24 institutions are optimistic about Great Wall Motors, why investors have "fled" the market value has been cut

On the evening of April 29, Great Wall Motor (601633.SH/02333.HK) announced that it would grant 8.6 million reserved restricted shares to 275 incentive subjects at a price of 12.73 yuan per share and 78.3 million reserved stock options to 6,790 incentive subjects at an exercise price of 25.45 yuan per share.

Red Star Capital Bureau found that in 2021, Great Wall Motor sold 1.281 million new cars, achieving a net profit of 6.726 billion yuan, only reaching 91.79% of the assessment target of the 2021 incentive plan. In the first quarter of 2022, the cumulative sales volume was 283,500 vehicles, and the net profit was 1.634 billion yuan; only 14.9% of the sales target and 19.9% of the net profit target in the annual incentive plan were completed.

Great Wall Motor's revenue, profit and sales in 2021 all hit a new high in the past 5 years, but its profitability was not as good as that of 5 years ago. In the first quarter of 2022, the performance increased revenue without increasing profits, and the net profit attributable to the mother and the deduction of non-net profit declined, and government subsidies accounted for half of the net profit attributable to the mother.

Red Star Capital Bureau noted that institutions are still bullish on Great Wall Motors, and according to Flush, 24 institutions have given Great Wall Motors a "buy" or "overweight" rating within a month. But investors do not seem to recognize that Great Wall Motors' stock price continued to fall, and on the first trading day after the disclosure of a quarterly report, Great Wall Motors' A-share Hong Kong stocks both fell sharply, and the stock price refreshed a new low since 2021.

Infographic According to IC photo

Profitability is not as good as 5 years ago

Half of the net profit depends on subsidies

In 2021, Great Wall Motor achieved operating income of 136.405 billion yuan, an increase of 32.04% year-on-year; net profit of 6.726 billion yuan, an increase of 25.43% year-on-year; deduction of non-net profit of 4.203 billion yuan, an increase of 9.55% year-on-year; basic earnings per share of 0.73 yuan.

However, in the fourth quarter of 2021, Great Wall Motor's net profit decreased by 35.82% year-on-year, and the non-net profit was only 550 million yuan, a year-on-year decrease of 71.93%.

In addition, among the non-recurring gains and losses, Great Wall Motor received government subsidies of about 2.196 billion yuan, an increase of 929 million yuan over the previous year. The amount of subsidies for new energy vehicles received by the company was 1.627 billion yuan, an increase of 722 million yuan over the previous year.

Despite the annual growth, compared with the past, the profitability of Great Wall Motors has actually declined. Great Wall Motor's net profit margin on sales in 2021 is only 4.93%, and the gross profit margin is 16.6%. However, from 2013 to 2016, the net profit margin of Great Wall Motor was 14.5%, 12.85%, 10.61% and 10.72%, and the gross profit margin was 28.61%, 27.7%, 25.13% and 24.46%, respectively.

In the first quarter of 2022, Great Wall Motor's operating income was 33.619 billion yuan, an increase of 8.04% year-on-year; net profit was 1.634 billion yuan, down 0.34% year-on-year; and deducted non-net profit of 1.303 billion yuan, down 2.41% year-on-year. If the government subsidy of 800 million yuan is deducted, the net profit of Great Wall Motors will fall by half.

Great Wall Motor's lack of profitability is related to the rising operating costs, and this has to mention Great Wall Motor's "five-year plan".

In the middle of 2021, Wei Jianjun, chairman of Great Wall Motor, said at the 2025 strategy conference that it will achieve global annual sales of 4 million vehicles in 2025, of which 80% are new energy vehicles, with operating income of more than 600 billion yuan; in the next five years, the cumulative R & D investment will reach 100 billion yuan.

In order to achieve this goal, Great Wall Motors implements a multi-brand strategy, and currently has five major brands of Haval, Weipai, Euler, Tank and Great Wall Pickup Truck, and is also incubating brand salons. Throughout 2021, Great Wall Motors launched 8 new cars.

However, the multi-brand strategy not only drives sales and performance, but also brings a cost burden. Great Wall Motors implements the structure of "one car, one brand and one company", which requires a large number of personnel and marketing, and category innovation and technology self-research also mean more research and development investment.

In 2021, the total operating cost of Great Wall Motor reached 131.878 billion yuan, an increase of 33.42% year-on-year, higher than the revenue growth rate, accounting for 83.84% of the total revenue. In 2016, when the net profit was as high as 10.354 billion yuan, the cost accounted for only 75.4% of the revenue.

Among them, management expenses increased by 58.39% due to the increase in the number of management personnel and equity incentive expenses; research and development expenses increased by 46.36% year-on-year due to the increase in research and development investment in intelligent, electrified and new model projects. Selling expenses increased by 26.53% year-on-year to 5.19 billion yuan, but if they were evenly distributed to each brand, it was only 1 billion yuan.

Equity incentive assessment

91.79% of targets to be achieved by 2021

In 2021, Great Wall Motor sold 1.281 million new vehicles, an increase of 14.79% year-on-year. The overall average price of Great Wall Motors' bicycles exceeded 106,000 yuan, compared with 92,900 yuan in 2020.

In July last year, Great Wall Motor announced the largest equity incentive plan in the history of the automotive industry, proposing to grant 43.184 million restricted shares to no more than 586 people and 397 million stock options to 8,784 people. The percentage of the first grant is 80%, and 20% is set aside.

According to the incentive plan, in the three fiscal years from 2021 to 2023, its sales assessment targets were 1.49 million, 1.9 million and 2.8 million vehicles, and the net profit assessment targets were 6.8 billion yuan, 8.2 billion yuan and 11.5 billion yuan, respectively. It can be calculated that Great Wall Motor's assessment targets for 2021 have been 85.97% and 98.91% respectively.

The incentive plan shows that the weight of the sales volume indicator is 55%, the weight of the net profit indicator is 45%, and the performance target achievement rate = completion rate × weight. Based on this calculation, Great Wall Motor's performance target achievement rate in 2021 is 91.79%.

In the first quarter of this year, Great Wall Motor's cumulative sales of 283,500 vehicles, down 16.32% year-on-year, outperformed the market. Sales volume only reached 14.9% of the assessment target of the 2022 equity incentive plan, and net profit only reached 19.9% of the appraisal target.

On the evening of April 29, Great Wall Motor announced that it would grant 8.6 million reserved restricted shares to 275 incentive subjects at a price of 12.73 yuan per share, and 78.3 million reserved stock options to 6,790 incentive subjects at an exercise price of 25.45 yuan per share.

New energy is lagging behind and the transformation is not smooth

The company's stock price has fallen in a row, and its market value has been cut

Great Wall Motor's stock price has fallen all the way since it reached a high of 69.8 yuan per share at the end of October 2021. The release of the 2021 annual report and the 2022 first quarter report not only failed to save its secondary market performance, but also disclosed the first trading day after the first quarterly report, on April 15, Great Wall Motor's stock price fell sharply. On April 29, Great Wall Motor closed at 24.82 yuan per share, only one-third of the highest point in October 2021.

Some insiders told Red Star Capital Bureau that on the one hand, it was because Great Wall Motors issued a "five-year plan" in the first half of 2021, which led to a sharp increase in stock prices, and the actual overdraft increase was made; on the other hand, Great Wall Motors' new energy transformation was not smooth.

The "Five-Year Plan" requires Great Wall Motors to fully shift to new energy, but its new energy business has lagged behind in growth, and the company's advantage is still in fuel vehicles.

In the first quarter of this year, Great Wall Motor's new energy vehicle sales were 35,400 units, an increase of 15.31% year-on-year, and the growth rate lagged behind the industry average. Great Wall Motor's sales ranking among new energy vehicle manufacturers has also dropped from fourth in 2021 to eighth.

Among Great Wall Motor's new energy brands, the pure electric brand Euler will sell 135,000 units in 2021. In 2021, Great Wall Motor's total sales of new energy vehicles will be only 137,000 units. That is to say, in addition to Euler, the other new energy models of the Great Wall have only sold a total of 2,000 in 2021.

In the first quarter of this year, the sales volume of the Euler brand was 33,800 units, an increase of 10% year-on-year, accounting for 11.9% of the total sales of Great Wall Motors. However, Euler's pillar models, Euler Black Cat and White Cat, are both mini cars, and they stopped receiving orders in February this year due to a sharp rise in raw material prices. Euler also exposed the "core changing door" at the end of last year, which greatly reduced the reputation of the brand. After cutting small cars with small profits and high sales, the sales prospects of euler's high-priced models are unclear.

Weipai, which carries the upward heart of Great Wall Motors, will transform in 2021, positioning the high-end new energy market and taking the hybrid route. However, lemon hybrid DHT technology did not save the downward trend of Weipai's performance, in 2021, Weipai's cumulative sales of 58,400 vehicles, down 20,100 vehicles from 2020, down 25.65% year-on-year; sales in the first quarter of 14,300 vehicles, accounting for 5% of Great Wall Motors' total sales.

It can be seen that the current new energy brand is not enough to support the sales of Great Wall Motors.

The sales of Great Wall Motors is still the fuel brand Haval, and the Haval H6 has reached the top of the SUV for 9 consecutive years.

However, in 2021, haval brand sales of 770,000 vehicles, accounting for 60.11% of Great Wall Motor's total sales; haval brand sales in the first quarter of this year was 166,800 units, down 25.13% year-on-year, contributing 58.82% to Great Wall Motors' sales.

Fuel brand tanks aimed at the hardcore off-road market have become popular with the tank 300, but they are limited by production capacity, and the pick-up cycle is more than half a year. In the first quarter of this year, the tank brand sold 25,800 vehicles, accounting for 9.1% of Great Wall Motors' total sales.

It is worth mentioning that the Conflict between Russia and Ukraine will continue to affect the sales and performance of Great Wall Motors. Russia is Great Wall Motor's most important overseas market, contributing 4.97 billion yuan in revenue in 2021. It is reported that great wall motor factories in Russia are still in normal production, but due to exchange rate fluctuations, it has stopped sending new cars to dealers, and the Russian market currently only sells inventory cars.

However, institutions are optimistic about Great Wall Motors, although some institutions have lowered their target prices and profit expectations, but still give a "buy" or "overweight" rating. According to Flush, 24 companies gave "buy" or "overweight" ratings in a month.

UBS released a research report saying that maintaining Great Wall Motor's "buy" rating, downgrading the 2022-24 earnings per share test to 27%/21%/13%, and reducing the target price by 59% from HK$39 to HK$16, mainly due to the decline in the valuation of the electric vehicle business, partly due to the reduction of the profit test in the current challenging environment.

UBS believes that the company has recently adopted a profit-maximizing strategy, with the average sales price in the first quarter up 29% year-on-year and the net profit per vehicle up 19% year-on-year. The bank believes that the strategy is reasonable, but it has led to the discontinuation of some electric vehicle products, such as black and white cats, and the further development of high-emission internal combustion vehicles, which seems to be a deceleration of the transition to electric vehicles. However, after the stock price has fallen by 61% so far this year, the bank believes that the current valuation completely underestimates the electric vehicle plan. Due to the low valuation, it is expected that the product portfolio upgrade and new product contribution will drive the stock price higher.

Red Star News reporter Wu Danruo

Edited by Tao Yueyang