DBS: Lowers Great Wall Motor target price to HKD 19, rating "Buy"

According to the Zhitong Finance APP, DBS has released a research report stating that Great Wall Motor (02333) is accelerating its overseas expansion to enhance growth momentum, as it anticipates a slowdown in the domestic automotive market in China by 2026. DBS has lowered the target price for Great Wall Motor from HKD 23 to HKD 19, equivalent to a projected price-to-earnings ratio of 10 times for next year (down from a projected 12 times for this year), while maintaining a "Buy" rating.

The company has planned an overseas production network to support sales and improve investment returns. For example, its factory in Brazil (with a capacity of 50,000 units) plans to enter the Latin American markets of Mexico, Argentina, and Chile, and leverage its factory in Thailand (with a capacity of 80,000 units) to reach the ASEAN/Asian markets. This should also help mitigate the impact of the slowdown in the Russian market, which accounts for about 10% of its automotive sales business. These facilities will produce its Haval series (H6, H9, etc.), ORA, and more models to shorten delivery times.

DBS stated that Great Wall Motor's gross margin pressure in the third quarter (down 1.3 percentage points year-on-year; down 1.6 percentage points quarter-on-quarter to 17.2%) was mainly due to increased advertising and promotional expenses for new models (partly related to market competition) and the expansion of direct sales channels. DBS expects that the higher sales efficiency brought by the expanded network is likely to maintain the product gross margin level at a more stable level of around 19% by 2026. Therefore, DBS Bank forecasts that Great Wall Motor's average annual compound growth rate in earnings from 2024 to 2026 will be 10%, supported by a revenue growth rate of 13.7%