Great Wall Motor (2333 HK):Solid performer

Maintain Outperform and HK$51.00 target price. We are still positive on GWM, China’s leading SUV maker, because of its robust sales momentum and impressive new SUV line-up (H2/H8/H9). We keep our FY14F/15F earnings forecasts largely unchanged and our target price of HK$51.00, still basing it on 12x 2014F P/E. GWM remains our top pick among China own-brand vehicle makers.

Top class performance in FY13. GWM reported 2013 sales revenue of RMB56.8b, up 31.6%, along with vehicle sales of 770k, up 24% YoY. GPM was up an impressive 170bp to 28.6% on better economies of scale and as the sales mix became more weighted towards high margin SUVs. Other results included the opex/sales ratio, up 10bp to 11.9% on higher R&D costs; and reported net income, up 44.5% YoY to RMB8.22b, roughly in line with the pre-announced figure of RMB8.26b.

Well positioned to capture high-flying SUV demand. GWM sold 420k SUVs in 2013, up 50.1% YoY. SUV sales as a part of the overall SUV mix improved from 45% in 2012 to 55% in 2013, leading to better blended GPM in 2013. Meanwhile, the popular Haval H6 generated exceptional annual sales of 218k units in 2013, making it the best-selling SUV in China. Competition will heat up on the domestic front, yet we expect good sales momentum from the H6, the M4, and soon-to-be launched H2 and H8, leading to 565k SUV sales in 2014F, equivalent to c.35% YoY growth.

Export sales the wild card. Export sales were down 21.5% YoY to 75k units in 2013, contributing a mere 9.7% of total vehicle sales vs. 15.4% in 2012. We attribute the decline to capacity constraints on the popular new models. Export sales are the wild card in FY14/15F given the evolving model line-up and expanding production capacity.