, we noticed that the company intends to manage the profitability for Tank brand as it recently launched Tank 300 model that provides high- margin gasoline version only, in contrast to the affirmative electric migration move for Tank 400/500 model previously. At the earnings call, the management expressed confidence for the full-year sales target of Tank at 250k units, which means a significant leap from 163k units in 2023. We reckon the strong momentum of Tank brand and export are two major drivers for the company's earnings performance this year.

Earnings Forecast and Valuation

Reflecting stronger overseas demand and better sales structure with escalating exports mix and premium Tank lineups sales mix that would lift both volume and ASP, we raise our revenue forecast for 2024-25E by 8%-10% to RMB217bn/232bn. At the same time, we nudge up 2024E gross margin in light of larger sales proportion of high-margin overseas market. Accordingly, we raise our net profit forecasts for 2024-25E by 7%-15% to RMB7.9bn/7.7bn, respectively.

We acknowledge the stronger brand worth of GWM to garner conventional niche ICE demand, evidenced by the constant positive market feedback of Tank brand models and softer-than-feared threats from NEV counterparts (i.e. BYD Fangchengbao). This could offer GWM decent profitability amid the prolonged price competition domestically and attract certain investors that seek for stable return. However, the slowdown of NEV transition and overproportion on gasoline cars/Russia sales in overseas operations may lead to valuation discount to us if benchmarking comparable global OEMs. Currently, its shares are trading at 11.2x 2024E P/E, which looks fair in our view. Maintain HOLD but raise TP from HK$8.5 to HK$10.00, based on 10x 2024E P/E unchanged.