Great Wall shares tumble after China’s largest SUV maker posts 80% decline in third-quarter net profit

Higher costs associated with the launch of luxury brand WEY this year hurt company’s result, which came in lower than analysts’ forecasts

PUBLISHED : Friday, 27 October, 2017, 2:05pm
UPDATED : Tuesday, 03 July, 2018, 8:22pm

Great Wall Motor Company, China’s largest SUV maker, reported a more than 3 per cent drop in shares after it reported worse than expected results for the third quarter – an 80 per cent plunge in net profit thanks to higher promotional costs and product discounts.

Shares of the company, listed in Hong Kong and Shanghai, were down 3.2 per cent to HK$10.2, and 1.9 per cent to 12.5 yuan (US$1.8), respectively, during morning trade on Friday. The company announced its results on Thursday.

The company posted 459.7 million yuan in net income for the quarter, compared with 2.3 billion yuan during the same period last year. It also posted a 60 per cent slump in net profit to 2.9 billion yuan for the first nine months in total.

The results missed some analysts’ forecasts, with brokers from Goldman Sachs, SWS and Yuanta Securities cutting their price targets for the stock.

The company’s earnings were “substantially” lower than its “cautious”estimate of 852 million yuan for the period, wrote Zhixuan Lin at Huatai Securities. The analyst added that the company’s luxury SUV brand WEY, which was unveiled in April, had cost the company some profit margins because of advertising around the launch, and that it would “take years” for WEY to contribute substantially to Great Wall’s profits.

The company, founded in 1984 in the northern province of Hebei, sells and manufactures passenger cars and trucks under the brand of Great Wall and SUVs under the brands Haval and WEY. Sales of its vehicles reached more than 100,000 in September, an increase of 39 per cent on August, with the Haval SUV series accounting for the majority, followed by WEY SUVs and pickups.

In contrast, one of the company’s rivals, Guangzhou Automobile Group, a state-owned carmaker, posted 2.8 billion yuan in net profit for the third quarter on Thursday, up 71.6 per cent from 1.6 billion yuan for the same period a year ago. The company’s share price target was lifted by analysts from Morgan Stanley by more than 70 per cent to HK$30 after the strong third-quarter result. Its shares now trade at HK$20.5.

“Great Wall Motor is doing OK as the sales of its SUVs, especially the new brand WEY, have been increasing despite the plunge in net profit,” said Zhang Yu, the managing director at industry research company Automotive Insight. And Guangzhou Auto has even more reasons to remain optimistic, as its strong sales figures could very likely extend to next year, he said.

China is the largest car market in the world and car sales grew steadily in September, with total vehicle sales increasing by 5.7 per cent compared with a year ago to 2.7 million, according to the government-backed China Association of Automobile Manufacturers.