Great Wall Motor:Proxy for investing in China SUV growth

Maintain Outperform, lower target price to HK$51.00.Notwithstanding concerns over escalating competition withinthe China SUV space, we remain positive on GWM, China’sleading SUV maker. We like GWM for its robust salesmomentum coupled with an improving blended ASP. Toreflect delays in the launch schedule of GWM’s new SUVs,we cut our FY13F/14F earnings forecasts by 1.4%/4.7% andreduce our target price, from HK$53.50 to HK$51.00, stillbasing it on 12x forward P/E. GWM remains our top pickamong China own-brand vehicle makers.

SUVs still China’s best performing sub-segment. We arestill optimistic about the SUV market in China followingimpressive 49.6% YoY SUV sales growth in 2013. We expectthis momentum to extend into 2014F and top 25% YoYgrowth, much better than overall passenger vehicle salesgrowth of 10% YoY. Our optimism is based on: (1) the lowpenetration rate of SUVs in China, (2) promising new SUVmodels from leading domestic brands and foreign JVs and(3) attractive price points.

In position to capture high-flying SUV demand. GWMsold 417k SUVs in 2013, up 49.1% YoY. SUV sales as a partof the overall SUV mix improved from 45% in 2012 to 55% in2013. It is worth noting that the popular Haval H6 recordedexceptional annual sales of 218k units in 2013, making it thebest-selling SUV in China. Local competitors have beenaggressive in rolling out new SUVs, but we believe GWM’sreputable brand and superior exterior designs will help itstand out from the competition. We anticipate solid salesmomentum from the company’s two existing models, the H6and the M4, and we expect the soon-to-be launched H2 andH8 to support SUV sales of 543k in 2014F, equivalent toabout 30% YoY growth.