Great Wall Motor Company:SUV sales jump 30%in August

Great Wall Motor (GWM) reported strong auto sales for August 2016, andtotal volume jumped 25% YoY to 73,079 units, driven by a 30% increase inSUVs. For 8M2016, GWM’s total auto sales were up 14% to 592,307 unitsand are on track to hit its full-year target of 950k units.

We reiterate our Outperform rating and a target price of HK$12.50.

Strong SUV sales with better product mix. A total of 63,983 SUVs weresold in August, up 30% YoY, and YTD sales have increased by 19% to502,703 units. The strong momentum of the H6 continues, and sales volumesurged 49% YoY to 40,629 units in August (including the H6 and H6 Coupe),bringing YTD sales up 44% to 319,961 units. Sales volume of the H6 Coupestabilised at ~10,000 units in August, which is solid in our view. The new SUVH7, which was launched in April 2016, sold 4,482 units in August, ramping upfrom 3,594 units in June and 4,079 units in July. GWM management isconfident that the H7 will see sales accelerate in coming months. Sales of theH2 dropped 6% YoY to 11,875 units, partly due to the impact of theproduction relocation from Tianjin to Xushui.

Pick-up truck sales improved while sedan sales continued to fall. Totalpick-up sales were 7,674 units, up 20% YoY. Sedan sales (i.e. the C30)dropped 46% YoY to 1,422 units as the C50 has been phased out. As GWMis increasingly focusing on SUVs, which contributed 88% of total volume inAugust, we believe the weak sedan sales have a limited impact on overallsales or profitability in the future.

More SUV launches. Over the weekend, GWM launched the blue-label H2at the Chengdu Auto Show (2-11 September). The H2S (or Concept B),which will be positioned between the H1 and H2 in terms of size and price,is likely to be launched in 4Q this year (news from Autohome.com), and it islikely to be a major volume model given the strong market demand in thisprice category.

GWM’s sales in August were strong, and it should continue to deliver highgrowth in September on our estimates, driven by solid demand for Chinesedomestic SUVs and the ramp-up of the models launched in this year. Thebetter product mix and higher capacity utilisation should also support overallprofitability. We reiterate our Outperform rating; GWM remains one of our toppicks in the sector.