兴业证券-长城汽车-601633-In-depth Analysis: Rebirth Lays Solid Foundation for Future Development-200730

　　长城汽车(601633)
　　Company Profile
　　Great Wall Motor Company Limited is a sport utility vehicle (SUV) manufacturer in the People'sRepublic of China (the PRC). The Company is principally engaged in the design, research anddevelopment, manufacture and sale, as well as distribution of SUVs, sedans, pick-up trucks andautomobile-related parts and components. The Company has three brands, Great Wall, Havel andWEY, and its products include SUVs, sedans and pick-up trucks. The Company also manufactures andsupplies relative automotive parts and components. The Company's vertically integrated parts andcomponents production unit manufactures various products, including engines, transmissions,chassis, electronics, interior and exterior decoration parts and molds. The Company manufacturescars, which include Great Wall C50 and Great Wall C30. The Company's SUVs include Great Wall H6,Great Wall H5-E and Great Wall M4. The Company's pick-up vehicles are Wingle 5, Wingle 6 andWingle 5 Upgrade. (Source: Reuters)
　　Investment Highlights
　　Great Wall Motor Company Limited (the company) has been making breakthroughs, from nationalcraze model H6, to self-designed luxury WEY, from joint-ventured model with BMW to innovativepick-up trucks for passengers.
　　Starting with the technological brand press in 2020, the company will experience an advanced rebirthfrom three dimensions including product technologies (new platform + new engine + new product),management strategies (more close to clients externally and stock incentive scheme internally) andstrategic choices (transformation into technological ride-hailing and globalization), and it will open anew upward cycle with the recovery of passenger vehicles and the lifting of bans on pick-up trucks.
　　The modular platforms realized a breakthrough from “0” to “1”, which helps reshape the company’sbase competitiveness and open the brand-new cycle for new models.
　　The company launched brand-new global intelligent modular technology platforms “Lemon” and“Tank”, which is expected to improve the company’s R&D and production efficiency and reduce costsby improving general utilization rate of parts and components, and the efficient power assembly andlight design are expected to reshape the base competitiveness of products.
　　The second half of the year will see the upgrading of H6, Dog/White Cat/Tank 300 coming into themarket, the company is likely to open the strong cycle of rise in sales volume and profit, with theimprovements in the penetration rate of new platforms in the upcoming 2-3 years.
　　The company’s user-centered management mechanism reform is expected to reshape the company’sbottom values.
　　The company carried out deep reforms of internal management mechanism in a bid to provide bettertravel experience for future users and complete its long-term strategic transformation, with the focusof adjusting organizations, changing cultures and upgrading bottom values based on the users’demand.
　　Forging the company into a platform-based organization of “openness and benefitting others” andimproving its brand and product competitiveness by scientific and technological innovation arebeneficial to improve the company’s operating values and competitiveness from the very bottom.
　　The strategic transformation of the company into a global ride-hailing company backed by science andtechnology and the “manufacture + service” mode may improve its long-term valuation average.
　　The company adjusted its long-term strategy, from a finished automobile manufacturing enterprise toa global technology ride-hailing enterprise. It also launched a technological brand of “coffeeintelligence” to lay a solid foundation for its future intelligent travel services from intelligent driving,intelligent cabins and intelligent electronics and electronic devices.
　　In the meantime, the company’s business model is turning into “manufacture + service”, which isexpected to improve the company’s profitability and its stability in the medium- and long-term, liftingits valuation average.
　　The company’s rebirth will lay a solid foundation for its future development. The new vehicle cycle willcontribute short-term sales resilience, the improvement in the penetration rate of the new platformswill increase the profit resilience, and the management mechanism reforms will help reshape long-termcompetitiveness. We remain our “Outperform” rating for the company.
　　The deepening of the management reforms brought about active changes in the company’s bottomcompetitiveness, which is expected to enhance the company’s competitive edges in vehicle modesand travel services.
　　Earnings forecast and investment recommendation
　　Given the better-than-expected performance in the preliminary financial report and the strong newplatform and new vehicle cycle, we revised up the company’s earnings forecast. Its net profitattributable to shareholders is estimated to be CNY 4.24 billion/ CNY 7.34 billion/ CNY 9.2 billion for2020/2021/2022 versus the previous forecasts of CNY 4.2 billion/ CNY 5.47 billion/ CNY 6.63 billion.Reaffirm “Outperform”.
　　Potential risks
　　macro economy downturn; less-than-expected sales volume of passenger vehicles;less-than-expected sales volume of new vehicles; less-than-expected cost cut of new platforms
　　This English translation of the original Chinese version <逆转重生，夯实未来> issued by IndustrialSecurities on July 27, 2020 is for information purpose only. In case of a discrepancy, the Chineseoriginal will prevail.