GWM released its 1H20 results. 1H20 top-line declined by 13% YoY to RMB35.9bn whereas bottom-line dropped by 24% to RMB1.15bn. EPS has decreased by 25% to RMB0.12. It implies the top-line/bottom-line increased by 25%/142% YoY in 2Q20.
- Strong performance in 2Q20. Unit revenue per vehicle increased by 7% to RMB96K while unit profit per vehicle increased by 107% to RMB7.3K in 2Q20. The outstanding performance was mainly due to 1) the sales volume growth of 17% YoY/63% QoQ in 2Q20; 2) the increase in ASP/GPM given the increase in the proportion of high-end models (ie. GWM Pao/ Haval H9); 3) the RMB200mn FX gains given the appreciation of RUB; 4) consistent enforcement of COGS and expense control measures.
- New product cycle in the short-term. GWM will launch a new product cycle since 3Q20E with new models rollout (Haval H6, Da Gou, WEY Tan Ke 300, etc). Especially, Da Gou and Tan Ke 300 will target a new niche market, which will bring incremental sales volume. We expect a new product cycle together with its excellent pickup truck products will support the 2H20E performance. We forecast GWM will achieve a +11% sales volume growth rate in 2H20E. The new models (Da Gou/Tan Ke 300) will also have a higher price than that of most existing products, which will lead to an even higher ASP in 2H20E. Given the economies of scale brought by sales growth and the rise in the common use of parts/components under the new platform (60-80%), we expect GPM will further increase. In addition, we expect excellent expense control will last into the rest of the year. In 2021E, GWM will launch 10 new models based on its new platform, maintaining its sales momentum.
- “Tech-based mobility company + global strategy” in the long-term. On Jul 20, GWM released 3 technology platform/brands (Ning Meng柠檬, Tan Ke坦克, Ka Fei咖啡) to continue to enhance product power. GWM focuses on ‘ABCDEFGH (ADAS / Battery / Cloud / Digitalization / Ecology / FaceID / 5G / Hydrogen)’ to develop cutting-edge technology, which will further enhance product competitiveness in the future. In the meanwhile, GWM announced its transformation into a global tech-based mobility company. The Company also sticks to its global strategy which can be confirmed by 1) Russian plant is in a capacity ramp-up period; and 2) the acquisition of GM's India and Thailand plants in early 2020 is expected to be delivered in late 2020/early 2021. Therefore, we believe the above two wheels will support GWM’s long-term performance.
- GWM’s NEV strategy has gradually formed. In the mass-product market, GWM has iQ/Bai Mao/Hei Mao, which is based on the ME platform. Hao Mao, based on the Ning Meng&Ka Fei platform, will be launched in Oct 2020 and targets the mid-end market. GWM also has a mid-end model in the pipeline for the next year. Spotlight (光束汽车), a JV with BMW, will be put into production in 2022E, leading the upward brand stretching. By launching Ning Meng/Tan Ke platforms, GWM is capable of producing BEV/PHEV/HEV and various classes of NEV. We believe that GWM’s NEV will achieve steady growth in the future.
- We raise our bottom-line forecast to RMB4.7bn in 2020E to reflect the excellent 2Q20 results. Our revised NP forecast suggests that GWM’s bottom-line will grow 20% YoY in 2H20E. At the same time, we revised up our NP forecast to RMB6.6bn in 2021E to reflect a strong product cycle and the benefit from new platforms. We raise our TP to HK$9.4 (based on 13.5x average 2020E/21E P/E) with an upside of 18.7% from initial TP HK$7.5 (based on initial 13.5x average 2020E/21E P/E). Reiterate BUY.
