We raised our 2019E bottom-line forecast by 11.5% based on the published sales volume for 2019. In the meanwhile, we take into account the impact of the COVID-19 outbreak on 2020E and lower our 2020E top-line forecast by 6.2%. However, we believe that delayed demand, strong product pipeline, and policy support will make GAC’s sales volume soar after the epidemic. We maintain BUY rating and upgrade our TP to HK$10.91 from HK$9.05.
- GAC Group sold 2.06 mn units in 2019, down 4.0% YoY, missing its sales target of 2.22 mn. Prior to the epidemic outbreak, GAC set its 2020E sales target to be 2.22 mn units, with a target growth rate of 8% YoY. The Company's market share in 2019 increased from 7.64% to 8.01%. In the past five years, its market share has expanded by 3 ppts. We believe that good product quality and excellent supply chain management will lead to further market share expansion. We forecast its total sales volume to be 2.14 mn in 2020E with an increase of 3.6% YoY.
- In the past two years, the sales composition of 1Q/2Q/3Q/4Q was about 24%/24%/25%/27% respectively. Due to the impact of the COVID-19 outbreak, car demand has been postponed to the rest of the year. Furthermore, as we mentioned earlier, GAC was planning to replenish its inventory in 1Q20 given that it has more stage-5 vehicles than its peers. By adding up the above two factors, we believe the Company's sales volume will be skyrocket from 2Q20E.
- A new generation of GS4 was launched in Nov 2019. Based on past sales data, GS4 sales volume accounted for about 45% of the Trumpchi product family. In Jan 2020, GS4 achieved 16,771 units in a single month, an increase of 133% YoY which reflects product recognition of its consumers. We believe that GAMC will achieve rapid growth lead by GS4 after the outbreak settles.
- Breeze (皓影), the brand new vehicle of GAC Honda was launched in Nov 2019. It has sold 9,539 in Jan 2020 and maintained its strong momentum. In 2020, GAC Honda will start to produce a new generation of FIT(飞度) locally. Other products include Avancier (Facelift model) and Crider (Hybrid version) will also be rolled out in 2020. GAC Honda has set a growth target of ‘not less than 5%’ while we forecast that its sales volume will achieve a growth rate of 4% YoY.
- Willander (威兰达), a new model of GAC Toyota, will be officially launched online on 28 Feb 2020. The price range of RMB 170K to RMB250K creates direct competition to its sister model of RAV4 (荣放). In addition, a new generation of Highlander will also be launched at the end of 2020. For NEV, Toyota Mirai is expected to be introduced into the China market through GAC Toyota within 2020. Toyota China expects its total sales volume to increase by 8.6% in 2020E while we expect GAC Toyota will achieve an 8.0% YoY growth rate.
