Citi: Lower target price of Great Wall Motor (02333) to HK$19, rating "buy"

DBS released a research report stating that Great Wall Motor (02333) is accelerating its overseas expansion to boost growth momentum, as the domestic automobile market in China is expected to slow down by 2026. DBS has lowered Great Wall Motor's target price from HK$23 to HK$19, equivalent to a forecasted price-to-earnings ratio of 10 times next year (previously forecasted at 12 times this year), maintaining a "buy" rating. The company has planned an overseas production network to support sales and improve investment returns. For example, its Brazil factory (capacity of 50,000 vehicles) plans to enter the Latin American markets of Mexico, Argentina, and Chile, as well as utilize the Thailand factory (capacity of 80,000 vehicles) to target the ASEAN/Asian markets. This move is also expected to partially alleviate the impact of the slowdown in the Russian market, as Russia accounts for approximately 10% of its automobile sales business. These facilities will produce its HAVAL series (H6, H9, etc.), ORA, and more models to shorten delivery times. DBS stated that Great Wall Motor's gross profit margin pressure in the third quarter (decreased by 1.3 percentage points year-on-year; decreased by 1.6 percentage points quarterly to 17.2%) was mainly due to the increase in advertising and promotion expenses for new models (some related to market competition) and the expansion of direct sales channel networks. DBS expects that the expanded network will bring higher sales efficiency, and is expected to maintain the product gross margin level at a more stable level of approximately 19% by 2026. Therefore, DBS Bank predicts that Great Wall Motor's average annual compound growth rate from 2024 to 2026 will be 10%, supported by a revenue growth rate of 13.7%.