As soon as the Great Wall's financial report for the first quarter of 2024 came out, the car was very obedient and felt particularly unreasonable. The specific irrationality is reflected in the net profit attributable to the parent company: at the end of the reporting period, it was 3.228 billion yuan, an astonishing increase of 1752.55% over the same period last year. Great Wall's explanation is that it is mainly due to the substantial growth in total revenue and cost control.
I have always wondered what kind of business growth and cost control can make it increase by 1752.55% year-on-year! Shouldn't this experience be well replicated? With such good profits and good growth, isn't it worthy of being a model for the world's manufacturing and industrial industries?
Let's take a closer look at the earnings report. As a listed company, the data on this financial report is trustworthy. There is no doubt about that. Let's take a look at the data it provides.
For the convenience of everyone, I will simplify it, not according to the cumbersome financial report, but "talking people" to interpret:
The total revenue in the first quarter was 42.86 billion, the net profit was 3.228 billion, and the net profit margin was 7.53%
In the first quarter of this year, total revenue: 42.86 billion yuan at the end of the reporting period, an increase of 47.59% over the same period last year. The net profit attributable to the parent company was 3.228 billion yuan, an astonishing increase of 1752.55% over the same period last year.
This was mainly due to significant growth in total revenue and cost control. Let's look for the first quarter annual report of Great Wall Motors in 2023, which shows that its total revenue is 29.039 billion yuan, the net profit attributable to the parent company is 174 million yuan, and the net profit margin is 0.6%;
Financial report for the first quarter of 2022: total revenue of 33.619 billion yuan, net profit attributable to the parent company of 1.634 billion yuan, net profit margin of 4.86%;
Financial report for the first quarter of 2021: total revenue of 31.117 billion yuan, net profit attributable to the parent company of 1.639 billion yuan, net profit margin of 5.27%;
In this comparison, it can be found that the impact of the catastrophic price reduction in the national auto market in the first quarter of 2023 has a greater impact on the profit margin of Great Wall Motor. But that's just one of the reasons. It is more due to the increase in its marketing expenses.
In the first quarter of 2023, "the company's sales expenses rose from 1.051 billion yuan in the same period last year to 1.454 billion yuan this year, an increase of 400 million yuan", in addition, the profit shrank due to the decline in the price of goods participating in the price war.
However, the term "advertising and media service fees" is nowhere to be found. It is said that it is included in the sales fee.
According to the public report, financial report data shows that in 2023, "Great Wall Motor's marketing expenses will be 8.285 billion yuan, a year-on-year increase of 41%, nearly half more than the previous year." Among them, advertising and media service fees accounted for the majority, at 4.045 billion yuan, nearly 1 billion yuan more than the previous year, accounting for 48.8% of sales expenses, nearly half."
The car was very obedient and consulted many information, but none of them could clearly state how much the "advertising and media service fee" was, let alone the details. This can be illustrated: "advertising and media service fees" is a metaphysics, and no one in the outside world can understand it.
Anyway, the public financial report for the first quarter of 2023 shows that Great Wall Motor's net profit in the first quarter of 2023 is only 174 million.
So, is such an astonishing profit increase in the first quarter of 2024 also related to a significant drop in marketing expenses? Let's take a look at the numbers.
Great Wall Motor's financial report for the first quarter of 2024 shows that the sales expenses are 1705,878,174.52 yuan, compared with 145,404444.73 in the same period last year, which is significantly more than 250 million yuan. This indicates that the selling expenses are increasing, and it is still unknown how much the "advertising and media service fees" are.
I heard that the Great Wall is building a media center, and it is unknown whether this part of the cost is also included in the "advertising and media service fee".
From January to March 2024, a total of 92,778 units were sold overseas, while 182427 units were sold domestically from January to March, for a total of 275205 units. A year-on-year increase of 25.11%.
According to the whole year of 2023, in terms of regions, Great Wall Motor's operating income in China will be about 118.112 billion yuan, with a gross profit margin of 15.52%; The foreign income was about 53.114 billion yuan, and the gross profit margin was 26.01%.
If there are no major changes in the external situation, these two gross profit margins can be extended to this year. In this case, the overseas gross profit in the first quarter of 2024 should be 11.144 billion yuan, while the domestic gross profit will be 28.416 billion yuan, and the total revenue should be 29.56 billion yuan. However, the revenue announced in the financial report was 42.86 billion yuan, and the net profit attributable to the parent company reached 3.228 billion yuan, and the net profit margin reached 7.53%. Compared to 4.05% for the whole of last year, it is even more staggering.
So where did this nearly double increase come from? According to the financial report, it was due to an increase in sales volume and a decrease in costs.
We have analyzed above that the sales volume "increased by 25.11% year-on-year" alone cannot support the 17-fold increase in sales and profits, so only the cost is reduced.
So, how much cost reduction is needed to reach this staggering 1752.55%?
In 2023, Great Wall Motor's net profit attributable to shareholders of listed companies will be 7.022 billion yuan, the ratio of net profit to gross profit will be 21.8%, and the net profit margin attributable to the parent company will be 70.22/1712.25=4.05%. If calculated according to last year's profit margin, the operating income in the first quarter of this year was 42.86 billion yuan, and its net profit attributable to the parent company should be 1.736 billion yuan.
However, the first quarter report shows that Great Wall Motor's net profit in the first quarter was 3.228 billion yuan (174 million yuan in the same period last year, a year-on-year increase of 1752.55%), an increase of almost double.
Even if the ratio is different, this profit has more than doubled, and it is really necessary to take a closer look
The total revenue in the first quarter of this year was 42.86 billion, and the net profit attributable to the parent company was 3.228 billion respectively. 32.28/428.8=7.53%。 Great Wall Motor's net profit is indeed growing. And the growth has doubled (4.05% for the whole of last year).
As for 1752.55%, one is because of the low base in the same period of 2023, and the other is that the net profit of 3.228 billion is really strong.
Let's take a look at the net profit margin over the past few years.
2023, 4.05%; in 2022, 6.02%; in 2021, -5.01%; in 2020, 5.19%; In 2019, 4.67%.
What is the reason for the net profit attributable to the parent company in the first quarter to achieve a year-on-year growth of 1752.55%?! Net profit margin of 7.53%?
That's right: cost reasons.
So, what happened to Great Wall Motors in the first quarter of 2023 and the first quarter of 2024 that led to such a disparity in results?
As far as the automobile manufacturing industry is concerned, the cost accounts for the majority, one is human resources, two marketing expenses, three is R & D expenses, as for other financial expenses or something, they are not particularly worthy of attention in comparison, one is about the same every year, and the other is that the proportion will not be too much.
Let's talk about manpower first, reduce staff and increase efficiency: 82,000 employees in 2023, about 5,000 people less than 87,000 in 2022.
As for the large number of legendary Great Wall employees leaving at the beginning of this year, there is no exact data yet. Anyway, several of the old employees I know have left. In the first quarter of this year, Great Wall Motor's compensation payable to employees was 1.168 billion yuan, compared with 1.239 billion yuan in the same period last year. a year-on-year decrease of 7,100 yuan. Then calculated back and forth, it has decreased by 142 million yuan, which can be regarded as an increase in net profit of 142 million yuan.
Let's talk about marketing expenses: Legend has it that since the beginning of this year, Great Wall Motor's advertising and public relations media service fees have been significantly reduced.
According to public reports, in 2023, Great Wall Motor's sales expenses increased significantly, recording 8.285 billion yuan, of which "advertising and media service fees" accounted for nearly half, reaching 4.045 billion yuan, compared with 3.048 billion yuan in the previous year. In other words, the quarterly "advertising and media service fee" in 2023 will be 1.011 billion yuan.
According to a public relations company, they won a bid from Great Wall Motors last year, and the bid has not been opened from January to March, and the bid was only opened at the end of March and early April, ready to serve. We can guess: is it because someone else's mark has not been opened?
This 1.011 billion yuan per quarter, it is very likely that most of them have not been invested, considering the strength of the big platform, there may be special investment, it is estimated that it is 1-300 million yuan, similar to the case of the Great Wall refusing to put it ten years ago, take the middle to look at the 200 million investment, the first quarter was reduced by 800 million yuan, and the income was increased by 1.6 billion yuan back and forth. The sum of these two items is 1.742 billion yuan.
Let's look at R&D expenses. In the first quarter of 2024, Great Wall Motor's R&D expenses reached 1.960 billion yuan, a year-on-year increase of 426 million yuan. It can be regarded as a decrease in net profit of 426 million yuan, a year-on-year decrease of 852 million yuan.
A 25% increase in sales and investment income and other businesses should make a big difference in creating a profit of 600 million yuan
The addition and subtraction of the three results in a "net profit" of 890 million. If calculated according to last year's net profit margin of 4.05%, the net profit in the first quarter of this year should be 1.736 billion yuan, and the sum of the two is 2.626 billion yuan, which is only 602 million yuan different from the 3.228 billion yuan announced. So where did the 602 million yuan happen?
It should be the increase in sales revenue, as well as other revenues.
In the financial report for the first quarter of 2024, it was mentioned that the investment income was 231.9 million yuan, and the Great Wall did not only generate profits from automobile sales, but also from the 2023 annual report, and it is normal for other businesses to generate hundreds of millions of profits in the first quarter.
In the first quarter of 2024, its sales reached 275,205 units, a significant increase of 25% year-on-year, and the profit of 600 million yuan was almost made up.
As a result, Great Wall Motor's profit in the first quarter of 2024 has increased by 1752.55%.
There are not many senior executives leaving, and ordinary employees are leaving.
The 2023 annual report shows that the total salary cost of the company is 18.176 billion, the total salary is 13.396 billion, and the average salary per capita is 160,000 yuan/year. Considering the rumors of Great Wall Motor's resignation at the beginning of this year, if some of them are senior professional managers, their salaries must be more than 160,000 yuan per year. Then, contrary to the rumors that there are a lot of senior executives leaving, it is not that there are many senior executives, but that ordinary employees are relatively more leaving. 5,000 people decreased by 71 million yuan, or 14,200 per capita.
The net profit attributable to the parent company increased by 1752.55% year-on-year, which does not mean that its operating income increased by 17 times
In fact, the Great Wall's "net profit attributable to the parent company in the first quarter achieved a year-on-year growth of 1752.55%", which does not mean that its operating income has increased by 17 times, it is only because of the reduction of layoffs and resignations, as well as the possible reduction of advertising and marketing expenses in the first quarter, the increase in sales, and investment income, coupled with the low base in the same period last year.
As it stands, the price of the product will not change dramatically in the short term, that is, the profit margin brought by the product itself will not suddenly increase, and there will be no nearly double net profit margin growth (7.53%: 4.05%).
At the end of 2023, the inventory was 117,700 units, and SUV models accounted for 90,800 units
In fact, according to relevant reports on the Internet, in 2023, the company's capacity utilization rate will just exceed 80%, recording 81.02%. In this case, the company's inventory growth rate is significantly faster than the revenue growth rate. The total inventory reached 117,700 units, a year-on-year increase of 38.39%.
It is reported that the main inventory comes from the company's main category SUV models, with inventory reaching 90,800 units, a year-on-year increase of 68.93%. Although I don't know how accurate these data are, how to digest inventory is really a big task for car companies.
And some people believe that this is a sign of the success of the high-end of the Great Wall, because the sales of the other people's tank series increased by 6.8%. It's just that if the main SUV market, which has been focused for many years, loses, is this a good thing?!
Mr. Wei's Internet celebrity fan is getting bigger and bigger, and there are benefits and risks
Mr. Wei personally went live and properly became a big Internet celebrity in the car circle. I guess Wei always has his own ideas. Maybe you become an Internet celebrity, and the annual advertising media cost of 4 billion is only 800 million. I don't know if I guessed right, but it's not easy to be an Internet celebrity, and I finally work hard every day, and if I don't say a word, netizens will turn the sky upside down. Wei Ya, Li Jiaqi or something, didn't she also fall. Therefore, the car is very obedient, and it is not recommended that CEOs and bosses do Internet celebrities to bring goods.
There's not necessarily a wrong thing to do with less advertising, but it's certainly right to listen to your customers
Combined with the previous experience of the Great Wall, the car is very obedient and said: the Great Wall Motors will most likely invest less advertising money in the future. It's also a good idea to focus on product quality and customer complaints.
The car is very obedient and there is a suggestion: that is, listen to the opinions of users, study more market trends, discontinue production or new products according to market demand, and listen to user opinions as much as possible in the name of new cars, after all, car companies mainly serve the entire land of China, and Chinese culture is still more affinity;
In the case of increased competitive pressure, don't blame this and that, but think more about your own business. It's time to change the appearance of the Wei Pai, and it's time for the Ora to come out with a new model. There is also a need to work hard to solve the lightweight aspect, and the kindness of materials and lightweight are not particularly contradictory.
In addition, it is better to have a breakdown of sales expenses, and the clearer the expenses of listed companies, the better. It may also be that my authority is not in place, so I can't find the details of the sales expenses, forgive me. Finance is not an advanced science, but it requires more care and patience, as well as a heart that is not afraid of doubt.
(This article does not constitute investment advice)