Great Wall Motor (2333.HK) - ACTION Buy:
Inexpensive valuation and catalyst from upcoming sedan sales; Buy
Source of opportunity
We believe Great Wall Motor will have another strong year in 2007, with sales in pickups/SUVs already up 40% yoy over the first 11 months of 2007 (11M07). The company reported the same sales growth in the domestic and overseas markets, and we expect exports to account for 37% of its total auto sales in 2007E. Great Wall Motor will start to sell sedans in late January 2008, which we believe should become its key growth driver going forward. We view its milestone step into the sedan market as a positive catalyst, and reiterate our Buy rating given the stock's low relative valuation. Catalyst
In our view, Great Wall Motor's impending entry into the sedan market will mark a major step for the company in becoming a mainstream player from a niche player in China's auto industry. To reduce the impact from potential failure of any one sedan model, the company has five models in its pipeline. It is focused on distinguishing itself from rivals with stylish models and by targeting younger buyers. In view of its established dealership network and strategic direction, we are optimistic that Great Wall Motor will succeed with its entry into the sedan business. Valuation
We derive our 12-month target price of HK$14.60 using DCF methodology. Our target price implies 13.2X 2008E EPS and 30% potential upside. The stock is trading at 10X 2008E EPS, which is among the lowest multiples in the sector. Great Wall Motor is one of our top three picks in the auto/auto parts sector, along with Xinyi (0868.HK; Buy) and Xingda (1899.HK; Buy). Key risks
1) Its late entry into the sedan market could result in lower profitability; 2) challenges in upgrading models to match demand shift toward larger sedans; 3) Potentially dilutive A-share placement. <<GreatWallMotor_GSGH_20080111.pdf>>
 greatwallmotor_gsgh_20080111.pdf (287.57 KB)
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发表于 2008-1-14 11:43
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