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Great Wall expects to maintain high margins

H-share candidate, hoping to raise up to $1.5b, is positive despite the competition

H-share listing candidate Great Wall Automobile Holding is confident it can maintain high margins for its pick-ups and sports utility vehicles (SUVs) despite growing competition from domestic rivals.

The gross profit margin for pick-ups grew to 33.1 per cent in the first half from 28.8 per cent at the end of last year, chairman and controlling shareholder Wei Jianjun said yesterday. For SUVs, the gross margin expanded to 36.1 per cent from 29.6 per cent.

'The profit margin is likely to grow further this year and next because demand for pick-up trucks and SUVs is growing very rapidly as a result of strong economic growth,' Mr Wei said.

Great Wall, based in Hebei province, kicked off a roadshow yesterday for its Hong Kong initial public offering, expected to raise between $1.14 billion and $1.52 billion.

The mainland's No1 maker of pick-ups and SUVs said net profit would jump at least 73.9 per cent to 512 million yuan (HK$475.64 million) this year, according to the company's preliminary listing prospectus.

The company also plans to distribute 30 per cent of profit as dividends in the future - in line with counterparts such as Denway Motors and AviChina Industry & Technology.

But Great Wall said it would not recommend a dividend for this year.

Great Wall general manager Wang Fengying said sale volumes for pick-ups had grown at a compounded average rate of 33.6 per cent over the past three years, while for the figure for SUVs was 58 per cent. 'Demand for SUVs is growing even faster; they are particularly popular with middle-class [consumers] in affluent coastal cities,' Ms Wang said.

But analysts noted Great Wall faced stiff competition in the low-end segment for pick-ups.

They said SUVs had performed better because the models were relatively new to the market.

'The question of Great Wall's [future] prospects is how to maintain its competitive edge,' KGI Securities analyst Samuel Chua said.

Mr Wei said his company's primary niche was its fully integrated production line, ranging from engines, car bodies, axles, frames and air-conditioners.

Greal Wall also has its own distribution network and maintenance centres in the mainland.

To boost capacity, the company plans to build a production facility, costing 880 million yuan, in Baoding to manufacture car components.

Great Wall will offer 114 million new shares at between $10.05 and $13.40 each.

The shares are scheduled to begin trading on the main board on December 15.

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