GWM released its 3Q20 results. In 3Q20, GWM achieved a total sales volume of 286K, an increase of 23.9% YoY (Haval +8.5% YoY/ WEY +3.0% YoY/ pickup truck +93.2% YoY/ ORA +179.9% YoY). 3Q20 top-line increased by 24% YoY to RMB26.2bn while bottom-line rise by 3% to RMB1.4bn. We raise our TP to HK$17.0 with an upside of 35.3% from initial TP HK$9.4. Reiterate BUY.
- 3Q20 results missed market expectations due to FX fluctuation. The main reasons which lead to disappointing 3Q20 results included 1) the devaluation of the RUB in 3Q20 and the oversea loan exposure brought an FX loss of RMB510mn. After stripping out the impact of exchange losses, GWM's net profit was RMB1.95bn in 3Q20, up 47.2% YoY. 2) Due to the launch of new models and the delay of the Beijing Auto Show in 3Q, S&D expenses ratio increased to 4.6% in 3Q20 (vs 4.2% in 3Q19).
- GPM is expected to expand further in the future. GPM in 3Q20 was 18.9%, an increase of 0.42ppt YoY. The improvement in GWM in 3Q20 mainly came from 1) the economies of scale brought by sales volume growth (+23.9% YoY) and 2) a higher proportion of pickup trucks (22.6% in 3Q20 vs 14.5% in 3Q19). GWM will roll out 10+ new models in 2021E further supporting the sales growth. We expect GPM will keep expanding given 1) the improvement of operating leverage and 2) the benefits from platform technologies.
- NEV + globalization will continue to support the re-rating trend. Benefiting from 1) the launch of new models and 2) marketing strategies improvement, GWM Ora achieved a sale volume of 6,619 units in Sep, an increase of 253% YoY. Ora will roll out a new model (Haomao) in Nov, which is expected to become a hot product, supporting GWM’s NEV sales and enhancing the brands power. In terms of globalization, the Thai factory is expected to be settled with GM in 4Q20E, marking another milestone in its global strategy. We are very optimistic about the future auto market of the Southeast Asia which GWM will benefit from it given its strong presence.
- We raise our bottom-line forecast to RMB6.9bn in 2021E to reflect the GPM expansion. Our revised NP forecast suggests that GWM’s bottom-line will grow 48% YoY in 4Q20E. At the same time, we revised up our NP forecast to RMB6.9bn in 2021E to reflect a strong product cycle and the benefit from new platforms. We raise our TP to HK$17.0 (based on 20.0x 2021E P/E) with an upside of 35.3% from initial TP HK$9.4 (based on initial 13.5x average 2020E/21E P/E). Reiterate BUY.
