Great Wall Motor:No strong signs of recovery --more downside

2019-09-21 14:13栏目:新闻资讯

After listening to Great Wall Motor's (GWM) post-3Q17 results conference call, wesee one positive in the near term for the company, as Q4 sales will be supportedby the ramp-up of WEY brand sales. Yet, the negatives that made the latest resultsso poor will still dominate, in our view. The painful impact of old models sufferingprice erosion should combine with the ever-increasing competition in the SUVsegment, and we have cut our already low FY17 estimates by a further 26.8%.

All round beats proved strong execution regardless of macro volatility。

    This translates to another YoY drop in quarterly earnings of 12% in 4Q17E.

    The robust growth in the job vertical and surprisingly resilient property verticalgrowth come from strong execution in dominating traffic, expandingcustomers and improving service. We believe these capabilities can continueto help WUBA to manage the headwinds along the development, especially theproperty market risk. The fast-growing job vertical will replace the propertyvertical as the biggest growth driver of total revenue. This could structurallyaccelerate revenue growth YoY. On the other hand, margin leverage fromefficiency improvement could also benefit in the long term. We upgrade WUBAto a Buy rating and raise our target price to USD70.。

    Looking into FY18, there will be further gains from new model launches, whichshould add 1.5ppt to the gross profit margin, in our estimate. However, this willstill be a long way short of the 21%-plus level seen in FY10-16. This is becauseGWM would probably need to beef up expenses to keep its products competitive,and hence we reduce our FY18/19 net profit forecasts by 10.4-10.7%. Our newtarget price is cut by 11%, based on 7.0x FY18E P/E (unchanged), which is belowGreat Wall's historical H-share trading average, considering the lack of long-termEPS growth. We believe that our target multiple is justified, given a FY16-19Ethree-year EPS CAGR of -4%. Key upside risks are stronger-than-expected newmodel sales and a margin rebound.

    2Q17: strong revenue growth and margin recovery。

    WUBA reported 2Q revenue of RMB2,593mn (+33% YoY), 6% ahead of ourexpectation due to the property vertical beating estimates by 19%. Non-GAAPOPM of 28% strongly beat DBe/consensus, mainly due to the headcount cut ofthe sales force. Management guided for 3Q revenue growth of +25-30% YoYin RMB, of which the mid-point 8%/11% is higher than DBe/Street estimates.The property and job vertical delivered ~25%/~50% YoY growth and otherverticals, including yellow pages/autos, were up 25-30% YoY. Total payingmembers including Anjuke/Ganji totaled 2,464k, +25% YoY.。

    Conference call takeaways。

    n Revenue from property increased by 25-26% YoY due to the strong growthfrom low-tier cities and rental business. Jobs grew by over 50% YoY.。

    n Management expects non-GAAP operating margin to reach 17-18% inFY17E and 20-25% in FY18E.。

    n Headcount in 2Q decreased to ~22k from 23k in 1Q by cutting ~1,000,mostly sales force. WUBA had 17k sales and 4k R&D staff at 2Q end.。

    n The company expects to enhance synergies from cooperation withTencent in 58Home, Zhuanzhuan and other verticals. Zhuanzhuan seeksopportunities to work with WeChat and is testing the trial model.。

    n The used car business continued to record solid growth driven by fastgrowing traffic. Management is confident of the healthy profitability ofused cars.。

    Upgrading to Buy; raising target price to USD70。

    We upgrade WUBA to Buy (from Hold) and raise our target price to USD70.We raised revenue for FY17E/18E/19E by 5%/12%/13% and adjusted ourforecasts of the non-GAAP operating margin for FY17E/18E/19E to18%/25%/27%. We maintain 1x PEG as we expect to see solid future earningsgrowth. We use FY17E non-GAAP EPS of RMB7.9against a non-GAAP EPSCAGR of 58% over FY17E-FY20E to derive our new target price. Key downsiderisks: 1) competition from news feed app, 2) slow progress in building userstickiness, and 3) unsuccessful investment.。

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